17/01/2024

What will the world look like in 2024? 

2024 is likely to be challenging. Financial conditions are all but certain to remain tight and the fundamental reset of macroeconomics and geopolitics is continuing.

The world speed is challenging; it’s dizzying and makes it hard to maintain perspective. However, as we have entered a new world order, a new strategic and diversified approach to business and investments is needed to be better prepared to face the challenges of the year ahead.

The old, pre-pandemic regime— characterized by efficient global trade, cheap abundant energy, and excess labor— was supported by low inflation and low interest rates. Fast-forward to today and we see a new regime unfolding, characterized by deglobalization, peaking energy productivity, and tight labor, likely to result in higher-for-longer inflation and interest rates.

The global economic landscape is in flux. The sharpest monetary policy tightening in four decades slowed growth less than expected, but long and variable lags between policy changes and economic impact suggest recession risk remains pronounced.

If we look to 2024 the most important question is: will inflation start to behave as economic activity slows? There are already convincing signs that inflationary pressures are moderating and will continue to do so in 2024.

It is recommended to make deliberate choices in 2024, paying close attention to monetary policy if they want to avoid a variety of potential pitfalls and find opportunities in an imperfect world of cooling but still-too-high inflation and slowing global growth. 




European Central Bank
Short-lived and shallow recession in the Euro area
  • The short-term outlook for growth in the euro area has deteriorated, while over the medium term the economy should gradually return to moderate growth as both domestic and foreign demand recover.
  • Growth is expected to pick up from 2024 as foreign demand approaches its pre-pandemic trend and real incomes improve, underpinned by declining inflation, buoyant nominal wage growth and still low, though slightly increasing, unemployment.
  • However, growth will continue to be dampened as the ECB’s monetary policy tightening and adverse credit supply conditions feed through to the real economy and as fiscal support is gradually withdrawn.
  • Overall, annual average real GDP growth is expected to recover to 1.0% in 2024 and to 1.5% in 2025.
  • Headline inflation in the euro area is projected to continue to decline over the projection horizon owing to easing cost pressures and supply bottlenecks, as well as the impact of monetary policy tightening.
  • Over the medium term, euro area GDP growth is projected to moderately strengthen as household real incomes rise and foreign demand improves, albeit with headwinds from tighter financing conditions and declining fiscal support.
  • Business investment is expected to decline in 2024 as tighter financing conditions take a heavy toll; improving domestic and global demand and the green and digital transition are seen to be the drivers of a mild recovery thereafter.
  • The consensus view on global economic growth remains rather benign. Most commentators expect a soft landing for the US economy – where the central bank successfully slows the economy without triggering a recession – or only a mild one. A deeper recession is considered only an outside risk.
  • The resilience of inflation is unsurprising: inflation remains quite stubborn and significantly above the major central banks’ targets of 2%, despite being significantly down from the peak inflation rates of 2022. Three longer-term supply side shocks are also contributing to structurally higher inflation: deglobalization, decarbonization and a structurally tighter labor market due to demographic changes.
  • The question is whether markets are correct in pricing in no more rate hikes by major central banks and significant rate cuts starting in mid-2024. In summary, expectations are for “higher for longer” rates than the scenario priced by consensus.
Allianz
Targeting opportunities
apollo
What’s Next After the “Fed Pivot”?
  • Going into 2024, expectations see upside risks to inflation, downside risks to growth, and expect rates to stay higher and for longer than the rest of the market does. Despite the Fed’s aggressive tightening campaign, inflation remains above the central bank’s 2% annual target.
  • There is the ever-present X-factor known as China. With Chinese exports slowing, China has fewer US dollars to recycle. Less overall Chinese demand for Treasuries translates to higher rates. 
  • Opportunities in private equity are likely to continue to emerge among potential distressed companies that come along with the combination of slowing growth and high rates.
Barclays
Global economy has been surprisingly resilient
  • Major economies are in better shape than most forecasts called for at the start of this year. And this is despite two wars on two continents, a bond sell-off for the ages, a crisis in the US banking sector, and very aggressive hiking cycles from central banks.
  • The US, euro area, and China will grow at 1.2%, 0.3% and 4.4%, respectively, in 2024. India will remain a stand-out once more, growing well above 6%. In China, the team sees a number of structural factors continuing to weigh on activity, including a lack of consumer confidence, changing demographics, and previous over-investment in housing.
  • Expectations for more policy support in the months ahead, including investment in infrastructure and high-end manufacturing, as well as monetary stimulus.
blackrock
Putting money to work
  • We’ve entered a new world order. The new regime of greater macro and market volatility has resulted in greater uncertainty and dispersion of returns. This is a sea change from what worked during the Great Moderation, the long period of stable growth and inflation that is over.
  • Production constraints abound. Central banks face tougher trade-offs in fighting inflation – and can’t respond to faltering growth like they used to. This leads to a wider set of outcomes, creating greater uncertainty for central banks and investors.
