In 2023, we expected a widespread economic recession . However, as the recession has not occurred, we have seen a wave of soft-landing predictions for the economy . Now the question is: should we expect the economy to slow down in 2024? I don't think so, and here are some of the reasons that make me believe that.
Let's start with the job market : the market is booming, as we have a historic low of unemployed people, both here in Brazil and in the United States and Europe. Layoffs remain close to historic lows, and salaries are being adjusted for or indexed to inflation . Consequently, as long as people are working, they will continue to spend - which will keep the economy out of recession .
Second, corporate profits ; I have been following the numbers coming from the quarterly reports of American companies . It's true that they haven't delivered profit growth as expected. However, they have not shown a drop in them either. I intend to address this topic in a more technical post, but as I have been following, 10% of companies have already released their results for the fourth quarter of 2023, and in aggregate, there is a 1.9% drop in company profits . So there's not much reason for companies to lay off workers if sales remain strong, especially since labor is hard to find.
Third: The likelihood of Fed rate cuts later this year will add more fuel to the economy . If the economy continues to grow and the Fed cuts rates , this could lead to even faster economic growth . More demand for labor, in turn, could put upward pressure on inflation and delay the Fed from achieving its goal of reducing the annual inflation rate to the central target.
Image 1: GDP forecast for 2024 (1.6%). Focus bulletin of 01/29/2024.
Lastly: Gross Domestic Product ( GDP ), the official metric for the economy , actually accelerated in 2023, contrary to many of the expectations of economists and analysts. This fact can be verified by data from the Focus Bulletin of January 2023. Almost no one predicted such optimistic numbers.
As a result, there is an increased probability of a soft landing , both in the United States and here in Brazil. A soft landing refers to a situation in which the Monetary Policy Committee raises interest rates enough to contain rising inflation , but not so much as to cause an economic recession . Which would be quite a feat, after so many geopolitical conflicts and the enormous losses from the pandemic.
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Image by: Unsplash/ Tahamie Farooqui
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