The Year of Skinny Uncle Sam

This week, I have enjoyed a number of articles and podcasts from the “what will the year bring”-genre. The journalistic tradition of looking into the crystal ball at the turn of a new year is rather predictable, but the exercise is actually a sound one. We live in a scary, volatile world, and looking ahead is an increasingly important business leadership discipline.

So, what will the coming year bring? Will 2024 be The Year of Trump? Of AI? Of new stock market records? Of escalating international wars and challenges to US hegemony? This year, the task of predicting the future seems unenviable – and certainly not something to undertake if prone to depression or pessimism.

But that of course will not deter me! My Dansk Erhverv lens is on the US and on the impact for business, so that is my main focus. And point of note: Any prognosis could be dead wrong – so I am always very happy to be contradicted or argued with in the comments.

Without further ado, here they come – 5 predictions for 2024:

• The US election will be a big splash
• From "Vibecession" to soft landing - it is all about AI
• The Cold War 2.0 will continue - China still major rival
• The climate will get worse before it gets better
• 2024 is the Year of Ozempic

1: The US election will be a big splash

Yes, 2024 will see a presidential election in the US – that much is certain. The outcome, however, seems increasingly like a coin toss as the two front runners are neck and neck in the polls. On their list of the ten biggest risks for 2024, TIME Magazine had “America vs. Itself” at the top – that is to say that their biggest fear is increased political polarization and disintegration following another contested election with a razor thin winning margin and a candidate unwilling to concede. The Supreme Court most recently is part of the action, and division and political tension through society is palpable. The political in-fight over the budget has already impacted Ukraine funding – and thereby Europe as well as our businesses, so yes, the outcome and how we get there will matter. For Ukraine, Trump would be a disaster. Same goes for free trade and for the green transition.

However, I have perhaps a slightly more positive expectation. First, I expect Biden to win narrowly in the end. Secondly, the US political system is all about conflict and antagonism by design. Unlike many European democracies, the American one is built on pluralism, competition, checks and balances, and it has shown a remarkable ability to bounce back. That the judicial branch plays an outsized political role is not new – we’ve seen this time and time again, and I think this time they will play a tempering role. Recently, we’ve seen how – with all its dysfunction and noise – even a deeply divided Congress can compromise and get the job done to keep government open. So yes, there is a lot of drama, but not every aspect of this is new. And so no, I do not believe 2024 will be the Year of Trump, although we will hear a lot about him.

2: From “Vibecession” to soft landing – it’s all about AI

Turning from politics to the economy, I believe the outlook is moderately positive for the US. Better than the European outlook anyways. Contrary to much of economic orthodoxy, the Fed so far seems to have pulled off the coveted soft landing, i.e. curbing inflation without triggering a recession. How? Well, the US economy proved surprisingly resilient to the interest rate shocks introduced. Lots of COVID-era savings propped up private spending, the more affluent segments kept it going, a big share of home owners have mortgages with fixed interest rates, regulators were quick to react to tremors in the banking sector starting triggered by SVB, and the government managed to lower gas prices via national stockpiles and smooth out supply chain issues, a small stock market elite, “the Magnificent Seven”, drove a stock market rally driven by AI excitement, and the labor market stayed strong. All in all, a lot of factors worked in the government’s and the economy’s favor in 2023.

Will the wonder continue? I think the US economy is fundamentally strong and despite talks of a “vibecession”, business in this market will continue to be good – unless you happen to be a Chinese company. Vibecession by the way is term coined by economic influencer Kyla Scanlon and it refers to the situation when consumer confidence and other psychological “vibes” are so negative they risk becoming self-fulfilling prophecies that can trigger an actual downturn. Consumers fuel a huge part of the economy, so definitely think she has a valid point. We have yet to really see the moods shift the real economy though.

A continued strong US economy may seem like a bit of a bold prediction because of course there are a ton of risk factors as well. Escalating global conflicts (like a Chinese attack on Taiwan), setbacks to the AI-craze, or just a combined reversal of many of the positive drivers that have propped up the economy in 2023. After all, covid savings do not last forever. In fact, the number of especially young consumers with debt delinquency is rising, we see an increase in the use of buy-now-pay-later solutions, and Biden’s pause on student loan payments as well as generally high prices undoubtedly play a role in this pattern. As for the vulnerability of the AI-driven rise in the stock market of 2023, always insightful Torsten Slok shared an interesting graph recently:

Quite thought provoking just how much value in the US stock market is carried by this select club of tech giants. I believe AI is a wonderous new technology that will boost productivity in ways we are only beginning to understand (the image for this article for example is generated using the Midjourney AI). Adaptation has been ferociously fast. Still, this kind of concentration begins to assume the contours of a potential economic bubble.

In 2023 the EU was first mover on AI-regulation. I find it highly unlikely that future US regulation is going to impede the continued development of the technology, so the AI-future ought to be bright. I think last year was the big year in terms of a technology and awareness leap. Possibly also in terms of impact on the stock market. 2024 will be all about how to reap the technological advances in the broader economy – and that economic impact will be slower but probably more profound.

