Allianz Risk Barometer 2024 -
Rank 5: Macroeconomic developments

In economic terms, 2023 had a few surprises in store, both positive and negative. In the US, the predicted recession never arrived as the economy proved to be surprisingly resilient in the face of rapidly rising interest rates. Consumers remained keen to spend, thanks to a robust labor market and pandemic-era savings (now used up). Fixed-rate mortgages shielded many households from rising rates (for now).

In China, on the contrary, the expected recovery following the reopening of the economy turned out to be surprisingly short-lived; structural weaknesses – above all, the precarious situation of the real estate market – quickly regained the upper hand and dampened sentiment. The other major economy that disappointed in 2023 was Germany – although this did not really come as a surprise. It was foreseeable that the industry-heavy German economy would not recover so quickly from the energy price shock. The rest of Europe, on the other hand, fared much better thanks to stronger service sectors.

From today’s perspective, there is much to suggest that the signs are reversing, says Ludovic Subran, Chief Economist at Allianz. The US will weaken (possibly even slide into recession), while China should pick up again. In China’s favor is the fact that the central government has finally given up its restraint and is supporting the economy, especially the real estate market, more resolutely. And for the US, the old adage applies: postponed is not canceled. Higher interest rates eventually have a negative impact on demand and thus bring the economy to its knees, even if it took a little longer this time due to the special post-Covid circumstances.

Allianz Research expects only around 1% growth for the US in 2024, but 5% in China. And Europe? Here, too, growth will (further) slow due to higher interest rates. In Germany, the budget crisis puts the expected cyclical recovery in jeopardy. Therefore, growth in the major economies will remain well below 1%. Global growth is also likely to weaken: at a tad over 2%, it will undershoot the long-term average significantly.

“But this lackluster growth is a necessary evil: high inflation rates will finally be a thing of the past,” says Subran. “This will give central banks some room to maneuver – lower interest rates are likely in the second half of the year. Not a second too late, as stimulus cannot be expected from fiscal policy. After the excesses during the pandemic and the energy crisis, the threatening rise in debt is forcing consolidation almost everywhere.”

So, 2024 could become a year of transition, in which the wild ups and downs of growth, inflation and interest rates experienced since the Covid-19 shock settle down and pivot to more usual levels.

“A nice consolation. But completely uncertain. Because what really stands out in 2024 is the large number of elections and their potential for new upheavals,” says Subran. “First and foremost, of course, is the US election – which could end with a possible return of Donald Trump to the White House. Trump II is likely to be more disruptive than Trump I, for one simple reason: eight years later, the world is a different place, fragmented and torn apart by a multitude of conflicts and wars. An isolationist America is always bad news for the rest of the world (at least for the free one), but in times like these the risks are even greater than usual.”