Global Outlook 2024

Throughout 2023, the global economy has demonstrated greater resilience than expected, despite significant monetary tightening and persistent global political uncertainty. 

While economic growth has generally exceeded expectations, this apparent robustness hides short-term risks and structural vulnerabilities. Against a backdrop of high debt levels, rising financing costs, low levels of investment, weak global trade and growing geopolitical risks, the outlook indicates that the global economy will grow at a below-average pace in 2024 and 2025.

Forecasts indicate a slowdown in global growth from an estimated 2.7% in 2023 to 2.4% in 2024. 

While there is a moderate improvement with growth expected to be 2.7% in 2025, this will remain below the rate of pre-pandemic growth of 3.0%. 

Significant inflation risks persist, putting pressure on central banks to maintain restrictive monetary policies. Several macroeconomic and geopolitical risks are shaping the growth outlook for 2024. Despite forecasts of a further decline in global inflation, energy and food prices could rise due to escalating conflicts and the growing threat of extreme climate events. Despite a notable reduction in inflation in 2023, core inflation rates, excluding food and energy, remained above central bank targets in many developed and developing economies. Despite this, major central banks are announcing their intention to maintain high interest rates for an extended period. This decision represents a challenge for a global economy burdened by debt and in need of greater investments to stimulate growth and address climate challenges and the SDGs. Higher interest rates for a longer period could negatively impact aggregate demand, increasing default rates and potentially causing a correction in asset prices, especially in developed economies.

Significant monetary tightening took place during 2022 and 2023, international financial conditions remained moderately benign amid rising equity prices and low volatility, at the same time, long-term borrowing costs continued to increase for most of the year, reaching the highest level in over a decade in the United States and Europe, amid higher central bank policy rates, quantitative tightening, and the large borrowing needs of Governments. In contrast, bond yields remained low in China, where the central bank further eased its monetary stance to support credit growth. The possibility of renewed inflationary pressures and further monetary tightening in the United States and Europe could trigger a sharp repricing of risks and sudden spikes in financial volatility. 

During 2024, the implementation of fiscal consolidation plans is expected to gain momentum, as governments gradually roll back energy and surge support measures, bringing a significant reduction in the primary fiscal deficit.

For the next year, the fiscal policy account will be oriented primarily towards strengthening production capacities, wage increases in the public sector and measures aimed at mitigating the increase in living costs.

The global employment recovery since the pandemic has occurred more quickly than the recovery from the 2008 global financial crisis. In several countries, unemployment rates have fallen below pre-pandemic levels in 2023. However, it should be noted that the labor market recovery has shown significant disparity between developed and developing countries, while lower real incomes have remained a challenge globally, as nominal wage growth has often not followed the deflating step. In 2024, slowing economic growth is expected to impact employment prospects in several regions.

The lowering of the unemployment rate and the increase in employment rates have been accompanied by a persistent, albeit moderate, labor shortage. In most countries, inactivity rates in 2023 were lower than pre-pandemic levels. This increase in employment partly reflects improving working conditions, as companies have responded to employee concerns to address challenges related to labor shortages.

Despite slower economic growth, labor markets in Europe have remained robust, evidenced by high levels of employment and low unemployment. In various developed economies, labor shortages have led to an increase in nominal wages, with particularly strong growth at the low end of the skill distribution. In the United States, post-pandemic labor market rigidity has strengthened workers’ bargaining power, especially in high-contact sectors, leading to rapid relative wage growth among low-wage workers.

While labor markets in developed countries have shown some resilience so far, the possibility of a cyclical recession linked to the lagged effect of monetary policy tightening represents a risk for 2024, because tighter credit conditions are likely to have a negative impact on employment in various sectors.

In the following paragraphs, I have attempted to summarize my research on what industries will be the most profitable based on financial reports released by major banks and financial institutions. Below, you can see the outcome of said research, split up between industries. 

2024 is expected to be a year of slower growth due to recent rate hikes, even though the growth data seems to be resilient recently, it is a fact that the effects are lagging.Industries that deliver earnings growth during periods of slowing global growth are attractive investment options. Historically, companies with higher returns of capital, strong balance sheets, and reliable earnings tend to outperform during periods of economic slowdown or even recession.

Healthcare: Healthcare was one of the most common industries in the Bank’s investment outlooks that is expected to outperform. What are the reasons?

1. Aging Population: The global population is aging, The United Nations World Population Prospects cited that the global population aged 65 and over will nearly double from 761 million in 2021 to 1.5 billion by 2050. This is leading to increased demand for healthcare services as people live longer with chronic conditions.

