Balancing prices and priorities

A new chapter is expected to unfold in 2024, according to the Mastercard Economics Institute (MEI), with consumers and corporations facing, at times, difficult decisions about spending and investing. With interest rates, wages and prices high relative to pre-pandemic trends, many of us will prioritize resources carefully.

The backdrop, however, remains one of consumer empowerment with moderating inflation, steady real economic growth and varied regional dynamics.

  • 2024 should be marked by easing inflation pressures across most economies. MEI expects inflation globally (consumer price index) to moderate to 4.9% year over year (YOY) in 2024 from 6.0% in 2023. While inflation will be lower, it is expected to remain above the pre-pandemic trend of 2.7%.
  • Removing inflation, “real” growth in 2024 is likely to feel like 2023. MEI expects real global GDP growth of 2.9% YOY in 2024, compared to 3.0% in 2023.
  • Consumers should continue to spend, owing to strength in the labor market. With price inflation cooling more than wage inflation, purchasing power should increase.
  • Central banks are likely at or close to peak rates. MEI expects some easing in 2024 as inflation cools while growth remains subdued. This could prompt a partial “normalization” of monetary policy.

While MEI believes that the global economy will feel more “normal” in 2024 than the prior three years, it is still an economy in the process of rebalancing. This means consumers and corporations will be mindful of how to prioritize their spending and investment in an environment of shifting relative price differentials and higher borrowing costs.

Adding to these macro dynamics are the continued behavioral changes by consumers in how and why they shop. In a global economy that is still fluctuating, empowered consumers are finding their equilibrium by carefully balancing prices and priorities.

Mastercard Economics Institute 2024 Forecasts by Market





The regional story
A world with multi speed economies

The regional dynamics

There are three common themes for the global economy: empowered consumer, easing inflationary pressure and a course correction for central banks. That said, the narrative very much differs across regions. Those differences are driven by social and political tensions, geopolitical risks, cost of living, access to credit, debt sustainability and currency depreciations.

One theme is the continued disparity between manufacturing and service economies, with service-led economies in a better position. Spain, a service-led economy, has benefited from robust domestic demand and a global focus on “experiences” over “things.” India, another service-led economy, has seen a tailwind from robust domestic demand and easing supply constraints, as reflected in both the travel industry and labor market. But Germany, a manufacturing economy, has struggled with competition, geopolitical instability and declining global demand for consumer goods.

However, MEI expects the divergence between manufacturing and service economies to narrow compared to 2023. As the global manufacturing cycle turns, the services sector runs into capacity constraints, and disinflationary trends favor increased demand for goods. In the emerging world, energy exporters will likely continue outperforming energy importers due to higher energy prices.

United States

Fed up: a story of trade-offs in the US
Key messages:
  • Consumer resilience during the past few years will continue but a slowdown in overall growth is likely.
  • Inflationary pressure has greatly diminished, supporting consumer purchasing power but dampening retail pricing power.
  • As high interest rates transmit into the economy, corporations and consumers will increasingly respond to higher borrowing costs.

2024 will be a year of trade-offs. Consumers and corporations alike will make choices about how to spend and invest as the business cycle ages and growth slows. MEI is forecasting real GDP growth of 1.7% in 2024, which is a moderation from the expected 2.4% pace in 2023. Job creation is likely to slow but remain healthy, while inflationary pressures ease. This should lead the Federal Reserve to start cutting rates in the late Spring and slowly “normalize” policy.

A key theme for 2024 is the “need” and the “want.” Consumers will spend on the “need” and the “want” but not on the “impulse.” Looking back at spending trends through Q3 of 2023 to understand consumer priorities, we see spending on “wants” dominating “needs.” At the top of the list, ranking by spending growth, is spending on “movies and live performances,” which is up a stellar 31%. Taylor Swift, Beyoncé and blockbuster releases made a splash!

While MEI sees continued momentum in spending on experiences and self-care through the end of 2023, growth rates in 2024 are unlikely to be as impressive given harder “comps.” “Impulse” spending, which is less intentional and thought of as an “add on” to a shopping trip, could continue to struggle in 2024. This will result in a less bifurcated spending basket than in 2023, although there still will be clear differentiation, especially given relative price differentials and the trade-offs consumers will make.


Debt concerns
Key messages:
  • While large debt burdens and high interest rates pose downside risks to the economy, the counterbalance comes from positive immigration trends and onshoring.
  • After a retrenchment in the middle of 2023, the economy should return to subdued GDP growth in 2024 while inflation slows and the Bank of Canada begins rate cuts.
  • The key risk is high debt burdens, which are exacerbated by variable mortgage rates.

