European Central Bank (ECB) President Christine Lagarde attends a session on the closing day of the annual meeting of the World Economic Forum (WEF) in Davos, January 19, 2024.
Fabrice Coffrini | afp | fake images
European Central Bank President Christine Lagarde said she does not expect a return to economic “normality” in 2024, despite seeing a balance in some data over the past 12 months.
At 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 caused a drop in spending and an increase in people’s savings, while global trade was also affected. In October 2022, euro area inflation reached 10.6%, but fell in 2023, reaching 2.9% in December.
“In 23 we have seen the beginning of normalization,” he said on Friday. “When you look at consumption, for example, around the world…consumption remains a driving force for growth, but the tailwind that benefited us is gradually fading,” Lagarde said. Consumption weakened, she said, as the labor market became a little less tight and consumers’ savings dwindled.
Meanwhile, trade was disrupted by consumers’ preference to buy services over goods in 2021 and 2022, Lagarde said. “But now it is starting to recover and in October we had global trade numbers that increased for the first time in many months.”
The World Trade Organization (WTO) expects trade to increase by 3.3% in 2024, according to a forecast published in October.
Lagarde also highlighted the broad drop in inflation in 2023. “Around the world, inflation is falling, and we saw it in November [in] both general inflation and underlying inflation,” he said.
“So that’s what I call the normalization that we’ve seen in 2023,” Lagarde said on the panel, adding somewhat cryptically: “And maybe you’ll give me the floor another time to talk about how it’s not normal that we’re heading toward.” “
In December, the ECB opted to keep rates unchanged for the second time in a row, changing its inflation outlook from “expected to stay too high for too long” to expectations that it “will gradually decline over the course of next year.”
Speaking on the same panel, WTO Director-General Ngozi Okonjo-Iweala agreed that the economy “may be moving towards normalization,” but described it as “not normal, because trade growth still has a lower trend than GDP growth.
Okonjo-Iweala pointed to uncertainties that make forecasts “difficult,” including geopolitical conflicts, disruptions in the Red Sea and elections around the world.
A ‘new normal’
German Finance Minister Christian Lindner characterized the current economic situation as a “new normal.”
Speaking on the same WEF panel, he said: “As for what will happen in the coming years, Christine [Lagarde] He said OK, we are in the normalization process. “I would say we are witnessing a new normal and 2023 marks this new normal.”
“Think about the artificial intelligence race… think about the geopolitical tension and threat of fragmentation that we will have to face in the coming years. Higher debt levels after the pandemic and increases in energy prices, that have reduced our fiscal space for financial transformation, and given… very few growth prospects for the global economy,” Lindner added.
“Has the year 2023 given me hope?… I would put it this way: it was a call to action because we have to reorganize some policies and… we are probably at the beginning of an era of new structural reforms,” said.
Germany’s economy, Europe’s largest, contracted 0.3% year-on-year in 2023, its Federal Statistics Office said on Monday. The office said the German economy stagnated in the third quarter, meaning the country has narrowly avoided a technical recession.
— CNBC’s Ruxandra Iordache and Jenni Reid contributed to this report.