3: The cold war 2.0 will continue – China still major rival

Come February, it will be the two-year anniversary of the senseless and barbaric Russian invasion into Ukraine – which followed their earlier illegal annexation of Crimea. The war in the Middle East has added to the tragedy of current international affairs, and already next week Taiwan will hold its presidential election. An event that some, including renowned British historian Niall Ferguson have warned might trigger a long-feared Chinese military operation in the South China Sea. US intelligence officials claim that China is not yet ready to undertake an invasion of Taiwan – but Ferguson points out that the likely scenario is not a full-scale amphibious troop landing, but rather an escalating navy blockade. He has likened the current global situation to a “Cold War 2.0” – a pervasive conflict between the US and China involving their allies and with much of the same logic as the first cold war. Only in the case of a Chinese blockade of Taiwan, the roles of the Cuban missile crisis would be reenacted in reverse – the US would be Khrushchev faced with the unattractive option of trying to militarily break up a “naval quarantine” around a small island close to mainland China.

Ferguson even goes on to say that from President Xi’s perspective, it is hard to think of a better timing than now. With a US preoccupied with several other international conflicts, off the heels of a botched exit from Afghanistan, governed by a divided Congress, and with an upcoming hotly contested presidential election the US is hardly projecting strength at the moment.

Let’s sincerely hope this scenario does not play out. Even if it stays cold, the conflict with China will continue to shape a lot of foreign policy, trade policy and industrial policy in the US also in 2024. “Decoupling”, “nearshoring” or “friendshoring” remain key political vocabulary and as illustrated by Reuters, it is not just rhetoric:

It is not just imports – also US FDIs into China is dropping, fewer US students go to China, etc. The strategic decoupling is real, and I expect it to continue. So does Mexico and they like it.

Sadly, even with the current hot wars, it is hard to be optimistic on international affairs. Despite Biden’s pleas and pressure, the US has put aid to Ukraine on hold. There is a real risk that further support of Ukraine will fall on Europe in much of 2024. What is Ferguson’s prediction here, you might ask? Well, he has another cold war-parallel – we risk seeing a parallel to the Korean War; a conflict that gradually cements into a stalemate and a de facto division that can last for decades.

I think the West, including notably Europe, has shown remarkable responsibility and action in response to Russia. I would love nothing more than to predict that 2024 would be the year of Ukrainian victory, but momentum tragically seems to be on Russia’s side at the moment. Let just hope we will not add more conflicts to mix in 2024.

4 The climate will get worse before it gets better

It is well-known by now that the outlook on the climate is very bad. Urgently, we need to turn this around, but that will not happen by 2024. After a lot of negative record setting in 2023, we could very well see even worse records in 2024 aided by a particularly strong El Nino and enabled by the slow adaption of renewables.

The trend has been improving, though:

But in the foreword for the UN’s World Economic Situation and Prospects 2024-report, UN Secretary General Guterres notes that “Investment in climate action and sustainable development is falling woefully short”. We need to pick up speed. A lot of Danish companies can actually help – and we have seen some really positive commercial news from some of them in the latter part of 2023, including from market leader 维斯塔斯 , so that makes me optimistic.

Here in the US, the upcoming election will likely take away any oxygen from more aggressive permitting reform on a federal level, and a Trump win in November would obviously jeopardize a lot of the momentum created by the Inflation Reduction Act – although many initiatives have been favorably received also in Republican states and revolutionary changes would require a shift in power also in Congress, so no reason to over-dramatize this scenario. ?

5: 2024 will be the Year of Ozempic

"I believe this is the medical innovation that will have the biggest societal impact since the invention and proliferation of birth control in the 1960s".

With all that is going on geopolitically, macro economically and through the ballots around the globe from Taiwan to India to the US, I still predict that the biggest game changer of 2024 will be the continued victory lap of weight loss drugs in the US market and globally. We tend to overestimate the impact of political changes in the short term – and we tend to underestimate the social changes of technology in the long term.

I believe this is the medical innovation that will have the biggest societal impact since the invention and proliferation of birth control in the 1960s.

Then, the pill not only had health implications, but it impacted women’s economic opportunity, fertility rates and family patterns, society’s sexual norms, economic productivity and the list goes on. I think this class of drugs will have entirely different societal and socio-economic effects, but in order of magnitude it will be comparable. Niels Lunde has already talked about this in his excellent columns and podcasts for B?rsen , and I think he is on to something. Big companies like 沃尔玛 and other snack giants are already seeing the impact in their numbers, and thus the impact is spilling over into other parts of the market.

It makes me quite proud that a Danish company like 诺和诺德 can pioneer something of this significance, and their financial success is well-earned.

Obesity in the US affects more than 40% of the population and it has been a growing problem for decades. For the individual it reduces quality of life and life expectancy. For society is a massive economic burden to the tune of hundreds of billions of dollars every year. The US health care system is by far the most expensive in the world, it does not produce the outcomes to show for it, and it notoriously underfocuses on prevention.

This new class of drugs can change this game dramatically. It is already a media darling and a popular success and for good reason. I think 2024 will be the year when Americans finally break the trend and slim down – and not because of some New Year’s resolution to exercise more, but by the power of this new innovation. I predict that Uncle Sam will be skinnier in 2024 than he was in 2023 and that his new-found health will reverberate through the economy in ways we are only beginning to understand.