MEI expects real GDP to increase by 0.8% in 2024 following an estimated 1.1% increase in 2023. A modest uptick in the unemployment rate is likely and underlying inflationary pressure should continue to subside. The Bank of Canada has likely concluded its hiking cycle with a policy rate of 5%, but cuts are unlikely to start until Q2 and should be gradual.

The path of the housing market in Canada is critical to the outlook:
  • Housing affordability is already under pressure given the extent to which home prices have exceeded income growth (see chart below).
  • In part due to high housing costs, household debt is 168% of disposable income.
  • Mortgage rates tend to reset faster than in the US due to the prevalence of variable rate mortgages and fixed rate mortgages under 5 years.

Housing-related spending declined throughout 2022, along with the drop in home sales, but has started to show some recovery. However, with likely persistently high mortgage rates, MEI expects additional strain on housing and housing-related spending in 2024.

Two important structural dynamics could help offset the negative drag from higher rates:
1) The push toward more diversified supply chains encourage “friend shoring” – moving production to Canada and Mexico.
2) Policies to encourage immigration, which leads to stronger labor force growth.

Latin America

A year of consolidation as inflation stabilizes
Key messages:
  • In 2024, MEI forecasts a GDP growth slowdown in key Latin American economies.
  • Consumer spending growth should moderate compared to 2023 but remain resilient on the back of strong labor markets.
  • Sustained global demand for commodities remains key to economic performance, while the possibility of higher food prices is a key risk factor.

In 2024, most of Latin America will be reaping the benefits of its tumultuous but persistent commitment to stabilizing inflation. The final stretch of the disinflation process will see a smooth slowdown in GDP growth, rather than the hard landing that typically followed high-inflation episodes in the region. The policy rate cut cycle is set to provide relief to consumers, whose debt service has climbed in the face of high rates.

Brazil and Chile have taken the lead in the region in this cycle, with Colombia and Mexico staying behind for different reasons – sticky core and food inflation in Colombia and remarkable economic resilience in Mexico. In 2024, MEI expects rate cuts to spread through the region and to support households as they consolidate their debt.

The continued easing of monetary policy will help sustain consumer spend in interest-sensitive sectors, while income-sensitive sectors are likely to lag as households control their expenses. The good news is that labor markets will remain strong in the economies that have outperformed. In addition, labor markets will finally turn the corner in the region’s underperforming economies, with real wages expected to show modest but consistent growth.

As Latin America pursues a smooth slowdown, the key downside risks are external. An economic slowdown abroad, especially in China and the US, is the greatest potential threat to Latin America’s economic performance in the year ahead.

A slowdown in China would hit the economies of South America particularly hard through a decline in demand for agricultural products and metals. Central America and the Caribbean are more vulnerable because of the US slowdown from weaker exports and lower remittances.

Another pressing risk is the impact of the El Niño on food inflation – droughts in particular regions and intense storms in others may affect agricultural production and transport.



Resilient but unimpressive growth in 2023 giving way to a slightly better 2024
Key messages:
  • MEI expects GDP growth to modestly accelerate in most countries in 2024 but remain below trend.
  • Growth rates in the manufacturing and service sectors are likely to converge in 2024 relative to 2023.
  • As the share of consumer spending on discretionary categories increases, more spending will likely happen for goods, particularly after accounting for relative price differentials.

In 2024, European GDP growth is expected to accelerate modestly, driven primarily by rising consumer purchasing power as wage growth outpaces inflation and by an improvement in manufacturing. However, GDP growth will remain below trend as high interest rates and tighter fiscal policy prevent a more meaningful rebound.

The divergent economic performance between the services and the manufacturing sectors is likely to narrow. Services face capacity constraints and higher prices, while, manufacturing is likely to benefit from higher demand for goods, lower prices relative to services, a more favorable inventory cycle and a lower drag from high energy prices and interest rates.

MEI also expects more convergence in spending between relatively more affluent and less affluent consumers. More affluent consumers were less impacted by high inflation - driven by essential items such as energy and food - and maintained their discretionary spending.

Less affluent consumers prioritized spending on essentials and were forced to pull back on discretionary spending. High interest rates are now forcing more affluent consumers to prioritize higher mortgage payments so they are likely to reduce discretionary spending. Less affluent consumers will feel more of an impact from disinflation, allowing them to increase discretionary spending. This convergence may also impact the breakdown of consumer spending across categories.