‘Soft landing’ for global economy
If demand collapses, GDP growth will also go down
In 2023, the outlook was a little pessimistic, as there were predictions of a major recession. In 2024, however, the most likely scenario is that there will be a 'soft landing'.
There were two big concerns regarding the tight policy of keeping interest rates higher for longer, adopted by the major central banks to combat inflation. The first one was that unemployment may rise drastically, leading to a collapse in demand. If demand collapses, GDP growth will also go down.
The other one was financial stability risk. In 2023, when there was a crisis involving Silicon Valley Bank, Signature Bank, and Credit Suisse, many believed their balance sheet weaknesses might affect organisations connected with them, eventually leading to a financial contagion worldwide.
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As that did not happen and as inflation is going down with no major rise in unemployment, in fact, the labour market, particularly in the US, is quite strong. Although in some other major European countries, like the UK or Germany, it is not as robust. So, that is why the word soft landing is being used — the risk was not as great as it was thought to be.
Over the past couple of weeks, I have observed that the bourses worldwide are expecting a bullish market. According to the recent interview given by the US Treasury head, it seems the US Treasury will not increase the interest rate anymore and it might even decrease in the future. But based on the data, if inflation starts increasing again, they will raise the interest rate.
So, despite the monetary tightening we saw in 2023, the central banks seem to be somewhat moving away from it. Which means there will be no more increases in interest rates; it might even come down. Also, the dollar price, which has been quite high for the past two years, putting a lot of pressure on developing economies like ours, might normalise.
Many who are very optimistic are saying, 'Why must there be a landing?' Landing means there will be some decrease in growth; rather, the economy will continue flying as the inflation risk is slowly decreasing.
