Outlook 2024 – Update Q4
by
Felix Ronner
Structural Environment
- High indebtedness + adverse demographic developments + low productivity growth = low global trend growth. Among other things, the high level of indebtedness leads to a more unequal distribution (Gini index). This is one of the reasons for shifts in political constellations (polarization).
- Re-nationalisation of economic and social policies. Stronger focus on distributional effects within countries.
- Supply shortages in labour markets are easing only gradually.
- A de-dollarisation and possible decoupling from the West of an enlarged BRICs group seems possible, but this would result in two newly competing currency systems.
- Geopolitical tensions – in particular the war in Ukraine and Russia’s behaviour– remain heightened.
- The polarisation between the “West” and the “Global South” can make it more difficult to finance Western debt in the long term – also due to the confiscation of state assets.
Economy
- Compared to the past decade, macro-economic volatility and nominal growth remain elevated for longer.
- Global growth is recovering slightly. The probability of a recession in the USA is low.
- China’s weak domestic demand but growing production capacities are threatening the industrial sectors in the advanced economies.
- Inflation rates have fallen, mainly due to an improved supply situation for energy and goods. Inflation in services is more persistent.
- Due to the strong productivity growth in the USA and the persistently high domestic price pressure in the eurozone, interest rate cuts will be somewhat less pronounced than generally expected.
- In the longer term, (government-led) investment should increase and support growth
Influencing factors
- Geopolitical risks (Ukraine, Israel, Iran, Taiwan and Turkiye) have increased and will remain elevated for a prolonged period. This reinforces the deglobalization trend.
- Fiscal policy will remain expansionary and no austerity policy is likely to be pursued. The fiscal tightening in Germany is an exception.
- Political risks with the potential for long-term very adverse outcomes remain substantial, especially amid the ascent of EU/Euro critical parties in Europe and protectionist measures by the US government. Global risks, and thus the potential for markedly negative long-term scenarios, remain pronounced.
- An escalation of the global trade war – especially between the US and China – will have lasting consequences and will ultimately be a burden for global growth and financial markets.
Market environment
- The outlook for equities is volatile and accompanied by pronounced setbacks but remains fundamentally positive in the long term. Valuations are attractive from a long-term perspective. Both increasing valuations and rising corporate profits can contribute to a positive performance.
- The trend towards sustainable investments and “green finance” will intensify across all asset classes in the coming years.
- Yields of “safe” bonds such as Bunds and US Treasuries will trade sideways on a multi-year horizon.
- With prospects for rate cuts, spread products are attractive. Carry and roll-down remain important for fixed income investors.
- Longer term friendly environment for precious metals.
You can download the detailed market outlook with an update for Q4 2024 here.