2024 – the Year of Divergences in the World Economy

The year 2024 was characterised by a complex international context, dominated by the multiple confrontations, trade, technological, and military (Ukraine, Middle East), generating divergences between the real and financial sides of the economy, and also among the main economies in the world.

It was another year of the Challenging 20s defined by the huge gap between the rhetoric and reality (including the perspective of the transition towards green economy), the persistence of the uncertainty at a high level (also given the electoral context), the continuity of the upward trend for the public debt / GDP ratio, and intensifying economic integration among the emerging and developing economies.

On the one hand, the year 2024 was positive for the financial side of the economy, with the stock markets trading at record high levels, the MSCI All Country Index increasing by more than 15%, according to the platform Investing.com.

This evolution was supported by several factors, including the increasing resilience of the companies and households to the persistence of the geo-political tensions, the incorporation of the technological progress (the Digital Revolution, and Artificial Intelligence Revolution), and the slowing-down of the inflationary pressures, that determined the central banks to initiate a cycle of interest rates cutting, and to signal the continuity of this cycle in the coming quarters.

There can be noticed the performance of the stock market in US (with S&P 500 up by more than 23% in 2024), an evolution also supported by the results of the Presidential elections.

            On the other hand, the real side of the world economy continued to increase by a weak pace in 2024, an evolution determined by several factors, including the high level of uncertainty (determined by the persistence of the geo-political tensions), the trade confrontation among the largest economic blocks, and the high level of the real financing costs.

            The figures recently published by the Netherlands Bureau for Economic Policy Analysis (CPB) show the increase of the volume of the international trade with goods and of the volume of the world industrial production by weak average annual paces, of 1.4%, and 1.7%, respectively during January – October 2024.

            Consequently, the gap between the climate on the stock markets and the evolution of the real economic activity widened in 2024, as reflected by the following chart (Figure 1).

Figure 1. MSCI All Country Index vs. Index of the World Industrial Production (August 2004 = 100)

Source: representation of the author based on the data of Investig.com and Netherlands Bureau for Economic Policy Analysis (CPB), January 2025

            Furthermore, in 2024 there can be also noticed the divergence among the largest economic blocks in the world, with the economy of the European Union being the looser of the global races, due to the structural challenges, namely competitiveness and convergence.

            For instance, according to the CPB statistics, the volume of the industrial production grew by an average annual pace of 5.6% in China, while it contracted in USA and Euroland by average annual dynamics of 0.3%, and 3.1%, respectively during January – October 2024, as can be noticed in the following chart (Figure 2).

Figure 2. The evolution of the Industrial Production (MA12, YoY)

Source: representation of the author based on the data of the Netherlands Bureau for Economic Policy Analysis (CPB), January 2025

            As regards the dynamics of the GDP, there can be noticed the consolidation of the annual growth pace in USA (the largest economy in the world, with a nominal GDP of over USD 29.3tn in 3Q 2024) around its potential in 2024.

            The so-called US exceptionalism was determined by the dynamics of the fixed investments (annual pace above that of the private consumption for the 5th quarter in a row in 3Q 2024, according to the estimates of Bureau of Economic Analysis), given the positive climate on the financial markets, and the incorporation of the technological progress. At the same time, the prospects for the continuity of the cycle of interest rate cut by the Federal Reserve and the prospects for the improvement of the real disposable income in the coming quarters (in the context of the slowing down inflationary pressures) contributed to the consolidation of the annual growth pace in USA around its potential last year.

            In China (the second largest economy in the world, with a nominal dimension estimated at around USD 18tn in 2024) the economic activity grew by an average annual pace of 4.8% during 1-3Q 2024 (close to the target of 5% set by the policymakers for 2024), an evolution supported by the dynamics of the investments (the investments in fixed assets excluding real estate grew by an average annual pace of 7.7% for the first 9 months of 2024, according to the estimates of the National Bureau of Statistics of China).

            On the other hand, the economy of the European Union increased by an average annual pace of below 1% in the period January – September 2024, according to the estimates of Eurostat.

            At the end of this analysis, I point out the slight improvement of the world economy at the end of 2024, as reflected by the increase of the PMI (Purchasing Managers Index) Composite indicator in December, to the highest level since the month of August, according to the statistics of S&P Global.

            This evolution was influenced by the positive climate on the international financial markets and the prospects for the economic policy mix in the largest economic blocks in the world in the coming quarters (the focus on investments in new technologies and productivity).

            However, the risks, challenges, and divergences persisted at high levels in the world at the end of 2024, being needed more than ever a new Bretton Woods momentum, as happed in the Summer of 1944.