A Year With No Growth?

by Liz Morley

The one thing for certain (other than death and taxes) is that 2024 will not be a year of meaningful growth - whatever politicians promise at the polls.

Looking at the global forecasts produced at this time of year by many eminent economists it is apparent that while interest rates in many countries have peaked, they are not going to start coming down until at least the second half of 2024. Inflation still needs to be brought under control and anyone looking for the zero interest rates enjoyed in the 2010s is not going to find them. Businesses need consistent rates of return on their investments and the labour market continues to be tight as a result of an ever-ageing population and changes in the skills required.

The good news is that although growth in 2024 will be anaemic, the consensus is around 2.2% globally (though less than 1% in the UK); after 2024, growth should become higher at around 2.9% as monetary easing kicks in and there is increased funding in the two key growth sectors that every country is focused on: energy and technology. Over time, this will impact supply chains as demand for finite resources becomes more critical.

60% of global GDP is likely to emanate from Asia, particularly the southeast, and from emerging markets. The “Green” revolution, as the impact of the climate emergency is now universally accepted, will continue. And Artificial Intelligence (AI) will create, in the first instance, costcutting opportunities before generating new jobs, skills and businesses as the workforce learns what AI is capable of and what it cannot replace.

Politics and policymaking will be key to all economies. There are global risks; the war in Ukraine involving more countries; the Israel-Hamas war growing into a regional conflict; China’s continuing push for Taiwan; and, the ongoing tensions between China and the US that could at any point deliver a sudden shock to global economies. Other shocks may occur through acts of terrorism either physically or in the cyber world. And we should not forget the expected El Niño effect on agricultural production which could again drive-up food prices next year.

Political support for moderate, liberal policies is weak and the move towards protectionist policies is on the increase. For example, the US election is likely to highlight the cultural and political divisions across the country. And in Europe, though not necessarily in the UK, there is a shift to the right because of economic and migration pressures. All this could draw the focus away from where global policy making is required - the response to the climate emergency and emerging technologies.

As the cost-of-living crisis eases, governments will turn their attention to how to pay off their massive deficits. The global bond sell-off has pushed borrowing costs to new highs and there will be considerable scrutiny of debt/GDP ratios with governments around the world having to pay high interest charges which in turn will limit the issuance of new bonds to fund new borrowings. There are also likely to be sovereign debt defaults with focus on Argentina in South America and Pakistan in Asia.

With limited or no money for areas that require government spending such as health, education, and areas that stimulate growth like infrastructure and defence, governments will need to find new sources of revenue.

Governments are looking at private finance and how to provide the consistency and returns that private companies require for long term investment. They are also looking at new taxes and increased fiscal drag. Areas of focus include banks’ additional profits because of increased interest rates alongside energy profits which have boomed with the exponential rise in gas and oil prices. Taxes are also being considered for new technologies, the wealthy and foreigners, on luxury goods and capital gains. The issue with all of these taxes is that they are unlikely to raise the funds required so in the background treasury officials in several countries will still be looking at personal income, corporate earnings and sales taxes.

This backdrop is no time for businesses to disengage. Instead, there is renewed opportunity for businesses to engage governments and civil society with ideas to deliver growth – the only way through the challenges we face. There must be a focus on measures and moves which deliver a greater return than interest rates, albeit over a longer timeframe with Government providing support targeted at stimulating growth and investment. In the UK, we have seen all political parties try to woo business. At a time of little money, all we can ask Santa for is an extended period of consistency so that business can get on with its job.

The key word is trust. Our data shows that politicians are not trusted. And while businesses are overall more trusted, they are suffering from over-regulation. Regulation is good where it is needed but in today’s markets, regulation is having unintended consequences. As I edit this essay today, there are four new investigations announced which, if they do nothing else, will delay decision-making. And if there is no decisionmaking there will be no leadership and no growth. A sad prospect for future generations.

2024 will be tough economically but there is a desire and a need for growth and fresh thinking seen by political parties and businesses – so let us build trust and free businesses to grow. Happy New Year.

Liz Morley is a Partner at 5654 & Company, and an experienced financial communications and ESG practitioner.