Five questions about the economy in 2024

Published on: 11 January 2024

What will determine the economy in 2024? Predicting that is obviously difficult. Nevertheless, Thijs Knaap and Charles Kalshoven, both macroeconomists and expert strategists at APG, answer five questions about what this year will bring in economic terms. Kalshoven: “We could still end up in a recession more severe than last year’s.” 

Will it still be relatively easy to find a job?

One thing that is clear is that the labor market will continue to be tight this year. “In the past, periods of tightness and unemployment would alternate, but currently, employment is staying low,” Knaap says. “The aging of the population is always an important factor in this. And so-called labor-hoarding also plays a role. That is, employers are keeping their redundant workers because they are afraid that when the economy picks up again, they will not be able to find new people.” A third factor is bringing back production from low-wage countries. The tightness in the labor market is annoying for employers who are desperate for staff, but the advantage is that it enables the economy to take a hit, Knaap argues. “After all, almost everyone who is laid off now will quickly find a new job.”


Will fighting high inflation lead to a soft economic landing?

Whereas the financial markets seem to be anticipating a scenario where inflation gradually declines and we won’t end up in a recession, Kalshoven believes this is unlikely. “It can go two ways. In the past you often saw that inflation first falls but later rebounds. There are signs of this now as well. For example, service inflation remains on the high side and the labor market remains tight. This would mean that central banks could not drop interest rates so quickly. It could also be that the sharp rise in policy interest rates has not yet fully worked its way through to the economy. Then we could still end up with a recession; one more severe than last year’s.”


Possibly the rise in the number of bankrupt companies in recent months points to that scenario. Whereas in previous years vulnerable businesses were kept afloat by Covid support and a rebounding economy, increased interest costs and labor costs may cause the increase in bankruptcies in recent months to continue this year. “Employees of a company that has gone bankrupt can still easily find work elsewhere now. During a recession, I wouldn’t immediately think of mass unemployment either, like in the 1980s. I’d just expect fewer job openings. And that will also end wage increases in the double digits. A recession is painful, of course. Not all businesses can survive. But for the most viable companies, it does create more room for growth afterward - for example, because they’ll be able to attract new employees, just like the bursting of the Internet bubble in 2000 was a boon for Google.”

Is a bankruptcy wave the only threat to low unemployment rates?

There is another, more fundamental trend that could end the tight labor market, and that is Artificial Intelligence (AI). “That has the potential to make many jobs redundant, and then it will not be so easy to quickly find a new job,” Knaap contends. This is a longer-term thing, though, Kalshoven adds. “Bill Gates once said that we overestimate the changes for the next two years, but underestimate what will change in the next 10 years. Also, in the past, many professions also disappeared, but many others took their place. An important question is whether AI can take over part of your job, or make your job completely obsolete. In any case, it is possible that wages in certain professions will fall in the coming years because of AI. Translators, for example. Artificial intelligence will take work off their hands. That may reduce demand for their services. But on the other hand, the overall demand for translation - and the necessary human corrections to it - may increase. How that balance will tip over into different industries is impossible to say at this point.”

We see that governments want to adjust the economy with their fiscal policy more often

What economic winds will blow from the United States?

2024 will also be the year of elections. The EU will go to the polls for the European Parliament, for example, and there will be presidential elections in the United States. Knaap: “This year, there is increasing uncertainty about what will happen after the elections, especially in the U.S., where Trump has a chance to get back into the White House.”


And even though US public finances are not in particularly rosy shape, a re-elected President Trump is very likely to cut taxes, Kalshoven continued. “Therefore, Democrats feel no incentive to put public finances in order now. If they do, there is a good chance that a Republican president will make good on a tax cut.”

The U.S. is likely to make greater demands on the capital market in the near future anyway. Partly because of an aging population, the energy transition and the deglobalization trend - which generally makes manufacturing more expensive. “We also see that governments want to adjust the economy with their fiscal policy more often. Although the 20-year interest rate, which pension funds use for their calculations, has fallen sharply in recent months, developments such as these could cause interest rates to rise again. The only question is whether this will happen by 2024.”

Will China rebound this year?

Looking east, it is interesting to see what China will do. Kalshoven: “That country seems to be at a crossroads. Will they choose to solve the problems surrounding real estate investment and give free enterprise a chance, or do they want to be more controlling? They can do that with monetary or fiscal policy and by focusing fully on the growth of some specific sectors. That does make it difficult to remain innovative. Plus, these are less labor-intensive sectors, which will not solve youth unemployment. The question is whether this is the way to restore confidence in the economy.”


Knaap thinks that China will at least fare better this year than in 2023. High economic expectations were not met in 2023, and Chinese stock prices fell, where they actually rose in many other countries. “However, it seems that China’s economic downturn has reached rock-bottom. The country is still too young for a long-term downward spiral and too much needs to be done for that. It does need a different model to find its way back up, because an economy based on debt or production for foreign countries no longer works. However, the country is big enough to run its economy on mainly domestic consumption, as the United States has done for years.”

Should China’s economy continue to languish for a while longer, the country may start exporting deflation, Kalshoven adds. “That will moderate inflation here, but will also mean fewer export opportunities for Dutch companies. If, on the other hand, China quickly picks up steam, that will be good news for European economies, but not for the inflation-fighters at the European Central Bank, among others. So, China is and will continue to be a factor of significance.”