  • The economy is normalizing from the pandemic and being shaped by structural drivers: shrinking workforces, geopolitical fragmentation, and the low-carbon transition. The resulting disconnect between the cyclical narrative and structural reality is further stoking volatility.
  • Macro insights will be rewarded in the new regime. Greater volatility and dispersion of returns create space for investment expertise to shine: investors need to take a more active approach to their portfolios. 
  • After a tumultuous period of monetary policy tightening, evidence of slowing inflation is gaining traction across many economies.
  • Central banks are expected to start lowering interest rates in 2024, however interest rates are expected to remain at higher levels than over the decade or so following the Global Financial Crisis.
  • Many assumptions now reflect moderately higher returns and volatility, in part driven by the current high-rate environment.
  • Equity returns are expected to improve on higher valuation adjustments, where the economy is well-positioned to benefit from growth, including new technological innovations, such as Artificial Intelligence.
BNY Mellon
The Path to Normalization
citi
Slow then grow
  • We are entering a period of normalization and growth in 2024-2025. We are exiting a period of rolling sector recessions and unusual levels of employment demand to begin a global economic recovery led by the US GDP estimates for 2024 and 2025 are +2.2% and +2.8%.
  • The US economy is more resilient than many expected. Inflation is coming down, while wage growth is moderating, even in services. Employment growth is slowing.
  • As rate pressures recede, the US dollar is likely to decline. This could help set the stage for stronger global growth in 2025.
deutsche bank
Finding Growth
  • Despite the many current global challenges, prospects appear reasonably good for the main asset classes in 2024.
  • The big issue remains 6. Markets need to be convinced that growth will pick up again later in 2024. Investors also need to look forward to the risks and opportunities provided by more structural economic change.
  • Expect only moderate growth in industrialized economies in 2024. The long-term challenge remains the delivery of investments to enhance economic competitiveness and fight climate change.
  • The worst is over? Inflation is moderating but will stay above central bank target levels in 2024. Domestic political developments are increasingly shaping foreign policy agendas – and 2024 will be the biggest election year in history.
Goldman sachs
Towards a better balance
  • Investors have adapted to pandemic disruptions, rising geopolitical risks, and soaring inflation, but adjustments will be necessary in a world of greater growth volatility, higher capital costs, and geopolitical instability.
  • The new year promises more return dispersion across asset classes, sectors, and regions, with complex choices and tradeoffs, along with diversification and risk management.
  • Long-term disruptive trends in sustainability and technological innovation, including Artificial Intelligence, should lead to exciting new realities.
  • The latest meeting between Presidents Biden and Xi promises to defuse at least some of the tensions between the US and China, which might also help to achieve a negotiated solution to the Russia-Ukraine war and deal with the Middle East situation.
hines
Disciplined Capital, Prospects Ahead
  • The realm of private equity real estate is navigating its winter season, with frozen capital markets awaiting a seemingly distant thaw as pricing readjusts and the industry assimilates the impact of today’s higher financing costs
  • While navigating our existing portfolios through the transition from zero interest rate policy (ZIRP) to pre-crisis, interest rate norms presents some challenges,
  • China remains the leading economy in Asia Pacific, but regional dynamics are clearly shifting. While its expansion has slowed, China’s nominal GDP growth is still expected to exceed 7% annually through 2032. 
  • Investment signals: mixed message, most economies (the U.S., Latin America, and parts of South America) in the region are generally doing well by traditional measures, but real estate is experiencing a cyclical reset. The U.S. recovery is lagging Europe and Asia, but seems to be showing signs of life, with transaction volumes possibly on the rise and bank lending standards ready to relax.
hsbc
Opportunities in a complex world
  • Global economic growth should be well below normal, but the US engine continues to run, thanks to a strong US consumer, government stimulus supporting investment and innovation in tech and healthcare.
  • Chinese growth is held back by the property sector challenges, but more monetary stimulus and deficit spending should put a floor under growth.
  • Europe is flirting with recession, causing us to maintain our clear preference for the US stocks and our strong USD view. But overall, those calling for a global recession will again be proven wrong.
  • As inflation is down markedly, the major western central banks have now paused. This should help ease rate volatility and support asset valuations.
ing
No magic spell for a brighter world
  • More disinflation and the loss of economic momentum will give many central banks enough room to start cutting rates next year. It might not be the typical panicky large cuts but a rather more gradual release of the monetary brakes.
  • This turnaround in monetary policy by the summer should point to lights at the end of the tunnel, improving the outlook and our mood in the second half of the year.
  • Europe looks at the fiscal woes in Germany: it would be for the first time that a country with one of the lowest debt-to-GDP ratios in Europe puts itself in self-inflicted political and economic paralysis due to fiscal issues. The attempt to combine large fiscal support for a long list of transitions with balanced budgets has failed. The longer it fails to solve this conundrum, the higher the risk of Germany and, with it, Europe falling into recession.
j.p. morgan
A mild recession
  • The core scenario predicts that while the US economy could see a growth slowdown in the first half of 2024 it will likely avoid a recession.
