Stable and Sturdy: Irish-US Linkages in a World of Multi-Disorder
Rarely has the global business climate been as unpredictable as today. As we enter 2024, the world is challenged by wars in Europe and the Middle East, deteriorating US-Sino relations, a slowing US economy, and the prospect of a world on the cusp of some 40 elections this year. Much uncertainty, in short, looms over 2024.
The worst was avoided last year: the world economy did not slip into recession despite near-universal agreement among economists on both sides of the Atlantic that both the United States and Europe were destined for an economic downturn in 2023. The prognosticators were notably proven wrong in the United States, with the US economy, supported by solid consumer spending, expanding by nearly 3% for the year.
Growth in Europe was a great deal more tepid owing to weaker spending levels from both households and businesses. Based on estimates from the IMF, Germany is expected to have been the worst preforming major economy last year, with GDP expected to shrink 0.5%. Ireland’s economy, based on estimates from the European Commission, declined by roughly 1% in 2023 following very strong growth the year before.
Encouragingly, inflation expectations have rolled over in both the US and Europe, while unemployment rates in the United States and most of Europe have trended lower. Headline inflation in the US, after reaching a peak of 9.1% in June, has declined and was running at a year-over-year rate of 3.4% in December 2023. Slowing investment and the easing of supply chain constraints have helped alleviate pricing pressures on goods, while service inflation has peaked. Inflationary pressures in Europe have also peaked, with lower energy costs helping to slow price increases to just 3.4% in December (y-o-y) versus 10.4% in November 2022. Energy price caps, lower commodity prices, easing supply chain pressures and the cyclical effects of slower economic growth have all converged to ease pressures on transatlantic inflationary expectations. The unemployment rate in the Eurozone was 6.4% in November 2023, down slightly from the same level a year ago (6.7%)
Price stability in Europe, however, remains challenging given the ongoing war in Ukraine and Europe’s overarching vulnerabilities to global oil and natural gas prices. The good news: energy-abundant America has filled the void with surging energy exports to Europe over the past few years.
That the US is the world’s largest producer of oil (and gas) has helped mitigate the geopolitical risks of the Middle East. Think of it this way: absence energy-abundant America, the world economy would be on far shakier ground; global inflation expectations would be much higher, burying any notions of central banks cutting interest rates this year; and the outlook for global earnings would be abysmal, save for a few sectors.
The risk for 2024 is that central banks on both sides of the pond err on the side of keeping policies too tight for too long as they remain focused on pulling headline inflation back to target.
In addition, the transatlantic economy confronts a number of geopolitical hotspots in the year ahead—Ukraine, the Middle East and South China Sea. Unpredictable geopolitics run the risk from rising global defense spending-cum-widening budget deficits, to higher prices/inflation due to supply chain vulnerabilities, and increased global populism/nationalism on account of rising levels of cross-border migrants dislocated by conflict. These variables bear close watching this year. According to the latest projections from the International Monetary Fund, both the US and Europe are expected to achieve positive growth in 2024, 2.5% and 1%, respectively.
Suffice it to say that we are certainly living in “interesting times.” Change and churn are the hallmarks of our era. To wit, in just the past four years, the global economy has been rocked by a global pandemic, a multi-decade spike in inflation, and an unthinkable ground war in the heart of Europe and strife in the Middle East. But within this fluid environment, one constant remains: the bonds that bind Ireland and the United States together remain robust and resilient, and are only expected
to become even denser and dynamic in the
years ahead.
