Economic Outlook 2024: Predictions from Top Economists

Economic Forecasting, Economic Trends 2024, Top Economists

The US economy isn’t as strong at the start of 2024 due to high inflation and rising interest rates. These factors are dampening the economy. Experts don’t think there will be a recession this year. But, they say consumer spending growth will slow down. They also predict the overall GDP growth will be less than 1% from the second to the third quarter.

In 2025, things are expected to get a bit better. They predict inflation will meet the Fed’s goal of 2%. The GDP growth might increase to nearly 2% annually. This good news is tempered by the prediction that interest rates will remain high even if they start to fall by late 2024.

The US had a big boost in its economy in 2023. This boost is likely to turn into a small problem in 2024, as the federal deficit decreases. Concerns about trade tensions with China, the Russia-Ukraine war, and the 2024 US election are still there. These concerns could affect our economic outlook.

Key Takeaways

  • The US economy is expected to see slower GDP growth, with projections of under 1% in Q2 and Q3 of 2024.
  • Inflation is forecasted to gradually return to the Fed’s 2% target by 2025.
  • Interest rates are expected to start declining in late 2024 but may remain elevated compared to pre-pandemic levels.
  • Geopolitical risks, such as trade tensions and the Russia-Ukraine conflict, will continue to be a concern in 2024.
  • The federal deficit is predicted to narrow in 2024, potentially acting as a slight headwind for the economy.

US Economic Growth: Slow but Steady

The US economy is heading for a steady, slow growth in 2024. Last year did better than expected, with a 2.8% increase in real GDP. For this year, growth is expected to step down to 0.7%.

This slight slow down is known as a “soft landing.” It’s because high inflation and interest rates are dampening some economic areas.

Projected Real GDP Growth for 2024

Even though 2024 might see slower economic momentum, a recession is not likely. The economy is predicted to pick up speed gradually, aiming for about 2% growth each quarter.

Consumer Spending Outlook

Consumer spending will grow less quickly in 2024. This change is mainly due to lower extra savings and wage growth. As well as less pent-up demand.

Factors Influencing Economic Expansion

In 2024, the economy will be shaped by several key factors. Business investments and the housing market might see a boost, even as interest rates rise. Unfortunately, government spending could slow the economy down a bit this year.

Federal Reserve’s Monetary Policy Stance

The economy is in a tricky place with growth easing. All eyes are watching what the Federal Reserve will do next. They plan to slowly raise the rates starting in 2024, probably in June. These steps will aim to set the Fed Funds rate between 4.00% and 4.25% by 2024’s end. They want to make sure inflation is moving towards its 2% target.

Projected Fed Funds Rate Path

Based on how the market sees things, there might only be one rate cut in 2024. The Fed looks to find a balance between fighting inflation and helping the economy. Because of this, bond yields went up, showing expectations for policy changes soon.

Quantitative Tightening Impact

At the same time, the Fed’s quantitative tightening might pull back $95 billion a month through 2024. This is about $1 trillion less in the economy next year. It’s part of their plan to lessen inflation’s heat.

Many expect the slowing of balance sheet reduction to start in June. Rates for overnight agreements were firm at the quarter’s end. Even with the pullback, the demand for the facility remained strong.

The committee decided to keep the currency deals with Canada and Mexico. This shows how important it is for the Fed to keep the financial system stable and help the economy.

Inflation Trends and Projections

In 2022, inflation hit its highest point in 40 years, both in headline and core numbers. But, it has since gone down a lot in 2023. Still, it will likely stay above the 2% target set by the Federal Reserve through 2024. This inflation trends shift has been mostly due to a big drop in the cost of core goods. For instance, in February 2022, the price peaked at 12.4%, but by October 2023, it was 0%. However, the cost of core services, which includes housing, hasn’t gone down as quickly. It fell from 7.3% in February 2023 to 5.5% in October 2023.