  • Higher bond yields and reasonable stock valuations mean that forward-looking returns seem more promising than they have been in more than a decade.
  • Other themes for 2024 include a potential boost in productivity from artificial intelligence and Governments incentivizing politically-important industries.
  • There are four key pillars of portraying a ‘Regime Change thesis’: a sizeable fiscal impulse, sticky labor costs, a messy energy transition, and a fundamental restructuring of global supply chains.
  • Nevertheless, observers still see the push and pull of loose fiscal policy versus tight monetary policy, which are working against one another to heighten volatility as well as increase dispersions against a backdrop of rising geopolitical tensions.
  • Against an increasingly complex backdrop, all global allocators will need a ‘glass half full’ approach that encourages them to direct capital towards investment themes that not only have attractive growth characteristics but also serve as foils to some of the current obstacles to what was once a more synchronized and well-integrated global economy.
  • The areas to bet on in 2024 include Digitalization, Industrial Automation, Intra-Asia Connectivity, and Global Infrastructure.
kKr
Glass Half Full
Lazard
The financial markets
  • Disinflation is underway and developed market central banks have likely finished their rate hike cycles.
  • The United States is entering 2024 in a good position. The question is when, and how quickly, will inflation fall low enough for the Fed to begin policy easing.
  • China sentiment is improving, despite the ongoing issues with housing and consumer confidence. In the second half of 2023 alone, the authorities launched dozens of measures to prop up the economy.
  • While other advanced economies have been tightening monetary policies, the Bank of Japan has been hoping to take advantage of price pressures and reflate the economy.
  • In the Eurozone, the good news is that inflation has peaked. The bad news is that the region is now teetering on the brink of recession.
  • The scale of ongoing geopolitical tensions means issues that could have been ignored in the past now stand to directly impact companies’ supply chains and customer bases.
  • Inflation is likely to lead to slower growth, particularly in the US, Europe and the UK.
  • China’s tepid growth will weigh on emerging markets, and there’s a risk that the country’s economy could get sucked into a wider debt-deflation spiral, with ripple effects for the rest of Asia and beyond. 
  • China will avoid the worst-case scenario, and that US and European policymakers will begin cutting rates in June 2024, improving the macroeconomic outlook for the second half of the year.
morgan stanley
Threading the needle
Royal Bank of Canada
Bonds are back
  • Interest rate hikes to this point have only just started to bite into the US economy. This situation will play out as a mild recession in the first half of 2024, and the Fed is then likely to embark on a series of modest rate cuts beginning next summer.
  • After the recent sharp weakening in eurozone manufacturing and services activity, stabilization is possible over the next few months. The Industrials sector needs to rebuild depleted inventories, and consumer confidence could improve now that pricing pressures are abating.
  • The European Central Bank will likely keep interest rates on hold well into 2024. Though inflation has decelerated sharply to 2.9% and bank lending has waned markedly, wages are still growing at 4% year over year. Slightly higher unemployment is likely necessary for wage growth to decelerate further.
T. Rowe Price
Mitigating uncertainty through resilience
  • The global market environment is now in a state of purgatory, with continued uncertainty about both inflation and recession risks as the Fed considers its next move.
  • The major takeaway from recent economic data is a resilient U.S. economy supported by a resilient consumer. Inflation has decelerated, and the labor market is gradually cooling through slower employment growth and a decline in the job vacancy rate, but it is not rolling over.
  • Investors need to hedge their bets accordingly, taking advantage of attractive yields while choosing their stock, bond, and real asset allocations wisely.
  • In an uncertain world, areas of investment opportunity include artificial intelligence (the semiconductor ecosystem and AI infrastructure), health care innovation (obesity drugs and bioprocessing), and residential and commercial construction.
UBS
Year ahead 2024: A new world
  • Expectations for a slower growth for the US economy in 2024 as consumers face mounting headwinds. We expect European growth to remain subdued, and China to enter a “new normal” of lower, but potentially higher-quality, growth.
  • Politics will have an outsized role in 2024. The US Presidential elections, the Israel-Hamas and Russia-Ukraine wars, and the ongoing rivalry between the US and China could all have global market repercussions.
  • Central banks will start cutting rates in 2024. Investors should prepare to hedge market risks and adopt capital preservation strategies, macro hedge funds, oil, and gold as hedges to focus on in 2024.
so what?
  • A mix of global economic unease and geopolitical uncertainty means few optimism. Indeed, a confluence of unprecedented events in 2023 weakened markets.
  • Investing has come with its challenges and uncertainties due to geopolitical shocks, uncertain global growth, inflation and monetary tightening, Middle East tensions and Russia-Ukraine war, an intensified US-China tech rivalry and the upcoming US Presidential elections provide fertile ground for further uncertainties in 2024.
  • The core scenario sees a recovery toward mid 2024. Social inequality will be a topic of importance.
  • The key economic question for 2024 is whether central banks will be able to bring down inflation to more acceptable levels. There are reasons to be optimistic, but there are also substantial risks to this view – as the economy slows, the labor market weakens, supply chain pressures continue to ease, and Europe manages to diversify its energy supply.
sources

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