What’s the outlook for growth?

A long-awaited slowdown. US economic growth was more resilient than expected in 2023, with the support of excess consumer savings. In 2024, we think growth is likely to slow. High interest rates are likely to curb the propensity to spend: Items often purchased by borrowing, like houses and cars, are the least affordable they have been in years. Households are having to grapple with the end of childcare subsidies, the trimming of Medicaid rolls, and the resumption of student loan payments. And we think savings rates are likely to rise as confidence ebbs.

No significant contraction. While we expect a slowdown, we do not expect a significant contraction in activity. It would be historically unusual for the US economy to avoid a recession after a period of rate hikes, but we think there is cause for optimism this time. First, job security among the key spending group of middle-income households is likely to remain high. Second, we expect solid investment spending related to artificial intelligence, semiconductors, infrastructure, and green energy. Third, strong household and business balance sheets should mean a degree of resilience against negative shocks.

Some support.Real consumer incomes should rise because of falling inflation and a resilient labor market, and we expect those to translate into higher consumer spending. Households have already accu­mulated precautionary savings and reduced debt. Supportive fiscal policy, particularly in southern and eastern Europe, should also support growth, as funds from the Next­GenerationEU fiscal plan drive investment in infrastructure and low carbon energy production.

Headwinds remain. We expect European growth to remain sluggish overall. Monetary policy will likely stay restrictive through next year, even after the three rates cuts we expect. Bank lending will likely be constrained by pressure on bank profitability, less generous support from the European Central Bank (ECB), and concern over remuneration of reserves. Subdued external demand and high energy costs are likely to weigh on exporters and manufacturers.

A new normal. We expect the Chinese economy to grow by 4.4% in 2024, below an estimated 5.2% in 2023, weighed down by muted consumption, slow external demand, and challenges in the property sector. Over the longer term, a shrinking labor force, structural limits to trade-driven growth, and a fragile geopolitical balance mean the era of over 6% annual growth for China is likely behind us.

Still a growth engine. A new normal for the Chinese economy is no reason to write it off, however. Beijing recently announced a CNY 1 trillion bond issuance program that could lift next year’s GDP growth by 0.4–0.8 percentage points, and this could foreshadow more policy action in 2024. Longer term, we expect consumer spending, leadership in the carbon transition, and industrial supply chain upgrades to provide durable and quality growth drivers.