Interview, Podcast
Why the global economy and markets can continue to outperform in 2024
- Global GDP is forecasted to grow at 2.6% to 2.7% in both 2023 and 2024, with U.S. growth projected slightly below 2% and Euro area growth slightly above that level.
- Core inflation for G10 economies (excluding Japan) and emerging markets is expected to decline from a 3% sequential average to the 2% to 2.5% range by the end of 2025.
- Monetary tightening impacts on growth are viewed as largely past, with policy rate hikes peaking in mid-2022 and the most significant lag effects occurring over approximately two quarters.
- Central banks in developed markets, excluding the Bank of Japan, are expected to have reached peak rates, with the Fed initiating cuts in the second half of 2024 and the ECB potentially acting in the third quarter of next year.
- Structural policy rates are projected to settle higher than historical norms, with the Fed estimated at 3.5% to 3.75% and Euro area rates at 2.5%.
- The U.S. dollar is expected to weaken modestly by approximately 2% on a trade-weighted basis over the next 12 months, though it is anticipated to remain strong overall.
- China's growth is forecast at 5.3% for the current year and 4.8% for next year, with a long-term downward trend toward 3% over the following decade due to demographic and housing constraints.
- European economic growth is expected to accelerate to nearly 1% next year, supported by improving real disposable personal income.
- There is a 15% probability of a U.S. recession over the next 12 months, primarily attributed to exogenous risks.
- Key risks include potential escalation of Middle East turmoil involving Iran affecting oil supplies, larger-than-expected growth impacts from interest rates, and fiscal risks from unfunded expansion plans ahead of the U.S. election.
- Investment expectations for 2024 include strongest returns in commodities, followed by modest gains in equities and credit, with bonds marginally outperforming cash for the first time in three years.
- Equities are viewed as a vehicle for optimism regarding inflation and AI themes, while bonds are expected to provide protection against recessionary risks.
- Long-end real yields have shifted to pre-global financial crisis levels rather than post-crisis levels, and market focus on the U.S. election is expected to concentrate only two to three months prior to the event.