Outlook 2024 – Update Q3
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.
- Slow recovery during 2024. The recession probability in the USA is low.
- Inflation rates are falling significantly. However, service inflation is more persistent. Inflation in Europe and the US will not fall below 2% on a sustainable basis, but will remain high on average over the next few years.
- Due to strong growth in the USA and increased inflation risks in the Eurozone amid the lack of productivity growth, the rate cutting cycles will be weaker than is generally expected.
- In the longer term, (government-led) investment should increase and support growth.
Influencing factors
- Geopolitical risks (Ukraine, Israel, Iran, Taiwan and Turkey) have increased and will remain elevated for a prolonged period. This reinforces the de-globalization 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. 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 German 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 Q3 2024 here.