Global Economy Faces 2024 Challenges: What Should Investors Do?

The global economy is navigating a complex environment, marked by resilience in certain areas but significant vulnerabilities. Growth in 2024 is projected to reach only 3.2 per cent, well below the pre-pandemic average of 3.8 per cent, reflecting ongoing challenges from financial market volatilities and geopolitical tensions. Central banks are reacting with divergent policies—advanced markets have started easing rates, while emerging economies maintain tight stances to control persistent inflation. This divergence is generating capital flow volatility and fluctuating bond yields, particularly affecting emerging markets that are more exposed to external shocks.

The trajectory of energy prices is a critical factor. After Brent crude oil prices fell from $90 to below $70 per barrel earlier this year, geopolitical tensions, especially in the Middle East, have pushed prices back towards $80. This rebound threatens to reignite inflationary pressures, particularly for energy-importing nations, and could raise global inflation by 30 basis points, shaving 15 basis points off growth. 

Arsh Mogre, Economist, Institutional Research, PL Capital, decodes the global economic situation and how it will impact India.

“Emerging markets are especially vulnerable to this, as energy and food account for larger shares of inflation baskets, meaning the rising cost of living could erode purchasing power and dampen consumption. Food prices, driven by volatile agricultural commodities, have also stayed elevated, particularly affecting emerging markets,” says Mogre. 

Further complicating the outlook is the divergence in central bank actions globally. While some central banks are starting to loosen monetary conditions, emerging economies remain focused on curbing inflation, which has created uncertainty in global capital flows and weakened the prospects for coordinated global recovery. 

The U.S. dollar, while slightly down from its mid-2024 peak, remains strong, adding pressure on emerging market currencies and leading to tighter financial conditions in these economies.

“A prolonged period of high energy prices, ongoing geopolitical conflicts, and continued financial market volatility could further erode global growth prospects. On the upside, a faster resolution of geopolitical tensions and stronger trade recovery could boost global growth by up to 50 basis points. However, the global economy remains highly sensitive to these factors, and any further shocks could trigger a deeper slowdown,” says Mogre. 

In summary, while the global economy shows resilience, it is walking a tightrope. Inflationary risks, driven by energy and food prices, are far from being resolved, and central bank actions will continue to play a pivotal role in shaping the future. Any further escalation in geopolitical tensions or market instability could derail growth significantly, while careful navigation of these risks could still allow for moderate expansion. The outlook demands cautious optimism but remains vulnerable to sharp corrections if these risks materialise.

What It Would Mean For The Indian Markets 

Despite the global slowdown, high interest rates, and ongoing geopolitical risks, equity markets in major economies have performed well over the past year, leading to a significant expansion in valuation multiples in many regions. 

“With the continued deceleration of global growth, the possibility of short-term market corrections is high. Given India's integration with the global economy, similar short-term corrections in Indian markets cannot be ruled out,” says Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers. 

However, India remains the world’s fastest-growing major economy, and while corporate earnings have slowed, they are expected to accelerate in the second half of the fiscal year. “While certain mid-cap stocks appear overvalued, the valuations of large-cap and small-cap indices are more reasonable. Therefore, despite the risk of short-term corrections, the medium- to long-term outlook for Indian equities remains positive,” says Hajra. 

In fact, the markets react almost immediately to any rumours or looming signs. Recessions by definition happen over a period of time, and you can see some clear signs of slowdown. “Now, when it comes to the recession, an American led recession, of course it would affect the markets especially in the states and send a reverb across the others. The Indian domestic markets would react negatively to the news, especially because of our heavy indexing on export services, however, the domestic growth numbers and cues are still strong,” says Saksham Malik, Founder, Rabbit Invest, an AI-led mutual fund advisor.

Which means, the markets would take a hit or a correction especially a long due one, but as the fears start getting realised, the correction will not be of a very high magnitude. 

What Should You Do? 

The markets did take a hit, especially at the start of the Iran-Israel conflict, and have since meandered around their expected resistance. However, if you are a long-term investor in mutual funds you have little to worry. 

“Mutual Funds and SIPs are long term assets, a minor blip or a couple of months of a market downfall should not deter investors. Mutual Funds and SIPs are designed to work through the peaks and troughs of the market. Especially SIPs, as the markets fall and NAVs go down, your average cost of acquisition also falls, improving your overall returns. So, long term investors need not worry,” says Malik. 

“In the context of global market volatility, my investment advice is to remain cautiously optimistic, with a focus on India's promising position as a global bright spot. While many countries face recessionary fears, India's economy is forecast to grow at a robust 6.7 per cent in 2024, making it one of the fastest-growing major economies globally​. This resilience is driven by strong domestic demand, policy continuity, and government-led infrastructure investments, positioning India favourably despite global headwinds like rising geopolitical tensions and energy price volatility​,” says Mogre. 

The NIFTY’s recent flat performance, impacted by factors like prolonged rains and upcoming state elections, reflects short-term caution, but India’s economic fundamentals remain strong.

Morgre suggests that investors should target key sectors showing resilience, such as capital goods, infrastructure, healthcare, and new energy, which are aligned with India’s long-term growth trajectory. With rural demand gradually recovering, aided by government initiatives like increased MSPs and export policy changes, these sectors are well-positioned for growth. However, the global outlook remains fragile due to geopolitical risks and inflation pressures.

However, short-term risks remain, particularly from geopolitical tensions and global supply chain disruptions. “Investors should focus on stock-specific opportunities in sectors aligned with India's structural growth drivers while avoiding overexposure to high-volatility areas like global technology stocks. India's strong economic fundamentals, paired with targeted sector investments, make it a compelling choice for navigating the global market landscape,” he adds. 

Despite recent volatility from geopolitical tensions, long-term mutual fund investors can remain confident. With India's 6.7 per cent growth forecast for 2024, targeting resilient sectors like infrastructure and healthcare will help investors navigate challenges and capitalize on the country's promising economic outlook.