Core PCE Inflation Forecast

Shelter costs are expected to be lower in 2024 as rent prices catch up. This will help slow down the overall rise in core PCE prices to 2.4% for the year. This is lower than the 3.4% increase seen in 2023. The trend of goods vs. services inflation has a big impact on general inflation rates.

inflation trends

Goods vs. Services Inflation Dynamics

The difference between how the costs of goods and services change has been key. While the cost of core goods has gone down, core services remain high. This shows some parts of the economy have stable high prices. Experts expect this split in price trends to continue. The core PCE inflation forecast points to slowly normalizing price increases in the next year.

Labor Market Conditions in 2024

In 2024, the economy is set for a smoother path. Jobs are still being created but not as quickly. Unemployment rates are slowly going up. People are leaving their jobs less. Also, companies are hiring less temporary workers. This shows the job market is getting back to a more normal state.

Unemployment Rate Projections

More people are joining the job market, and more are coming from other countries too. But, there’s less need to work longer hours. This shows that companies don’t need as many new workers. Even so, the unemployment rate could rise to the mid-4% range by 2024’s end. This is because some workers keep changing jobs.

Wage Growth Expectations

With jobs not growing as fast, wage growth expectations are also slowing down. More people looking for jobs and not as many jobs available mean companies have more power. They can offer lower salaries. This will likely slow down how much wages go up.

Housing Market Outlook

The US housing market has slowed down greatly in recent times. Around 30% to 40% less activity has been seen over the last 18 months. Why is this? It’s mainly because mortgage rates have gone up. Such a situation makes buying a home harder than it has been in 40 years.

Currently, 75% of all mortgages have an interest rate of 4% or lower. This low rate should encourage people to buy houses. However, it seems that this hasn’t been the case. Real residential investment has dropped by 12% over the past six quarters.

Residential Investment Trends

Despite these hurdles, the housing market might get better by 2024. If we look at 2023, we saw that home values went up by 6%. This is because there are not many houses up for sale right now. Also, many houses from earlier are still not vacant.

Housing Affordability Challenges

Buying a home has become harder because of high mortgage rates and pricey homes. In March 2024, the median home-sale price hit $393,500. This was 4.8% more than the year before. We also saw that in March 2024, the housing inventory was low, only lasting 3.2 months. This low supply of houses makes it a seller’s market.

Experts predict that house sales will go up by 13% in 2024. But, with the current challenges, this growth might be hard to achieve. This is a big problem for those looking to buy a home.

residential investment trends

Global Supply Chain Developments

In 2024, the global economy is adjusting to big changes. Luckily, supply chain issues are mostly over, with fewer inventory problems and lower shipping costs. Still, fixing supply chains around the world will take time. This is because making even small changes can be hard and expensive for companies.

Easing of Supply Chain Bottlenecks

Companies have been slowly getting better at handling their logistics and making their production better. This has made it easier for products to move around and has lowered shipping prices. Although the worst of the supply chain problems seem to be over, work to make them better is still ongoing.

Restructuring and Reshoring Initiatives

In 2022, some laws were passed to help industries like making computer chips and clean energy come back to the US. This brought more money into building advanced factories at home. Companies are doing this to rely less on faraway supplies and to bring production closer. While these changes are happening slowly, they show a move towards stronger, local supply chains in the future.

Commercial Real Estate Sector Challenges

The commercial real estate sector faces mounting pressures. This comes from an environment of high interest rates. Also, small and regional banks are facing their own problems.

This leads to stricter lending rules and slower growth. This is most felt in the commercial real estate sector. Small and regional banks have a lot invested here.

Lending Standards and Debt Maturities

Over the next year, about $550 billion in commercial real estate debt is due. This could lead to losses for lenders and investors. Yet, it is not expected to be a big, system-wide problem.

This problem becomes bigger due to high interest rates and tougher lending rules. Borrowers find it harder to refinance their loans. This increases the risk of defaults and losses for investors.

Potential Investor Losses

With loans harder to get and many debts due soon, the future is tough for investors. Caution among lenders means getting funds is harder.

