The World Bank forecasted in January that the global economy will expand only 2.4% this year, that’s down from 2.6% in 2023. With high interest rates, ongoing inflation, plummeting trade and a slowdown of some of the biggest economies like the US and China, global financial markets are expected to wobble in the year ahead yet hopeful signs remain that factors like progress in AI and an increase in semiconductor production will positively impact the Japanese and global economy.

What to expect in 2024

Other countries will be looking at the state of the US economy as a barometer. The US economy held up well last year and supported global markets despite China and Europe’s economic downturn. However, the US economy is likely to slow down in 2024 after a stretch of significant interest rate hikes that started in 2022. 

Correction in the real estate market and the excessive corporate debt problem will increase the risk of an economic downturn. The global economy is expected to stagnate in 2024 as both the US and China’s growth rates decline. Slower inflation will stabilize the world economy, but if oil prices rise again due to rising geopolitical risks, the world economy will fall into stagflation, and financial market instability will ensue amplifying factors like stock price declines. 

The Bank of Japan's lifting of its negative interest rate policy will have some impact on global financial markets. However, the extent of interest rate increases will be limited and is not expected to have a huge negative impact.

AI’s potential on GDP growth

The degree to which AI will contribute to gains for the global and Japanese economies remains uncertain in 2024. Increased demand for advanced semiconductors used in AI will likely
boost the growth rate. While the growth rates of the Japanese and global economies are expected to decline in 2024, the silicon cycle is on the contrary upward, and increased semiconductor production may reduce the risk of growth decline. The boom in production of advanced semiconductors used in AI is expected to continue, greatly benefiting related players including Japanese companies.

Japan’s 2024 growth outlook

Japan's real GDP growth rate in 2023 is expected to be +1.7%, significantly higher than the +1.0% growth rate in 2022. A recovery in personal consumption due to the easing of the coronavirus and a sharp increase in inbound demand may have pushed up the growth rate. However, thehigh growth rate was only observed in the first half of the year, and the pace of growth slowed significantly in the second half. The growth rate in 2024 is expected to be +0.6%, significantly lower than in 2023. Wage increases will not be able to keep up with the rise in prices, and real wages will continue to decline, suppressing personal consumption. Furthermore, the slowing growth of the US economy and the strong yen will pummel exports.

Global economic growth is likely to slow down in 2024 as the effects of monetary policy and geopolitical risks take a toll. Elevated inflation, high interest rates, eroding pandemic tailwinds and rising consumer debt are expected to significantly impact the Japanese and global financial markets. However, volatility is expected to wind down toward the end of the year likely helped by factors like gains from AI, and interest rate reductions.

• 

  Takahide Kiuchi

  Executive Economist