Economic Outlook for Second Half of 2024: U.S. Inflation, Debt, Consumer Spending, Geopolitical Tension in 2024

As we progress through 2024, the U.S. economy continues to face significant challenges and uncertainties.

One of the primary concerns for the U.S. economy remains inflation, which, although slowly moving towards the Federal Reserve’s 2% target, remains stubbornly high. This persistent inflation is exacerbated by elevated government spending, which shows no signs of slowing down. As a result, a sustained downward trend in inflation remains uncertain. Here’s a US perspective on the economic outlook by Eric Morgan and global perspective by Christian Mueller.

The Mounting U.S. Government Debt

The U.S. government’s debt is set to hit an alarming $35 trillion, surpassing 120% of the country’s GDP. With structural deficits projected to persist into the near future, this figure is only expected to climb higher. This burgeoning debt brings with it significant implications, particularly in terms of the interest expense, which now exceeds defense spending. This reality is likely to increase political pressure on the Federal Reserve to cut interest rates.

The Role of Consumer Spending

Consumer spending is a critical component of the U.S. economy, accounting for roughly 70% of GDP. Several factors contribute to this anticipated decline, including high interest rates, record levels of consumer debt, and a softening job market. The rise in credit card delinquencies further underscores the financial challenges faced by consumers. A sustained decrease in consumer spending would likely lead to at least a technical recession. This potential downturn is compounded by the uncertainty surrounding the upcoming election, which could also drag on economic growth in the latter half of 2024. Depending on the election outcome, changes in trade policies, tariffs or taxes could have a noticeable impact in 2025.

The Port of Baltimore Closure

The collapse of the Francis Scott Key Bridge has blocked access to the Port of Baltimore, a major hub for goods such as cars, forest products, and farm equipment. This incident has added additional disruption during a time of route disruption in the Suez Canal, affecting supply chains.

Ships have been quickly rerouted to other East Coast ports like Norfolk or New Jersey, and the port has been open since mid-June, but the economic impact remains significant. Maryland Governor Wes Moore stated that over 8,000 jobs were affected, and the economic impact of the closure is estimated at $15 million per day.

U.S.-China Conflict

Tensions between the U.S. and China continue to escalate, particularly over Taiwan. This conflict poses medium to long-term risks, with potential implications for global stability.

Additionally, the U.S. has implemented an industrial policy to both safeguard and advance certain sectors, which includes restricting Chinese access to U.S. technology, and tariffs on specific goods, like electric vehicles. In response, China may take retaliatory trade actions. However, this situation is unlikely to escalate as both countries continue to value their bilateral trade relationship.

The U.S. Outlook for the Remainder of 2024

High interest rates, record consumer debt levels and a softening job market remain threats through the end of the year, and uncertainty around elections could also weigh down growth in the second half of 2024. Despite these challenges, there remains a cautious optimism for the U.S. economy. While the road ahead is not without its speed bumps, the resilience of the American economy offers hope.

Global Geopolitical Overview: Key Issues and Potential Risks

As we move through 2024, and investigate next year, several key global geopolitical conflicts and risks continue to shape the global landscape. From the Russia-Ukraine conflict to rising cyber threats, tensions in the South China Sea, and turmoil in the Middle East, these issues have implications for the global economy outlook.

Russia-Ukraine Conflict

The conflict between Russia and Ukraine shows no signs of abating and is likely to continue into the next year. G7 (Group of Seven) countries have provided additional support to Ukraine using earnings from frozen Russian central bank assets. However, there is concern that political and economic support for Ukraine may wane over time.

Geopolitical tensions between NATO and Russia remain elevated due to the conflict and its unpredictable nature.

Conflict Over the South China Sea

In addition to U.S.-China tensions, the dispute between China and the Philippines over territory in the South China Sea has heightened tensions in the region. This could further complicate the geopolitical landscape.

Gulf Tension

While the situation in Gaza is relatively contained in terms of its impact on the global economy, the humanitarian crisis remains catastrophic. Tensions between Israel, the U.S., and Iran persist, with U.S. Secretary of State Antony Blinken warning that Iran is not too far from producing enough material for a nuclear weapon.

Across the Red Sea, Houthi attacks have increased the likelihood of a larger regional war. This could significantly impact global markets, as 12% of global maritime trade passes through the Red Sea. These attacks are likely to keep freight insurance rates high, cause longer trade routes, disrupt supply chains, and ultimately increase inflationary pressures.

Cyber Attacks: A Growing Geopolitical Threat

The increasing number and complexity of cyber-attacks pose significant geopolitical risks all over the world. These attacks threaten not only organizations but also national security. As cyber threats grow larger and more powerful, the potential for disruption and damage on a global scale increase.

Conclusion

The global geopolitical landscape is fraught with risks and uncertainties. From ongoing conflicts and cyber threats to regional tensions and infrastructure disruptions, these issues have significant implications for global stability, security, and economic growth. As these situations evolve, it is crucial for policymakers, businesses, and individuals to stay informed and prepared for potential impacts. For a global economic outlook, read our most recent report here.