Global Recession Looming Or Fading In 2024?

Since economics is not a perfect science due to the human factor involved, predicting or denying a global recession becomes quite challenging

Recession is a period of low growth that can occur due to various reasons. In technical terms, a recession occurs when GDP output is negative for two consecutive quarters. A recession is often characterized by high inflation, increasing unemployment and a significant reduction in consumer spending.

While we are currently not in a global recession, geopolitical conflicts have presented some worrying developments. Let us analyze the current global economic situation to understand if a global recession is looming or fading in 2024.

Effects of the Covid pandemic – Even though some effects of the pandemic still linger, most major economies have managed to make an almost full recovery. Much of the supply chain issues have been resolved, resulting in continuous factory activity. However, some sectors like travel and tourism may need some more time to reach pre-pandemic levels. Since major economies like the US, Europe, China and India have achieved pre-pandemic GDP levels, the lingering effects of the pandemic may not influence a recession in 2024.

Global inflation – One of the major negative outcomes of the pandemic was high inflation. This has prompted many experts to predict a potential global recession. But, central banks across the globe did a good job by keeping interest rates high. This helped control the high inflation, which in turn helped stabilize prices. The work done by central banks in controlling inflation is commendable. It has helped the global economy to stay away from recession in 2024.

Uneven growth – Over the last few years, the GDP growth has been uneven across the globe. In 2024, the global economic growth is expected to grow at 2.6%. This is the third consecutive year when global growth will be below pre-pandemic levels. If we consider the period from 2015 to 2019, global economic growth was 3.2% on average. Some of the economies that have been struggling include Africa and South America. China’s growth has slowed, even though it continues to have a strong manufacturing presence. India is expected to be the fastest growing major economy in 2024.

Geopolitical uncertainties – The world is going through turbulent times. There are multiple conflicts ongoing such as in Eastern Europe and the Middle East. The situation may be under control right now. But there is a possibility of escalation. If more countries get involved and the situation worsens, global trade can be significantly impacted.

A major war in the Middle East can impact energy supplies coming via the Suez Canal. It can lead to spiraling crude oil prices, resulting in high inflation. A study done by J.P. Morgan Research predicts that the probability of global recession in 2024 has increased to 35% from the earlier estimate of 25%. This is primarily due to the risk of geopolitical tensions.

Strengthening US economy – A major positive development is that the US economy is showing strong signs of recovery. Unemployment rate dropped to 4.1% in September 2024. GDP growth in the United States in the second quarter of 2024 was 3%. According to the U.S. Bureau of Economic Analysis, the country’s economic growth prospects have started improving. The United States is the biggest consumer in the world. The benefits of a strong US economy will flow down to other economies as well.

Based on the above factors, it can be said that a global recession is unlikely in 2024. However, things could change dramatically if there is any major escalation in geopolitical conflicts. Excluding that, there does not seem to be any other reason that may trigger a global recession in 2024.

Check Also

Best Ways To Diversify Your Investment

Your investment portfolio should have an optimal balance of liquid assets and those that can …