Global economy – at a middle ground between robust growth, full-blown economic contraction?

Where is the global economy now- at a middle ground between robust growth and full-blown economic contraction?Views are widely-held that the global economy is set for a soft economic landing in the first half of 2024, followed by a sluggish pick-up in growth.But should we be more concerned about a bumpier landing, or will growth be more resilient than we assume?To gain a clearer picture of where the risks lie, Ben May, director of Global Macro Research at Oxford Economics suggests that it is essential to understand the forces that are expected to trigger the global GDP growth slowdown in 2024 – growth is expected to ease from 2.7% to 2.3% – and the likelihood that these downward forces will materialise.Overall, May says there is a relatively high conviction that the boost to the US from excess savings will diminish and households in other economies will choose not to go on a savings-driven spending spree.The impact of past policy tightening on the real economy will continue to dampen growth, fiscal policy will restrain growth in most advanced economies this year and China stimulus is likely to be used to manage the underlying structural growth slowdown rather than deliver sustained strong growth that would generate significant positive effects for the rest of the world.The speed at which these downward forces will build is uncertain. Given the resilience of the world economy in 2023 and the uncertainty over the timings of when these downside forces will come into play, the near-term risks to growth over the next six months may lie to the upside.Oxford Economics recently revised up its global growth forecast for 2024 to 2.3% from 2.1%, reflecting a likely better growth performance around the turn of this year.The speed and timing of monetary policy loosening will clearly remain a hot topic in 2024, but the path for policy next year is unlikely to have a major direct impact on 2024 growth prospects, given that monetary policy acts with long and variable lags.Fiscal policy could plausibly lift growth if the slew of national elections over the next year or so prompt some governments to unveil some pre-election giveaways in the earlier stages of this year.Spending options for many European and Asian governments are curtailed at least to some degree by fiscal rules. Even if these rules can be flouted, concerns about a bond sell off akin to that seen in the UK in late 2022 could temper the appetite of governments to announce bold stimulus measures.Accordingly, unanticipated global fiscal loosening is likely to be limited, uncoordinated across economies, and largely outweighed by planned tightening in 2024, limiting the upside risks to global growth.On balance, although there is scope for upside surprises, a strong and sustained acceleration in growth from early 2024 would be needed to beat the consensus by a significant margin. This is difficult to envisage.While a turbulence or soft landing is generally preferable to a sharp economic downturn, it still poses significant challenges that require careful policy management and attention to various economic and social factors.