Economic Outlook 2024: Striking a balance between prices and priorities

The start of the 2020s brought unprecedented fluctuations in the global economy, but next year marks a new chapter. In 2024, consumers and businesses large and small will face crucial decisions about spending and investing, where price differentials and interest rates have burrowed into budgets, informing the resources available with less wiggle room.

While the global economy will feel more “normal” in the coming year than the prior three, it will still be an economy seeking equilibrium, with a careful balancing of high interest rates, wages and prices compared to pre-pandemic levels. The backdrop, however, remains one of consumer empowerment with moderating inflation and steady real economic growth but with varied regional dynamics.

Today, the Mastercard Economics Institute released “Economic Outlook 2024,” an annual report drawing on a multitude of public and proprietary datasets, including aggregated and anonymized Mastercard sales activity, as well as models that are intended to estimate economic activity to identify the themes that will define the global economy. The report reveals an empowered consumer, inflation decompression and central bank recalibration. Reflecting these global themes, targeted measurements reveal the regional impacts across 45 markets. Here are four critical findings from the report. 

01
Spending is prioritized on the 'needs' and 'wants' but not the 'impulse'

Even with inflation taking a larger chunk of spending on essentials, consumers will prioritize the discretionary spending that matters most, with travel and events remaining popular choices. Through September 2023, American spending on movies and live performances grew 31% from 2022, confirmation that Taylor Swift, Beyoncé and “Barbenheimer” captured consumer attention and cemented must-see experiences as part of the cultural zeitgeist. Across the pond, European travelers are opting for wallet-friendly destinations to satisfy their wanderlust at the right price. The Middle East and North Africa region is seeing a particular boost from tourism: Turkey, Egypt and Tunisia were in the top five fastest-growing destinations for Europeans in 2023, while bookings to Italy, Spain, Portugal and Greece contracted over the same time, a trading-down trend we expect to accelerate in 2024.

02
An employed consumer is an empowered one

The consumer remains resilient — we heard it all year and will again in 2024 as a strong labor market underpins consumer purchasing power. In some cases, this is best reflected by wages outpacing inflation, as in the Eurozone, where wages in September 2023 were up 4.7% year over year, and inflation increased by 4.3%. The easing of monetary policy will help sustain consumer spend in interest-sensitive sectors.

03
Inflationary pressures begin to ease as central banks course-correct

Central banks are likely at or close to peak rates, according to the Mastercard Economics Institute. Some easing is expected next year as inflation cools while growth remains subdued, prompting a partial normalization of monetary policy. Globally, the Mastercard Economics Institute expects inflation to moderate to 4.9% year over year in 2024, down from 6% in 2023 but remaining above the pre-pandemic trend of 2.7%. Despite that, our group predicts that global economic growth in the coming year will feel similar to 2023 and anticipates inflation-adjusted GDP to grow 2.9% year over year in 2024.

04
The living room as a dressing room, e-commerce returns outpace in-store

With supply chains finally untangled, consumers can once again wait until the last minute for purchases with few constraints, and perhaps add more options to their cart to try on at home. Paired with the pandemic-fueled acceleration of businesses going online for the first time, increased returns may point to increased customer loyalty, where shoppers’ growing comfort with e-commerce increases sales and returns — and also repeat visits. Across 10 economies, the rate of returns for online transactions grew from 2019 to 2023, but it remained relatively unchanged in-store. In Spain this was particularly pronounced, with the e-commerce rate of return increasing by 9.8% from 2019 to 2023, while for brick-and-mortar it increased only 0.1% during the same time.

As with every new year, many risks remain on the horizon — social and political tensions, geopolitical conflict, cost-of-living instability, and currency depreciations —any combination of which has the ability to detract from or define an economy’s outlook. The main upside risk is that a new technology can trigger a second “new paradigm” productivity boom, and perhaps that’s possible with generative AI or whatever else emerges next year. However, history shows that the timing and magnitude of such a meaningful shift is very hard to pin down. The Economics Institute advises to stay on watch. See you in 2024.