Davos leaders see a new normal in 2024

European Central Bank President Christine Lagarde said she does not expect a return to economic “normality” in 2024, despite seeing a balancing of certain data points throughout the last 12 months.

Speaking on a Bloomberg panel at the World Economic Forum in Davos, Switzerland, Lagarde described the post-pandemic period as “strange, extraordinary and difficult to analyze” and identified three trends that began to normalize last year: consumption, trade and inflation.

The pandemic saw spending fall and people’s savings grow, while global trade was also disrupted. In October 2022, euro zone inflation hit 10.6% but dropped off in 2023, coming in at 2.9% in December.

“In ’23 we have seen the beginning of normalization,” she said on Friday. “When you look at consumption for instance, around the world … consumption is still a driving force for growth, but the tailwind that we had the benefits of, are gradually fading,” Lagarde said. Consumption softened, she said, as the jobs market became a little less tight and consumers’ savings reduced.

Trade, meanwhile, was disrupted by consumers’ preference for buying services over goods in 2021 and 2022, Lagarde said. “But it is beginning now to really pick up and in October, we had global trade numbers that for the first time in many months was up.”

The World Trade Organization (WTO) expects trade to increase by 3.3% in 2024, per a forecast released in October.

Lagarde also noted the broad fall in inflation in 2023. “Around the world, inflation is coming down, and we have seen it in November [in] both headline inflation and core inflation,” she said.

“So that’s what I call the normalization that we have observed in ’23,” Lagarde said on the panel, adding somewhat cryptically: “And maybe you’ll give me the floor another time to talk about it how it is not normality that we are heading to.”

In December, the ECB opted to hold rates unchanged for the second time in a row, shifting its inflation outlook from “expected to remain too high for too long” to expectations that it will “decline gradually over the course of next year.”

Speaking on the same panel, WTO Director General Ngozi Okonjo-Iweala agreed that the economy is “maybe moving towards normalization” but she described it as “not normal, because trade growth is still trending below GDP growth.”

Okonjo-Iweala noted uncertainties that make forecasting “difficult,” including geopolitical conflicts, disruption in the Red Sea and elections around the world.

Germany’s Minister of Finance Christian Lindner characterized the current economic situation as a “new normal.”

Speaking on the same WEF panel, he said: “Looking to what will come over the next years, Christine [Lagarde] said OK, we are in the process of normalization. I would say we are witnessing a new normal and 2023 marks this new normal.”

“Think about the race of artificial intelligence … think about the geopolitical tension and the threat of fragmentation we will have to deal with over the next years. The higher debt levels after the pandemic and the energy price hikes, which has shrunk our fiscal space to finance transformation, and given … very little growth perspective of the global economy,” Lindner added.

“Has 2023 given me hope? … I would put it this way: It was a call for action because we have to rearrange some policies and … probably we are at the beginning of an era of new structural reforms,” he said.

Germany’s economy — Europe’s largest — contracted 0.3% year-over-year in 2023, its Federal Statistical Office said Monday. The office said that the German economy stagnated in the third quarter, implying the country has narrowly avoided a technical recession.