In 2024, the global economy shows signs of resilience despite shifting political landscapes and challenges. Elections and political changes across the world are influencing economic activities, but certain trends remain clear.
The US Economy: An Unlikely Growth in High Interest Rates
The US economy continues to show impressive statistics, with a GDP growth rate of 2.8% in 2023 and 2.9% in 2024. However, this growth occurs despite high interest rates, which is a puzzling situation. One explanation could be the excess savings people accumulated during the pandemic, which they are now leveraging for investments, particularly in real estate, despite the high interest environment. Moreover, the inflow of illegal migrants and the wealth effect from stock market gains may also be contributing factors.
US corporate profits are at their highest in North America, according to JPMorgan’s economic research. Adjusted corporate profits have reached 7.7%, the highest in 70 years. This increase is largely attributed to inflation, which has allowed corporations to raise prices without pushing consumers away. Companies can now sell goods at higher prices, benefiting from a change in consumer behaviour, which aligns with behavioural economics. However, the gains are not distributed equally, as larger firms capture a disproportionate share of profits. Over the past decade, the top 10 stocks in the S&P 500 have gone from representing 18% to 36% of the index, with companies like Nvidia, Microsoft, and Apple comprising a significant portion of this. This concentration of wealth and profits leads to widening income inequality, both between entrepreneurs and labourers, and between large and small companies.
Despite strong GDP growth and corporate profits, many Americans feel the negative impacts of rising inequality, with massive layoffs in industries like Wall Street, Silicon Valley, and Hollywood serving as severe reminders of these disparities.
Monetary Policy and Federal Reserve’s Role
US monetary policy, under Federal Reserve Chairman Jerome Powell, continues to be a key determinant of global economic health. With inflation now under control, Powell is primarily focused on managing unemployment. As of November 2024, the US unemployment rate stands at 4.2%. The Fed is expected to cut interest rates gradually, though these cuts won’t return to pre-pandemic levels. The shift from near-zero interest rates to 5.5% during the pandemic was a sudden and drastic change, but the impact is still being felt.
Trump’s Policies and Potential Economic Impact
When former President Trump returns to power, his economic policies—tax cuts, deregulation, trade protectionism, and tightened immigration—could cause short-term growth in sectors like energy and finance. However, these policies are also inflationary, which could link to price hikes. The market’s expectation of Trump’s policies has already influenced the price of Bitcoin, which has surged from $70,000 to $100,000 since his win. In the long term, Trump’s policies may also create market uncertainty due to trade and immigration tensions.
Potential Risks in the US Economy
Despite these factors, the US faces significant challenges, including a growing national debt, which reached $36.14 trillion by December 2024. The IMF predicts a slowdown in US GDP growth to 2.2% in 2025, down from 2.5% in 2023. However, the commercial real estate crisis, which had been a major concern, has begun to ease due to interest rate cuts.
Japan’s Economic Recovery: A Gradual Shift
Japan’s economy, which has struggled with deflation and low growth for years, shows signs of stabilisation in 2024. The country’s corporate profits and stock markets are growing at a steady pace, and for the first time in years, inflation has returned. However, Japan’s recovery is still heavily reliant on the policies of its central bank, which has kept interest rates below zero for years. In 2024, Japan is raising interest rates for the first time in years, partly due to rising wages resulting from the annual “Shunto” wage negotiations. These changes signal a shift towards a more self-sustaining growth model for Japan.
Europe’s Struggles: Germany’s Economic Hinder
Europe’s economic growth is the weakest globally, with Germany, traditionally the strongest economy in the region, facing a contraction. Germany’s GDP shrank by 0.1% in 2024, marking another year of stagnation. This is largely due to the energy crisis and fiscal conservatism, which limits the government’s ability to increase spending. Germany’s population decline and aging workforce present further challenges. Despite these difficulties, there are signs that Germany may increase national debt in 2025 to stimulate growth.
China’s Economic Shifts: Growth in Structural Challenges
China’s economy is projected to grow by 5% in 2024, with exports playing a significant role in this expansion. The country is benefiting from a global inventory restocking cycle. However, domestic consumption remains weak, with prices falling due to lack of confidence in the economy. The government is focused on stimulating consumption through fiscal measures, such as reducing mortgage rates and issuing special government bonds. However, the scale of these policies may not be enough to drive a significant rebound.
India’s Growth: Strong Performance in Inflation Risks
India’s economy continues to perform well, with a projected GDP growth rate of 7.0% in 2024. The country is benefiting from strong domestic demand driven by government infrastructure investment. However, inflation risks are rising, particularly in the fourth quarter of 2024, posing a threat to economic stability.
Russia’s Resilience: Strong Energy Prices and Sanctions
Despite facing comprehensive sanctions, Russia’s economy remains resilient, with a GDP growth rate of 3.6% in both 2023 and 2024. Strong energy prices and government stimulus have supported this performance. However, inflation is beginning to rise, and the Russian central bank has been forced to increase interest rates to 21%, creating uncertainty for the future.
Conclusion
The global economy in 2024 is a mix of resilience and challenges. While some countries like the US and China show signs of growth, others like Germany and Japan face structural issues that obstruct recovery. As inflation risks rise in various regions, governments will need to navigate these challenges carefully to maintain stability and foster sustainable growth.