Despite all the talk of recession risks, the global economy refuses to roll over. We now think the Euro area will (just) avoid a recession and the U.S. recession will be delayed. We reiterate our call for a sharp rebound in China. The outlook is more about persistent weakness than recession. We expect a sub-par recovery to just 3% growth in 2024. We have raised global GDP (Gross Domestic Product) growth for this year to 2.5% from a low of 2.2% in early December. That is above the normal 2% recession threshold but below trend growth of 3.3% or so. We are not alone in raising our numbers. The IMF (International Monetary Fund) just updated its forecast from October, raising growth for this year from 2.7% to 2.9%. The IMF seems relatively optimistic about the U.S. and Europe: both survive a major inflation shock without suffering a recession.
Four sources of support
In our view, four factors underpin the (somewhat) better outlook: improvements in the supply-side of the global economy, warm weather, a relatively mild market response to aggressive central bank rate hikes and a lack of major new shocks.
Fading supply constraints
The service side of the global economy has been opening up for some time and more recently has been joined by improving supply chains. The latter has helped bring down goods price inflation and has helped support real spending on goods. Most important, the auto sector is getting back on its feet and is supplying a good deal of pent-up demand.