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.”