GR Exclusive: Worst Is Over For World Economy, India To Fuel Global Growth in 2024

The global economy is on track to grow modestly and it hopefully will see some magic in 2024, according to top economists in the world who also said that India will drive world growth in the upcoming year amid cooling inflation and robust job market across countries.

That optimism is also fuelled by the fact that the global economy didnt face a severe downturn this year despite cross country war, some supply chain constrains, relatively higher inflation and soaring energy prices in most developed countries. Also, India remains the fastest growing economy in 2023 despite those challenges.

Goldman Sachs Research expects the global economy to outperform expectations in 2024 - just as it did in 2023.

"That outlook is based on prediction for strong income growth, expectation that rate hikes have already delivered biggest hits to GDP growth, and the view that manufacturing will recover," said Goldman Sachs Research Chief Economist Jan Hatzius.

"Central banks, meanwhile, will have room to reduce interest rates if they're concerned about the economy slowing. This is an important insurance policy against a recession."

That outlook is in-line with the International Monetary Fund's global growth view for this year which cited the "remarkable strength" of the US economy counterpoised anemic forecasts for China and the euro area. The IMF had raised India's economic growth forecast to 6.3 percent from 6.1 percent in October for the current fiscal year citing strong consumption.

While India is expected to boost global growth next year, most other economies are expected to slow down and major central banks including the Reserve Bank of India are predicted to start cutting rates.

"With inflation cooling, central banks around the world face a Goldilocks dilemma: If they are too easy with monetary policy, inflation could come roaring back; but if they keep policy too tight, it could trigger a recession," wrote Morgan Stanley economists in a research note.

"As central bankers try to maneuver a "soft landing," Morgan Stanley economists expect their efforts will come with a tradeoff: lackluster growth in 2024 and 2025, especially in developed markets."

The US Federal Reserve, the Bank of England, the European Central Bank have hinted at possible easing of policy next year economy. Falling inflation would support the case of rate cuts in these economies. The focus is not on the Bank of Japan which is anticipated to move away from its ultra-easy monetary policies.

Recession In 2024? May Be Not

Many big economies should be able to avoid a recession as inflation cools off and labour market remains strong but a slowdown is expected in more or less most major economies.

Also, central banks have enough room to cut rates next year if there is a massive slowdown and consumption declines.

"There is hope, though. More disinflation and the loss of economic momentum will give many central banks enough room to start cutting rates next year. It might not be the typical panicky large cuts but a rather more gradual release of the monetary brakes. This turnaround in monetary policy by the summer should point to lights at the end of the tunnel, improving the outlook and our mood in the second half of the year," said Carsten Brzeski, global head of macro at ING.

There is a risk that inflation overshoots central bank's targets again next year possibly by a rise in oil prices or an escalation of Israel/Hamas war but chances of that happening is dim at present. A resilient labour market and lower interest rates will hopefully balance out slower economic growth.

China, the second largest economy in the world, should be able to experience some kind of recovery on the back of improving consumer confidence and avert property crisis it has been facing this year. Anyway, emerging markets have outpaced developed markets this year so far and it is expected to be the trend next year too with India clearly standing out with over 6 percent growth. With similar or greater growth pattern India will boost the world economy next year averting a global recession.

"Recession risks seem to have dissipated given economies' resilience so far. There was no crisis in the financial system as interest rates rose and, now that bond yields are falling, that threat has diminished. We still think that a lot of the drag from tighter monetary policy is yet to come and that the associated economic weakness is understated by consensus forecasts," wrote economists at Capital Economics.

"We anticipate a period of very slow growth in the US and mild recessions across Europe. But this cycle has been unusual on both the demand and supply side given the distortions caused by the pandemic, so there is particular uncertainty over the timing and severity of any downturn."