“Optimism is fine, but pay attention to economic headwinds and risks. ”
What happens in the United States does not stay in the United States. The global economy depends on America to act as a main engine of growth, and global financial markets depend on U.S. investors’ outsize appetite for risk. This became particularly evident in 2023 when major economies like Japan and the United Kingdom slipped into recession, Germany narrowly avoided one, and China grappled with obstacles to growth and pockets of high debt. But whether the U.S. economy can drive global growth in 2024 depends on the answers to three timely questions:
First, can the U.S. economy maintain its current growth momentum and achieve the softest of soft landings? Second, can it remain resilient in the face of domestic political divisions and geopolitical uncertainties around the world? And lastly, will investors be able to secure sufficient liquidity to refinance debts accumulated during the era of artificially low interest rates and exceptionally high liquidity injections by central banks? Based on current market prices, investors believe the answer to all three questions is a solid yes. Similarly, many economists are optimistic about the U.S. economy, albeit with slightly less enthusiasm than that exhibited by capital markets. I find myself taking a more nuanced view. Consider the three key issues: The U.S. economy undoubtedly holds two significant advantages over other major economies: Its current growth engines are more dynamic, and it has taken significant measures to foster and invest in future growth drivers. This helps to explain why the U.S. exceeded expectations in 2023, with GDP growing by 4.9% and 3.3% in the third and fourth quarters, respectively. By contrast, the German, Japanese and U.K. economies contracted, while China, grappling with cyclical issues, risked being pulled into the dreaded middle-income trap.
“There is a greater risk that the U.S. Federal Reserve’s overreliance on hist …
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“Optimism is fine, but pay attention to economic headwinds and risks. ”
What happens in the United States does not stay in the United States. The global economy depends on America to act as a main engine of growth, and global financial markets depend on U.S. investors’ outsize appetite for risk. This became particularly evident in 2023 when major economies like Japan and the United Kingdom slipped into recession, Germany narrowly avoided one, and China grappled with obstacles to growth and pockets of high debt. But whether the U.S. economy can drive global growth in 2024 depends on the answers to three timely questions:
First, can the U.S. economy maintain its current growth momentum and achieve the softest of soft landings? Second, can it remain resilient in the face of domestic political divisions and geopolitical uncertainties around the world? And lastly, will investors be able to secure sufficient liquidity to refinance debts accumulated during the era of artificially low interest rates and exceptionally high liquidity injections by central banks? Based on current market prices, investors believe the answer to all three questions is a solid yes. Similarly, many economists are optimistic about the U.S. economy, albeit with slightly less enthusiasm than that exhibited by capital markets. I find myself taking a more nuanced view. Consider the three key issues: The U.S. economy undoubtedly holds two significant advantages over other major economies: Its current growth engines are more dynamic, and it has taken significant measures to foster and invest in future growth drivers. This helps to explain why the U.S. exceeded expectations in 2023, with GDP growing by 4.9% and 3.3% in the third and fourth quarters, respectively. By contrast, the German, Japanese and U.K. economies contracted, while China, grappling with cyclical issues, risked being pulled into the dreaded middle-income trap.
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