This could lead to lower property values and more distressed sales. A big crisis is not likely. But, some investors and lenders could face losses in 2024.

commercial real estate challenges

Geopolitical Risks and Trade Tensions

Elevated trade tensions with China, the Russia-Ukraine war, and Middle East conflict means we face ongoing geopolitical risks in 2024. For the U.S., the main concern is a supply shock. This could happen if key commodity supplies, like energy or food, suddenly drop. It might lead to major market problems.

Impacts on Global Trade and Commodity Supplies

Geopolitical tensions and conflicts can cause problems in global trade and commodity supplies. Take the Red Sea’s recent events involving Houthi militants and commercial ships. They’ve made shipping prices go up by 60%, affecting trade worldwide. Also, western nations have frozen about $300 billion of Russia’s assets due to the Ukraine invasion. They’re thinking of using these funds to help rebuild Ukraine.

US Presidential Election Implications

Next year’s US presidential election might influence geopolitics more than before. It’s happening during very high tensions. The contest, between Donald Trump and Joe Biden, is predicted to be close. Depending on who wins, U.S. foreign policies and trade partnerships could change.

Fiscal Policy and Government Spending

The fiscal policy world is changing. Now, we’re focusing on the federal deficit and what the government spends money on. In fiscal 2023, the deficit grew to $1.84 trillion, hitting 7.4% of GDP. This was up from $950 billion in 2022. For 2024, we expect the federal deficit to shrink a bit to 5.9% of GDP. This change shows that the government is trying to spend less, but it’s also paying more in interest on the money it owes.

Federal Deficit Projections

For the fiscal year 2024, the deficit is forecasted to hit $1.6 trillion. By 2034, this number could jump to $2.6 trillion. As a share of the whole economy, the deficit should be around 5.6% in 2024. Then, in 2025, it’s likely to go up to 6.1% before dropping to 5.2% in 2027. But, by 2034, it’s expected to rebound to 6.1%. At the same time, the debt we owe is set to rise from 99% of the GDP in 2024 to 116% by 2034.

Spending Priorities and Belt-Tightening Measures

In 2024, the government will spend about 23.1% of the country’s wealth. By 2034, this could be up to 24.1%. On the flip side, the money the government brings in is forecasted to go from 17.5% to 17.9% of GDP by 2027. In 2024, the deficit was $0.1 trillion lower than we thought it would be in May 2023. This was because the government spent less on certain things. But, if the government doesn’t change its spending plans, our debt will keep getting bigger.

Emerging Markets and Developing Economies

The global economy is slowing down a bit but focus is shifting to emerging markets. In May, China and Russia’s growth outlook got better, raising global GDP growth for 2024 to 2.7%. However, things like tightening money and geopolitical issues might keep growth from hitting past highs.

China’s Economic Outlook

China’s economy is set to grow by about 5% in 2024. The country expects core inflation of 1% and headline inflation at 0.8%. This is slower than before but still strong compared to the world’s slowdown. Chinese leaders are working to balance growth support and stable prices.

Growth Prospects in Latin America and Asia

In Latin America, Brazil lowered its key rate to 10.5% in May to boost growth. But Mexico saw a 3% drop in remittances in March. In Asia, India’s infrastructure grew 5.2% in March, yet Thailand’s inflation rose 0.2% in April. These differences show the varied economies in these regions.

Even with global challenges, emerging markets are expected to help boost the world’s economy in 2024. Leaders in these areas must handle issues like tighter finances, trade tensions, and geopolitical risks. Their goal is to keep growth going strong and support development.

Investment Strategies for 2024

In 2024, the economic world is moving to a gentle stop. This means investors need to change how they invest to keep up. It’s vital to spread out money into areas and things that do well when growth is slow.

Investors must also watch out for rising prices and world events. These could still shake things up in the market. Keeping an eye on these trends will be smart.

Finding the right balance in investment strategies for 2024 is a must. Using what they know and keeping up with changes lets investors plan better. This not only looks at short-term gains but also at long-term wins.

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