FY24 proved to be a year of resilience, with growth, inflation, and labor markets proving more robust than expected at the start of the year. Despite predictions of a slowdown, global growth exceeded forecasts, mainly due to the strong growth of the United States economy, which remained resilient thanks to increased government spending, a tight job market, rising wages, and positive wealth effects.

The manufacturing and housing sectors, which were under pressure for most of the year, also showed signs of stabilization by Q4FY24. In contrast, Europe and the UK witnessed a growth slowdown due to factors like war, high-interest rates, elevated natural gas prices, and weaker consumer confidence. China also faced challenges despite an initial growth boost after reopening, struggling due to deterioration in its real estate sector and weakening exports. Yet, robust consumption, especially in services, healthy industrial investment, and the government’s thrust on infrastructure helped to keep growth stable.

The growth disappointment in China led to commodity prices correcting during the year, despite continuing wars, rising geopolitical uncertainty, Red Sea crisis, and the risk of supply chain disruptions. Further, rising interest rates and concerns about a future slowdown had a negative impact on commodity markets. However, oil prices rose towards the end of the year driven by robust demand, production cuts by OPEC+, and intensification of war between Ukraine and Russia. Notably, gold performed unexpectedly well compared to other commodities, breaking its usual pattern of moving opposite to the US dollar and stocks, as China emerged as a large buyer. Inflation significantly receded from its peak across most Advanced Economies (AEs), driven by corrections in food, energy, and commodity prices. Although core inflation trended downward, it still remained relatively elevated, consistently above central banks’ targets throughout the year. Consequently, major central banks maintained a stance of tight monetary policy. Still, towards the end of the year, most central banks signalled the end of rate hikes in this cycle. India’s growth momentum accelerated, and GDP growth surpassed even the most optimistic forecasts, driven by robust growth in capital expenditure.

The surge in investments was particularly supported by a resurgence in real estate activities and a pick-up in the government’s infrastructure spending. Although private consumption saw only modest growth supported by urban demand, the rural sector faced challenges due to the uneven monsoon and elevated food inflation, resulting in subdued rural income. Gross Value Added (GVA) witnessed significant growth, primarily fueled by robust manufacturing and construction activities. However, the services sector activity decelerated as trade and hotels spending inched towards normalization. Contrary to expectations of a slowdown, growth was surprisingly resilient and better than expected in FY24, particularly in the United States.

The tight labor market, accumulated savings, and large wealth effect aided the growth momentum. Consequently, monetary policy tightened further across the AEs, and rate cut expectations were pushed out. In contrast, China’s economic activity faced challenges as the real estate sector continued to struggle despite multiple rounds of supportive measures. In India, the growth momentum remained robust, supported by buoyant economic activity, a thriving housing market, government thrust on capital expenditure, and strong corporate profitability.

Growth prospects for the upcoming year are expected to be sustained, propelled by a possible recovery in the rural sector, ongoing emphasis on capital expenditure, and easing inflation. The Reserve Bank of India (RBI) maintained the repo rate throughout the year but drained out liquidity, pushing the Weighted Average Call Rate (WACR) higher than the repo rate in H2FY24. While the external sector is modestly vulnerable due to elevated global interest rates, it remains well-protected by comfortable foreign exchange reserves and a manageable current account. Key risks to this outlook include the escalation of geopolitical tensions, a resurgence of inflation, tightening measures by major central banks, and a sharp rise in energy prices.

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By Sonika Rastogi

PG in IT, Sonika has total experience of 12 years. She has worked in the fields of Financial Planning, Investment Advisory, Experiential Learning and Overseas Education. Sonika’s strength lies in Research, Operations and Education.

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