New year, same old? Yes, but with the chance of generational transformation

The events that dominated the past 11 months are likely to remain drivers of geopolitics and the worldwide economic outlook as this year’s macroeconomic questions spill over into 2024
Artificial intelligence, productivity growth and renewable energy are the areas to watch

James David Spellman

Published: 5:30am, 8 Dec 2023

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The truism that the year ahead struggles under the past year’s yoke is even more the case for 2024. The events that dominated the last 11 months – from wars in Ukraine and the Middle East to US-China trade tensions to central banks’ anti-inflation campaigns – will remain drivers of geopolitics and the economic outlook.

Unforeseen disasters, political missteps and corporate upheavals will intervene, too. There will also almost assuredly be financial windfalls for some in the Year of the Wood Dragon.

This year’s macroeconomic questions will continue to hound the global economy. Is the hard part over for monetary tightening, or will inflation remain stubborn? Will China turn around its economy and escape “Japanification” by using government stimulus, or will structural weaknesses and crackdowns on businesses derail growth?

Will economies better manage trade flare-ups, or will domestic politics and national security concerns produce more sabre-rattling retaliation? Will the permacrises such as climate change, healthcare strains and rich-poor inequities paralyse governments, or will the opportunities created by these problems become a turning point in our history?

Most of the answers are likely to be the same next year as they are today. Seismic shifts are slow-moving phenomena measured in fractions from one year to the next, but across a decade they amount to galvanising change.

02:39

China’s economy sees a resurgence in the third quarter, beating forecasts

Less obvious but equally trenchant trends in the global economy lie ahead, too. Companies worldwide are under pressure to break the persistent stagnation in productivity. If profits and share valuations are to increase strongly – a necessity for robust growth – the volume and value of output per unit of input must increase.

Unfortunately, labour productivity in mature economies worldwide has averaged 1 per cent growth between 2011 and 2019, with a downshift to 0.4 per cent in 2023, according to think tank The Conference Board. A disproportionate share of global growth in labour productivity was driven by emerging Asian economies.

On average, from 2011 to 2019, India and China increased labour productivity by 6.3 per cent and 7.6 per cent, respectively. Now, those economies are maturing. We’re seeing the “steepest, longest and broadest productivity deceleration of recent decades”, according to the World Bank, and the gap in productivity between advanced economies and low-income countries could widen.

Meanwhile, there are hopes that the potential of artificial intelligence (AI) will translate into improvements that jump-start productivity. Next year we will have a clearer idea as to whether those ambitions will be quickly achievable, or if the long stretch of growth following the global financial crisis in 2008 will hit a wall and anaemic productivity will lead to a recession that persists beyond 10 months, the average since 1950.

In 2024, we will see AI more widely used in customer interface systems, personalised healthcare, extended reality, blockchain applications and green technologies as AI converges with quantum computing, which offers huge improvements in processing power.

Workers will have the tools to be more efficient and make better decisions. Companies will monetise their AI investments. Firms with well-integrated AI technologies will experience faster revenue and employment growth.

An alternative energy revolution will show signs of feasibility in scaling up for commercial needs. The past year saw big strides in renewables such as hydrogen fuel production which uses thermal, solar and biological processes to release hydrogen. In October, the hydrogen fuel cell-powered Sanxia Qingzhou 1 cruised along the Yangtze River.

The European Union plans to double renewable energy’s share of total consumption to 42.5 per cent by 2030. Even difficult and expensive alternatives made through nuclear fusion show promise.

Chinese nuclear firm hails step forward in quest to build ‘artificial sun’

Global renewable energy consumption is forecast to climb by 11 per cent to a new high in 2024, but fossil fuels will still meet more than four-fifths of energy demand. With advancements on many fronts and governments pumping vast amounts of capital into ambitious efforts, the scaling up of renewables and throttling down of energy-intensive production is poised for a breakout year.

There will also be an escalating push towards building physical and digital infrastructure. The Global Infrastructure Hub reports that Group of 20 economies, which represent 85 per cent of global GDP, will invest US$12.4 trillion in infrastructure between 2020 and 2030.

The aggregate global investment needed to achieve universal broadband is estimated at US$418 billion, according to the International Monetary Fund. Emerging and developing Asia has the largest need at US$176 billion, or 42 per cent of the total. Investment in solar and wind energy, much of it in China, will set global records, according to consultancy firm Wood Mackenzie.

Physical infrastructure development is also attracting massive investment, from building new highways to overhauling decrepit utilities to mitigating the adverse effects of climate change.

Construction of the Can Tho-Ca Mau highway takes place in Can Tho city in southern Vietnam on October 26. Photo: AFP

The United Nations says that around US$1 trillion will be needed annually over the next 15 years for infrastructure investment by governments and the private sector. The World Bank estimates financing for infrastructure projects in developing countries is at US$300 billion per year. Private capital groups are raising record amounts from investors for their infrastructure funds.

Meanwhile, shifts in global investment flows are expected to accelerate. Rather than the global economy becoming less interconnected – in fact, the opposite will happen – interconnectedness will become increasingly concentrated within regions and among like-minded trading partners while manufacturers and service suppliers are diversified.

This trend is demonstrated by Mexico superseding China as the US’ largest trading partner. The US is likely to remain the leading recipient of foreign direct investment and the largest investor worldwide, followed by China.

The year ahead is on the cusp of generational transformations. In all these trends, hyper is the buzzword. Hyperconnectivity. Hyperreal. Hyperfast. Hyper … you name it.

James David Spellman, a graduate of Oxford University, is principal of Strategic Communications LLC, a consulting firm based in Washington, DC

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