1. Rising Trend of chronic diseases: Chronic diseases like diabetes, heart disease, and cancer are increasing, further fueling healthcare demand. For example, weight-loss drugs were one of the most popular topics of 2023, and the sales of these drugs are expected to grow by double digits in 2024.
2. AI development: Healthcare is one of the many sectors that is expected to be affected positively by the implications of AI. Let’s look at how AI is impacting the Healthcare industry. Firstly, AI can analyze complex medical data like scans and images with greater speed, leading to earlier and more precise diagnoses. AI can accelerate drug discovery by analyzing big datasets to identify potential candidates, reducing time and costs. It helps in predicting drug interactions and optimizing clinical trial designs which leads to more efficient processes. The increased efficiency will likely make drug development faster, potentially lowering expenses and increasing the profitability in the healthcare industry.

Overall, the first and second points explain the reasons for increasing demand, while the third point explains how this demand will further improve the entire industry’s profitability. Another factor that makes healthcare investment attractive is the inelasticity of demand for the Healthcare industry. This means that even if consumer spending decreases, the demand for healthcare services will be relatively less affected, making it a valuable consideration in an environment of expected slower economic growth.

Artificial Intelligence: In 2024, the technology sector is expected to continue to release many new technologies that will lift productivity and the return on invested capital. Based on Bloomberg Intelligence Data, global AI demand is estimated to grow from USD 28 billion to USD 300 billion in 2027 which gives a 61% compound annual growth rate. I want to point out some reasons and explain which segments of Artificial Intelligence are expected to grow the most.

1. Accelerating digitalization: Businesses and organizations are increasingly adopting AI solutions since they help them automate tasks, increase efficiency, and decrease costs driving further profitability of the companies. Deloitte predicts that 80% of enterprises will be using some form of AI by 2024.
2. Government Investments: Many governments are investing heavily in AI Research and Development. Also, the support from Government grants, contracts, and tax breaks provides easier-to-reach financial resources for the AI industry. Among many other examples, the USA allocated $100 billion, the European Union €20 billion, Canada C$125 million, and the list goes on including strategic planning projects from countries as well.

With a projected market size of $305.8 billion by 2024, it can be easily observed that the industry will grow. But where will this growth be concentrated the most?

Operators and enablers. The largest and most enduring value creation derived from new technologies has historically tended to accrue to their operators and enablers.

• Operators: These are companies that run and manage AI models for specific purposes, often offering their services to other businesses or organizations. They are like a bridge between AI development and their practical applications. Examples of operators are cloud AI service providers, Specialized AI platforms, and Edge AI software
  
• Enablers: These are companies that take part in the development and Installation of AI models. They are like building blocks for the AI ecosystem. Examples of enablers are Data Management and analytics companies, AI development tools and platforms, and Cybersecurity for AI.

Hardware manufacturers: Innovative technologies can often drive the adoption of new consumer hardware and hardware manufacturers can therefore benefit from a surge in demand.

3. Application beneficiaries: Innovative technologies often create ecosystems of beneficiaries that may not be directly involved in the development of technology, but may be well-positioned to use them to build new businesses or improve the profitability of existing ones.

3. Renewable Energy Industry: The whole world is increasing its awareness about climate change. Creating an economy free of carbon emissions and transitioning to clean fuels require the adoption of green technologies. The significant investment size in decarbonization means huge growth potential for solution providers within the industry. The governments are increasing their financial support for the renewable energy industry through; feed-in tariffs, tax credits and deductions, grants and subsidies, loan guarantees, and various policy measures. It’s a huge industry, so where to invest?

Solar energy: The U.S. solar industry is forecasted to triple in size over the next five years, a certain policy provided by the 2022 Inflation Reduction Act (IRA). Moreover, with the developing technology the industry increases its efficiency and decreases affordability, in fact, compared with 2010 prices, the average cost of a residential solar polar decreased by 94%. It can be observed that solar is becoming cost-competitive with traditional energy resources.

3. Energy storage technologies: Energy storage plays a crucial role in enhancing grid stability. The demand for energy storage technologies is also directly proportional to EV car adoption since it requires efficient and affordable battery solutions.
4. Energy efficiency: Increasing energy efficiency is extremely important for reducing greenhouse gas emissions and fighting climate change. Since the governments are increasing energy efficiency standards, this creates a huge opportunity for companies who are providing energy efficiency solutions.

Authors: Sabrina Ramdohur and Kaan Pinar