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Don’t Extrapolate Last Year’s Trends for the Global Economy

The unexpected resilience of the global economy in 2023 has led many analysts to adopt an optimistic outlook for the upcoming year. But given the escalating crisis in the Middle East and persistent market volatility, the chances of a robust worldwide economic recovery appear slim.

CAMBRIDGE – Behavioral economists have popularized the term “recency bias” to describe our tendency to be disproportionately influenced by the latest events compared to earlier ones. Could this cognitive phenomenon explain why numerous analysts have a rather optimistic tilt for the world economy in 2024? Or are there really positive trends counterbalancing the obvious and mounting challenges to global growth?

A recent Financial Times editorial reflected the prevailing optimism, proclaiming that “after this year’s resilient showing, there is every chance that the reality next year will also be better than expected.” The trends that supported the global economy’s unexpected resilience in 2023 “also offer plenty of reasons to be optimistic for 2024.”

This upbeat mood has spread to financial markets. A growing number of commentators have predicted that stock markets will finish the year above the already elevated levels of 2023, which were buoyed by a remarkable year-end rally.