Outlook 2024: A year of volatility
World
The world economy is going through a process of gentle deceleration, the so-called soft land. The world grew 6.3% in 2021 and should end 2024 with a growth of 2.9% according to IMF projections. The drop-in economic activity and inflation rates in the world’s main economies creates conditions for central banks to start cutting interest rates again. Unemployment is expected to show a small increase, contributing to the continued inflation fall. However, there are risks that go beyond the economic framework.
In the year 2024, around 41% of the world’s population, 3.2 billion voters, will choose their representatives in general, parliamentary, or regional elections, which represents 42% of global GDP in around 40 elections around the world. I highlight the elections in the following countries: the USA, England, India, Mexico, South Africa, and the European Parliament. However, some elections have the potential to create additional instability in the global geopolitical scenario and markets, such as Taiwan in January, Russia in March, and the USA in November. Furthermore, tensions in the Middle East remain on the radar, especially after the conflict between Israel and Hamas.
USA
The US Economy did not enter a recession in 2023. Inflation fell to 3.1% in November. Thus, the president of the FED (Federal Reserve), Jerome Powell, announced that he would begin his interest rate cut process throughout 2024, which encouraged the markets at the end of the year. Aa US 10 Year Treasury Bonds went from 4.9% in mid-October to 3.9% in December. The S&P 500 is close to the all-time high.
The FED is leading the American economy to the desired level of its dual mandate: full employment and low inflation. Market projections indicate that the American GDP is expected to grow below 2.0% in 2024, unemployment may rise marginally, from the current 3.7% to up to 4.5% at the end of 2024 and the inflation rate will be close to 2.0 % also at the end of 2024. If this scenario is confirmed, we could have a weaker dollar in global terms (DXY) and a more pronounced devaluation of the North American currency.
The factor that could generate additional volatility in US markets in 2024 is the US elections. In addition to the uncertainty of the candidates, their proposals about taxes, budget deficit, and action in international politics, mainly issues such as China, Russia, the Ukrainian War, NATO, Israel, conflicts in the Middle East, and other topics. They could add volatility to markets in the second half of 2024.
Europe
The low growth of the European economy is something economic agents know. However, in recent years the emergence of inflationary forces in conjunction with the war in Ukraine has brought a lot of tension to the economic and political scenario in the region. Inflation in the eurozone has been slowing rapidly, from 8.6% in January to 2.4% in November 2023. Market projections are for inflation of 1.9% at the end of 2024. The unemployment rate in the region is expected to rise to 6.8 % next year, staying close to the current 6.5%.
Even with this scenario, the European Central Bank is not thinking about cutting interest rates now. ECB President Christine Lagarde declared: “did not, we did not, discuss rate cuts at all”. Therefore, it is likely that the Euro will appreciate until there is a change in direction, this change could occur at the end of next year, but everything will depend on inflation and employment data in the region.
领英推荐
China
The Chinese economy is growing less and will face additional difficulties in the coming years. The crisis in the Chinese real estate market, the reduction in the investment rate, greater state intervention in the economy, a worsening of the demographic profile, and the new policy of nearshoring?and friendshoring could worsen the downward trend in the Chinese economy, presenting difficulties in maintaining of the current economic model based on cheap labor and manufactured exports.
China had average growth rates above 10% of GDP in the first decade of the 21st century, currently, the country is expected to grow less than 5% in 2024. The inflation rate in China, according to data from the National Bureau of Statistics of China, has reduced slightly over 2.5% in mid-2022 to the current negative -0.5%, yoy in November 2023.
The People’s Bank of China has been reducing its interest rates consistently since mid-2015, dropping from 5.50% to the current 3.45% in December 2023. Projections are for an interest rate of 2.90% at the end of 2024. I highlight points of attention in the Chinese economy, the significant drop in the main stock indices in the last year, and a rapid increase in public debt/GDP.
Conclusion
The global economy is in the process of significant change. The efficiency gains in international trade obtained in recent years, promoted by globalization, can be reviewed, and given a new configuration. Technological advancement and increased use of artificial intelligence will create a new paradigm for productivity gains.
Monetary policy will continue to dictate the pace of markets and equity earnings, but high interest rates will likely be the new normal for the coming years. The end of the era of negative interest rates will change the pipeline’s view of projects and investment opportunities. Geopolitical risks and social and electoral uncertainties are expected to intensify, but not to the point of making business unviable, but creating additional tensions.
Even in this volatile scenario, there are possibilities to maximize the profitability of investors' portfolios.