The U.S. economy’s position as the primary driver of global growth is being questioned, despite optimistic forecasts.
What Happened: This concern was raised by economist Mohamed El Erian in an article he shared on X, formerly, Twitter on Tuesday.
In his article, El Erian identified three critical factors that will determine the U.S. economy’s ability to drive global growth in 2024. These include the domestic economy’s capacity to sustain its growth momentum, its resilience in the face of domestic political divisions and global uncertainties, and whether investors can secure enough liquidity to refinance debts accumulated during periods of low-interest rates and high liquidity injections by central banks.
El Erian expressed a nuanced view, acknowledging the US economy’s dynamic growth engines and measures taken to foster future growth. However, he also highlighted the challenges it faces, including weaker household balance sheets, the risk of a monetary-policy mistake by the Federal Reserve, and domestic and geopolitical uncertainties.
El Erian estimated a 55% probability of a soft landing for the US economy, a 30% likelihood of a recession, and a 15% chance of surprise growth due to transformational innovations.
Why It Matters: The US economy has shown resilience despite the Federal Reserve's successive rate hikes, with Ark Invest predicting a potential 7% annual GDP growth. However, the fourth-quarter economic growth of 3.3% was slower than the previous quarter, indicating a potential slowdown.
Despite Deutsche Bank no longer expecting a recession in 2024, Jamie Dimon, CEO of JPMorgan, has expressed concerns about a potential recession. Furthermore, a recent survey revealed that 25% of business economists and analysts predict a US recession in 2024, likely triggered by external factors such as a conflict involving China.
Photo by International Monetary Fund on Flickr
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