Regional disparities persisted significantly at the close of 2023. While the looming specter of high interest rates and the retraction of fiscal support due to concerns over debt sustainability are anticipated to dampen growth in 2024, investors remain cautiously optimistic, banking on swift interest rate cuts. However, the resilience of labor markets and renewed strains on supply chains could necessitate a more stringent monetary policy stance than initially anticipated, dashing investors' lofty expectations.

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In the United States, the latter half of 2023 saw a modest performance. The enduring exceptionalism of the US economy persisted, with GDP climbing by 0.8 percent quarter-on-quarter following a robust 1.2 percent surge in Q3-2023. Once again, household consumption and government expenditures served as the primary drivers of growth. Notably, government spending contributed double the strength to GDP in 2023 compared to the average during the 2015-2019 period, indicating a significant boost from the public sector. However, declining savings rates and a surge in credit card growth played pivotal roles in sustaining household consumption, trends unlikely to endure indefinitely. Moreover, the lagged impacts of monetary policy tightening and gradual fiscal retrenchment pose additional headwinds.

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Conversely, the eurozone economy faced stagnation in Q4-2023, with GDP declining in Germany and marginally in France. Despite a surprisingly robust gain in the Spanish economy, largely fueled by government spending and inventory contributions to growth, the overall growth trajectory in the eurozone remains lackluster compared to the US. Looking forward, early indicators for 2024 suggest a persistently weak start, particularly in Germany, where the Ifo business confidence index unexpectedly fell for the second consecutive month in January. Global demand weakness and the aftermath of the energy crisis continue to plague Germany, while a rebound in consumer spending remains elusive.

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In China, household consumption emerged as the primary driver of economic growth in 2023, amidst a short-lived surge in activity following the lifting of pandemic restrictions. However, investment remained considerably weaker compared to pre-pandemic levels, comprising less than a third of GDP growth. Early indicators for 2024 suggest a fragile economy, with manufacturing PMI marginally increasing in January but remaining in contraction territory for the fourth consecutive month. While services PMI indicated expansion for the first time since October, confidence in the construction sector eased to a three-month low, highlighting persistent challenges in domestic demand despite stimulus measures.

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The People's Bank of China (PBOC) announced a 50-basis-point reduction in reserve ratio requirements (RRR) for banks to stimulate lending and spur broader economic activity. However, the impact remains limited amid ongoing deleveraging in the real estate sector and associated debt issues among major property developers, which also pose risks to local government finances.

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Amidst global supply chain improvements and lower commodity prices, inflation has been on a downward trajectory in recent quarters. However, risks of persistent core inflation persist, particularly driven by disruptions in global trade routes and geopolitical tensions. Tight labor markets in both the eurozone and the US raise concerns of elevated wage pressures, potentially leading to above-target medium-term inflation.

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In this environment, central banks face the delicate balancing act of supporting economic recovery while addressing inflationary pressures. Despite investor expectations of imminent rate cuts, central banks may adopt a cautious approach, closely monitoring wage data and economic indicators before adjusting monetary policy. Consequently, uncertainty looms over the duration of the current inflationary episode, suggesting that significant monetary easing may not materialize as expected.