Southern Europe’s recovery and Northern Europe’s Struggles
The year 2024 has been another impressive year for the global economy, with the International Monetary Fund (IMF) forecasting global GDP growth of 3.2%. Despite challenges like high interest rates, geopolitical tensions, and elections in major countries, the world economy has demonstrated resilience. Inflation has eased, and employment growth remains solid, with stock markets continuing their robust performance for the second consecutive year, rising more than 20%. However, beneath this overall positive performance, there are significant differences in economic conditions between countries, particularly in terms of GDP growth, stock market performance, inflation, unemployment, and government deficits. These disparities highlight that while some countries are experiencing strong recoveries, others are grappling with more difficult economic conditions.
Southern Europe has emerged as one of the biggest success stories of 2024, with Spain, Greece, and Italy posting impressive economic recoveries. Spain leads the way, with its economy growing at a rate exceeding 3%, driven by a strong labor market and high levels of immigration. While the country’s GDP per person has risen, it has lagged behind the overall GDP growth. Greece and Italy, once seen as emblematic of the eurozone’s economic woes, have continued their recoveries, benefiting from favorable economic conditions and improved labor market outcomes. Ireland and Denmark also stand out for their strong performances, the former benefiting from its status as a hub for tech firms and the latter from the success of Novo Nordisk, known for its diabetes medication Ozempic.
On the other hand, Northern European heavyweights such as Germany and the United Kingdom have struggled. Germany’s economy has been hindered by high energy prices and a sluggish manufacturing sector. The UK, dealing with the aftermath of Brexit and persistent inflation, has not shown the same level of recovery. The Baltic nations of Latvia and Estonia have experienced a setback, with Latvia even slipping into recession, underscoring the uneven recovery across the region.
GDP Growth
Real GDP growth is often considered one of the most reliable indicators of an economy's health, and the 2024 global economy shows a varied picture. The resilient American economy has been a major contributor to global growth, thanks to its strong consumer spending and steady job market. Israel’s economy also shone, although its growth was partly driven by a rebound following a sharp contraction due to the geopolitical turmoil with Hamas at the end of 2023. In Spain, high immigration levels have helped lift GDP growth, but this has not translated into proportional gains in GDP per person, highlighting a broader issue of income inequality and labor market dynamics.
Other countries have faced challenges, with Germany and Italy grappling with high energy costs and sluggish manufacturing. Japan’s GDP growth is expected to be just 0.2%, weighed down by weak tourism and a struggling automotive sector. Some countries, like Hungary and Latvia, have slid into recession, reflecting the broader difficulties faced by economies in central and Eastern Europe.
The U.S. Leads While Others Struggle
Stock markets have performed well globally in 2024, with many markets posting strong gains. The U.S. stock market, buoyed by tech firms, has posted an impressive 24% inflation-adjusted return, with Canada also benefiting from its close economic ties to the U.S., particularly in the energy and banking sectors. Japan’s Nikkei 225 reached record highs, though its overall performance was more modest. However, some countries saw losses, particularly Finland, where stock prices have fallen in real terms, and South Korea, which experienced a market downturn after political instability.
These mixed results emphasize the unevenness of the stock market recovery. While some markets, particularly in North America, have thrived, others have faced economic headwinds, such as political instability, that have weighed on investor confidence.
Core Inflation
Core inflation, which strips out volatile food and energy prices, serves as an indicator of underlying price pressures in the economy. Globally, inflation has eased but remains persistently high in many countries, especially in services. In the UK, wage growth continues to push up service costs, contributing to high core inflation. Similarly, in Australia, rising housing costs are a key driver of inflation. In contrast, France and Switzerland have managed to keep price pressures relatively in check, a testament to their strong fiscal and monetary policies.
Countries like Turkey continue to experience high inflation, further complicating economic conditions. These inflationary pressures could hinder consumer spending and economic growth, particularly in countries where inflation outpaces wage growth.
Unemployment
Unemployment remains a significant concern for many economies, particularly those in Southern Europe, which have historically struggled with high jobless rates. However, 2024 has seen remarkable improvements in job markets, particularly in Greece, Italy, and Spain, where unemployment has fallen to its lowest levels in over a decade. Italy, in particular, has seen the most substantial improvement, with a reduction of 1.4 percentage points in its unemployment rate since the beginning of the year.
In the U.S. and Canada, unemployment has ticked up slightly, but this is largely due to people re-entering the labor force and the effects of high immigration. The overall trend in unemployment remains low in many parts of the world, which is a positive sign for global economic health.
Government Deficits
While many countries have shown strong economic performance, government deficits remain a significant issue for many. Denmark and Portugal have stood out for achieving budget surpluses through fiscal discipline, with Denmark benefiting from its strong economic fundamentals and Portugal managing a careful balance between growth and fiscal responsibility. Norway and Ireland also report surpluses, although Norway’s is largely driven by oil revenues, and Ireland’s by a corporate-tax windfall.
Other countries, however, continue to face fiscal challenges. Poland, for instance, has seen its primary deficit exceed 3% of GDP due to increased defense spending in response to Russia’s invasion of Ukraine. Japan’s fiscal stimulus to combat the effects of rising living costs has further compounded its debt problems, and the UK’s budget failed to address long-term fiscal sustainability.
The IMF and World Bank: Turning Away from the Poorest Countries
The IMF and World Bank are turning their attention toward wealthier countries, at the expense of the poorest. While the International Development Association (IDA) at the World Bank has replenished its fund with $100 billion, much of the financial assistance provided is shifting toward middle-income countries. This leaves the poorest countries, like Niger and Bangladesh, with fewer options for cheap loans. As global borrowing costs rise, these countries will struggle to finance vital infrastructure projects. Additionally, the World Bank’s shift towards financing climate goals may squeeze out funds for poverty alleviation, as the poorest countries are less able to afford loans, pushing them into the hands of China, which has become the largest lender to the developing world.
Uneven Recovery and Growing Challenges
While 2024 has been a year of strong global growth, it is clear that the recovery remains uneven. Southern Europe has made significant strides, while Northern Europe and other regions face challenges from high energy prices, sluggish manufacturing, and fiscal constraints. The global economy also faces significant challenges, particularly in the poorest countries, where rising borrowing costs and shifting priorities may undermine efforts to reduce poverty. The next few years will be critical for balancing climate change initiatives with the need for continued development in the world’s most vulnerable nations. The global economy’s future success will depend on whether countries can navigate these trade-offs while maintaining sustainable growth.
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