Blog Post

Global Economy in 2023, Outlook for 2024

Bretton Woods Committee  | Wed, Jan 10, 2024

by Andrei Radulescu


2023 has recently concluded — leaving behind economic behavior of households and companies that have adapted to the highest nominal financing costs since the early 2000s.  

These past 12 months displayed another year dominated by the fragmentation of trade flows between the Euro-Atlantic block and the Euro-Asian block, a phenomenon that ultimately resulted in the contraction of global trade volume by an average of around 2.2% YoY between January-October. 

The decline of global trade had spillover impact for world industries with production increasing below potential at a rate of only 0.7% YoY from January – October 2023. This evolution reflects a deteriorating investment climate on a global scale, with conditions now dominated by high interest rates and persisting uncertainties. 

Fortunately, inflationary pressures have eased in response to impactful variables, including adjustments of energy prices and the unprecedented speed of the normalization of monetary policy implemented by central banks over past quarters. Simultaneously, the positive labor market climate consolidated in 2023, with unemployment rates now hovering around record low levels in the US and EU. 

In the US the YoY growth pace accelerated to 2.9% during Q3 of 2023, although it is important to note a divergence between high dynamics of government spending and a weak investment climate. 

The Chinese economy rebounded in 2023, given its proactive policy-mix and the continuity of investments within the Belt Road Initiative (over USD 1tn since the launch of the project 10 years ago, as reflected by the figures released by the China International Development Cooperation Agency.

The EU experienced meager growth throughout 2023, as the German engine was confronted with the adjustment of global trade, increasing financing costs, and weak maneuvering room in terms of fiscal policy with the GDP of the largest economy in the region contracted by 0.4% YoY in Q2 and by 0.8% YoY in Q3 2023. 

The financial sphere demonstrated strong positive momentum during the last two months of 2023, with stock markets at record high levels. On the horizon, current data suggests a year of transition dominated by geo-political tensions and elections in countries representing more than 50% of the global GDP. The Great Transformation will continue at the global level, supported by the implementation of the Digital Revolution and the Artificial Intelligence Revolution. 

Green transition efforts should be expected to intensify as the gap between current standings and 2030 goals remains wide. For example, in the European Union the share of green energy in consumption stood at only 23% in 2022, according to the recent data released by Eurostat

Recent macroeconomic indicators point to deterioration of YoY dynamics for the US GDP - the world’s largest economy - with a nominal GDP of over USD 27.6tn in Q3. There appears to be persistent decline regarding leading indicators and negative spread (10YR-3months), according to the data published by the Conference Board and Federal Reserve

The Chinese economy may increase by a pace of around 5%, on the back of domestic demand supported by the policy-mix. On the other hand, the economies in the European Union will continue to foot the bill for global confrontations and lack of political union.  

The upward growth of confidence indicators at the end of 2023 suggests improving dynamics for a 2024 GDP - a transition heavily supported by the implementation of the programs launched at the EU level following exogenous shocks.  

  Ultimately, the probability for the growth pace to be below potential in 2024 remains very high in both the US and EU. Yet despite this likelihood, inflation is expected to continue decelerating in 2024 with an increasing probability of central banks on both sides of the Atlantic hitting their targets. In this context, both the FED and ECB should recalibrate monetary policy in 2024, with financial markets currently anticipating a cumulative cut of the reference rate by 1pp in USA and 75bps in Euroland.  

The climate on the financial markets will likely be very volatile next year with severe adjustments being possible on the stock markets at any time, given the high levels of valuations.  

It remains imperative to remember that without proactive negotiations among representatives of the world’s largest economies, global economic uncertainty will persist at high levels with the possibility for new shocks around every corner.  


Andrei Radulescu is a macroeconomist with post-university studies and professional experience in Portugal and Romania. He is also a Senior Researcher at the Institute for World Economy and Macro-Modeling Centre at the Romanian Academy. Radulescu joined the Bretton Woods Committee in 2023.

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