Opinion
Four major elections and a rate cut: What to watch out for in 2024
Summary
- Geopolitical shifts, ongoing humanitarian crises, upcoming political power battles and central banks' interest rate cuts together could make for a newsy year ahead.
This column appears on the second working day of the new year, and, as is customary, it tries to discern the path ahead. Amid the known-unknowns, some developments look almost certain. It is fair to say that the world will continue to be influenced by geopolitical shifts and conflicts in the first quarter of 2024. The war in Ukraine and humanitarian crisis in the Levant look like spilling over to the new year and casting a shadow over the world economy. The US economy might finally buck a recession, the Eurozone will continue its search for the elusive growth sauce and global central banks might finally loosen their hold on monetary policy. This much seems a done deal. But it will be domestic politics that will hold the key to global economic prospects in 2024.
The world is likely to witness over 50 national elections during the year, of which four will be decidedly critical for the global economy: the US, Russia, the EU and India. The US presidential election will be a closely followed political event, what with Donald Trump unrelenting in his comeback bid despite formidable hurdles erected by the nation’s legal and regulatory institutions; opinion polls show him as the most popular choice. If he somehow manages to sidestep his legal challenges and win, some economic outcomes are predictable: climate denial, withdrawal from multilateral institutions and plurilateral agreements, rattling of trade sabres, anti-immigration laws, and a greater degree of protectionism. If, on the other hand, Trump is eventually barred from contesting on legal grounds, it will then be more of an open contest, with the US economy’s trajectory between now and November playing a large role. It is also possible for part of the campaign to spill into the streets.
In Russia, Vladimir Putin’s re-election as president seems like a foregone conclusion, even though some other contenders may dare enter the ring. If Russia had free and fair elections that precluded the incarceration of opposition leaders and allowed for a true alternative to emerge, it would be reasonable to assume some geopolitical reversion to the mean, with its attendant favourable impact on the global economy, especially commodity prices. But Putin’s re-election seems a certainty at this point, and that will have its own economic repercussions. The Eurozone story is different, where growth will continue to be elusive. The emergence of popular right-wing leaders across an expanding swathe of the continent will possibly mean an EU settling for tighter immigration barriers, higher trade-protection walls and lower climate ambitions, even as it tries to reverse recessionary impulses in some of its key economies, such as Germany and other industrial members.
That brings us to the Indian general elections which are likely to be held in either April or May. In the run-up to the elections, there is likely to be a shift in government expenditure patterns at both the Centre and states, with a pivot from capital expenditure to consumption. Competition among political parties to offer welfare benefits is expected to intensify, with the Bharatiya Janata Party government in New Delhi likely to expand and deepen its portfolio of social-sector schemes. Multiple forecasts, including from the Reserve Bank of India (RBI), have India’s economic growth slowing down marginally during 2024-25.
India’s problem will be balancing a runaway capital market with slowing consumption demand. One indicator of the misalignment is visible in non-financial corporate results: robust profit growth looks asymmetrical when compared with tepid top-line growth, which suggests rising premiumization alongside the wringing out of some cost efficiencies. The private sector’s reluctance to match steps with the government in increasing capital expenditure probably stems from concerns over unsustainable demand. The question mark over demand growth in 2024 is likely to loom larger as the elected government may have to tighten its fiscal belt after elections. Consequently, the giddy rise in market capitalization seems skewed when viewed through the lens of still largely somnolent corporate capex, tardy foreign direct investment inflows, and the Indian market’s stratospheric valuations when compared with other emerging markets.
One economic factor, for a change, is likely to influence domestic politics, especially in some countries that have national elections scheduled in 2024: the timing of rate cuts by their central banks. Wall Street expects the US Federal Reserve to start cutting rates from June 2024 onwards, after achieving a relatively fuller transmission of past rate hikes. The European Central Bank is also likely to follow suit around the same time, given that inflationary tendencies in the Eurozone have abated somewhat. It will be interesting to see RBI’s chosen path, which has usually implemented rate actions after the Fed’s meetings. The question on everybody’s minds: Will RBI cut interest rates before Indian elections, despite volatility in food and fuel inflation?
As always, there are two jokers in the new year pack. A lot will depend on China’s role in global geopolitical shifts and whether it can get back on a fast-growth path after a disappointing 2023. But the surprise of 2024 could well be Japan, as it starts raising interest rates out of negative territory, reflates the economy and displays nascent growth signs.
All in all, 2024 promises to be exciting, political and full of surprises.
