As 2023 winds down, there’s a sense that things might not be as dire as we feared. Like its predecessor, this year was marked by ongoing uncertainties. Geopolitical tensions, including the wars in Ukraine and Gaza, and the US-China rivalry, complicated economic and policy decisions.
Climate politics posed challenges to energy security, while rising protectionism cast a shadow over global trade. The battle against persistent inflation led central banks to make borrowing costlier, resulting in more cautious investors.
The mood shifted dramatically just before Christmas when Jay Powell, akin to Santa Claus, hinted during a Washington press conference that the US Federal Reserve might cut interest rates three times in 2024. This news sparked a global stock market rally. In India, the Sensex surged past 70,000 in response to the Fed’s unexpected dovish stance.
The global economy seems poised for a soft landing rather than a harsh one. US economic growth is more resilient than anticipated, and inflation is not as severe as previously feared. Powell, once criticized, is now delivering positive news worldwide. Lower borrowing costs in the US are expected to benefit global investments, with India likely being a prime beneficiary. There’s also speculation that European central banks may soon report a faster-than-expected drop in inflation. Yes, it looks like the world is set to dodge a recession.
At last, Ukraine war shows signs of nearing an end, which would be a boon for reconstruction efforts. Washington’s aid for Ukraine’s counter-offensive against Russia is looking increasingly wobbly, with the Congress failing to approve a $60 billion package for Kyiv. One commentator called US President Joe Biden’s commitment to Ukraine whittling down “from as long as it takes” to “as long as we can”. EU support is also waning, indicating that a ceasefire might be the only remaining option.
This development could be beneficial for the weary global economy, and seems to align with Putin’s strategy of endurance. The impact of sanctions on Russia was less damaging than the West anticipated, diminishing the US’s perceived global leadership.
Entering a campaign year with low approval ratings, President Biden’s position adds to the uncertainties of 2024. On a positive note, the stagnation in US-China relations seems to have halted with recent dialogues. There are no visible signs of relations improving, though, which remains a risk for 2024.
But again, China’s central bank has plans of stimulating its slowing economy, making for another positive.
The best piece of good news is that global crude oil has been trending lower. Having dropped to less than $75 a barrel, oil prices are expected to remain soft. US production and supplies are at record levels on the one hand. On the other, the voluntary supply cuts the Organization of Petroleum Exporting Countries and its allies including Russia (Opec+) announced in response to weakening demand, especially from China, are unlikely to be implemented with much enthusiasm and, therefore, won’t reduce supplies much.
In India, optimism was already rising before Powell’s announcement. The government reported strong GDP growth, and the risk of populist spending seems reduced, thanks to the ruling party’s recent electoral successes, unlike in 2018, when it had responded to electoral losses by starting cash payments scheme for farmers, PM-KISAN, without reforming or replacing food and fertiliser subsidies. Lower crude prices could be particularly beneficial for India’s economy, as Mint SnapView wrote earlier.
Despite this optimism, some commentators have forecast a challenging 2024. While their cautionary advice is worth considering, the outlook for 2024 appears promising, potentially surpassing the previous two years.
