Dive Brief:
- U.S. economic growth will likely slow to 1.6% in 2024 from an estimated 2.5% last year as high interest rates crimp demand and government spending declines, the World Bank said in a report.
- Falling household savings, elevated borrowing costs and a cooling labor market will likely dampen consumer spending, the World Bank said. Such outlays fuel nearly 70% of economic growth.
- “Business fixed investment is also set to decelerate further as firms remain cautious, given economic and political uncertainties, and increasingly refinance corporate debt at higher interest rates,” the World Bank said.
Dive Insight:
Private-sector economists in recent months have backed away from forecasts of a downturn, projecting slower growth for this year.
Analysts surveyed by the National Association for Business Economics expect gross domestic product to expand just 1% from the fourth quarter of last year to Q4 2024, with three out of four putting the odds of recession at 50% or less.
Growth during Q4 probably slowed to 2.2% from 4.9% in Q3, the Federal Reserve Bank of Atlanta said Wednesday. Last week it predicted Q4 growth of 2.5%.
U.S. economic “growth appears to have softened in the fourth quarter, with weakness set to intensify as the lagged and ongoing effects of tight monetary policy increasingly weigh on household spending, and as temporary factors supporting consumption dissipate,” the World Bank said.
Fed officials last month estimated that gross domestic product growth will slow to 1.4% this year from their estimate of 2.6% for 2023.
“We see good evidence and good reason to believe that growth will come in lower next year,” Fed Chair Jerome Powell said during a Dec. 13 press conference. “We’ll also be looking to see progress on inflation and, you know, the labor market remaining strong, ideally without seeing the kind of large increase in unemployment that happens sometimes.”
By the end of the year the Fed will likely trim the federal funds rate to around 4.6% from the current 22-year-high between 5.25% and 5.5%, central bank officials predicted during a two-day meeting ending Dec. 13.
Fed officials also expect that their most aggressive fight against price pressures in 40 years will slow inflation — based on the personal consumption expenditures price index minus food and energy — to 2.4% by December from 3.2% in November.
Yet policymakers including Fed Chair Powell have acknowledged the risk that they may hold borrowing costs too high for too long, causing a downturn and widespread layoffs.
“We’re aware of the risk that we would hang on too long,” Powell said at the press conference. “We know that’s a risk and we’re very focused on not making that mistake.”
Growth in the world economy will also probably slow in 2024 for the third year in a row, recording the weakest half decade of GDP gain in 30 years, the World Bank said. It forecast a 2.4% expansion this year compared with 2.6% in 2023.
“Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” World Bank Chief Economist Indermit Gill said in a statement.
