Navigating Economic Uncertainties: A Divergence of Views for 2024
As the world grappled with the aftermath of the pandemic in 2022, concerns about an impending recession loomed large. Throughout 2023, the spectre of an economic downturn continued to cast its shadow, prompting anxieties among economists and policymakers. With less than two months left in the calendar year, attention is now turning to the prospects of 2024. However, a new and intriguing perspective is gaining ground among economic forecasters: the possibility that there might not be a landing at all.
This optimistic outlook is derived from the consensus forecast of 34 economists surveyed by the Philadelphia Fed and released recently. The Survey of Professional Forecasters, initiated in 1968, is the oldest quarterly survey of macroeconomic forecasts in the U.S. According to the latest findings, the outlook for the U.S. economy appears brighter than three months ago.
On an annual-average over annual average basis, the forecasters anticipate real GDP to increase by 2.4% this year, with a marginal slowdown to a 1.7% rate projected for 2024. These figures are notably higher by 0.3 and 0.4 percentage points, respectively, compared to estimates in the previous survey.
The survey also indicates a modest uptick in joblessness, with the unemployment rate expected to gradually rise from 3.7% this year to 4% in 2026, according to the annual average projections.
In terms of inflation, while a downward trend is anticipated, the descent is expected to be gradual. The forecasters predict that the annual average for the personal consumption expenditure price index, the Federal Reserve's preferred measure, will hover around the Fed's 2% target through 2024, reaching just above 2.1% in 2025.
Despite the relatively optimistic tone, economists caution that the risks of a hard landing have not entirely dissipated. Probability estimates for negative growth in the first three quarters of next year have been raised. The forecasters foresee a 40.9% chance of adverse change in the first quarter, 40.2% in the second and 36.8% in the third quarters.
However, the consensus forecast conceals a significant divergence of opinions among economists regarding the outlook for 2024. Notably, UBS economists have presented a somewhat cautious forecast, envisioning U.S. GDP dropping to a mere 0.3% growth rate in 2024. In contrast, economists at Goldman Sachs are more optimistic, foreseeing a robust 1.8% growth rate on a fourth-quarter over fourth-quarter basis.
This forecast divergence underscores the complexity of economic dynamics, with experts grappling with uncertainties and differing interpretations of the data. As the world navigates through these economic crosscurrents, the year 2024 seems poised to be a critical juncture, with the trajectory of the U.S. economy hanging in the balance. Adapting and responding to changing conditions will be crucial for policymakers, businesses, and individuals in the coming year.