Gradually central banks appear on the verge of loosening monetary policy, confident that inflation is majorly beaten. Kavan Choksi Business Consultant says that even though the global economy has slowed, the overall outlook is more benign than expected in 2024. However, certain new problems have come up over the last year. The Russia-Ukraine conflict continues, there is a new crisis and war in the Middle East, and the patterns of cross-border investment and trade are shifting.
Kavan Choksi Business Consultantbriefly talks about the economy of the United States and the United Kingdom
The United States economy seems to have avoided a painful recession, while also experiencing a major fall in inflation. This is a positive outcome under the circumstances. The labor market has stayed tight. However, there is little sign of a wage-price spiral getting out of control. Growth in important US economic partners is slowing, geopolitical tensions keep going up, and Congress has added budget-funding volatility into the mix.
The current state of the economy has paved the way for questions about a few of the standard paradigms economists tend to use in order to explain labor markets and inflation. Even though inflation levels are falling, it is not completely back to target levels. While Fed officials are starting to discuss rate reductions, in case inflation stays above target, they may end up further tightening the monetary policy. Long term interest rates have gone above their pre-pandemic levels pretty recently. This delayed reaction implies that part of the impact of the previous tightening efforts of the Fed remains to be seen.
Talking about the United Kingdom, their economic growth slowed over 2023 in the face of elevated levels of uncertainty, high inflation and rising interest rates. Much like most of the other major European economies, the UK has also suffered from the impact of rising energy prices. Kavan Choksi Business Consultant says that even though its economic growth outperformed depressed expectations and managed to steer clear of a recession in the first half of 2023, economic activity in the country did contract marginally in the third quarter.
Due to the lingering impact of elevated interest rates affecting fixed-rate mortgages and the corporate sector, alongside a declining labor market, it is expected that the economic activity in the UK will, at most, experience stagnation in the fourth quarter of 2023. The overall growth for the entire year is projected to be approximately 0.5%, resembling the average in the euro area but significantly lower than the earlier growth patterns observed in the UK, which were around 1.5%. The good news is that so far the UK has avoided a recession and the sort of deep stress in the financial system that has typically followed previous periods of high inflation. While there has been an increase in business insolvencies, the impact has been more pronounced in smaller- and medium-sized businesses. The resilience of profitability in the predominant service sector, along with generally healthy corporate balance sheets, has mitigated the overall effects. Despite high inflation, consumer spending has experienced modest growth, as individuals tap into their savings, aided by low unemployment rates and robust wage growth.
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