Investors, envisioning a route away from a deeper or more prolonged recession, are still likely to grapple with a moderation in global economic activity in 2024, driven by the ongoing repercussions of tight monetary policies, constrained government coffers, lingering inflation and unpredictable geopolitical events. Amid these challenges, we are closely monitoring 10 key trends on our macro radar for the year ahead:
Trend #1: The inevitable gravitational pull of economic forces
Around the world, inflation is receding and unemployment rates have largely stabilised as major central banks have hit the pause button on their monetary tightening measures. Moreover, despite China grappling with a property crisis, signs of potential benefits from backend-loaded stimuli are likely to emerge more strongly in the months to come. Nonetheless, the underpinnings of economic growth resilience in 2023 seem fragile. High interest rates are likely to start biting and economic hardship could ensue if high rates persist.
Trend #2: Varied growth paths
The global economy, emerging from differing regional post-pandemic output losses, faces divergent growth prospects. While robust consumer spending in the United States is expected to slow as excess savings dry up, Europe is contending with economic pressures and calls for fiscal austerity will likely limit recovery. China, on the other hand, is anticipated to benefit from meaningful policy announcements made late in 2023, following a disappointing response from authorities earlier in the year.
Trend #3: A more gradual ebbing of inflation
The challenge of reducing excess inflation proves more difficult later in the cycle. Despite global inflation having more than halved, the International Monetary Fund warns that inflation in 90% of inflation-targeting countries will likely still exceed central bank targets in 2024.
Trend #4: The interplay between monetary and fiscal policies
The pandemic-induced recession demanded closer coordination of fiscal and monetary policies. Calls for fiscal responsibility and more targeted fiscal frameworks are likely to sound louder to address pressures on debt sustainability.
Trend #5: An unsettling geopolitical backdrop
Navigating global complexities has become even more challenging with the unfolding Middle East events. Moreover, The Economist notes that elections in 2024 for over half of the world’s population will further contribute to an uncertain geopolitical landscape.
Trend #6: South Africa’s coalition complexities
Substantial advances in support for fringe parties can signal South Africa’s evolving democracy, yet it can also foreshadow a more divided society. The ruling party faces challenges ahead as we approach the 2024 elections given its inability to resolve shortcomings in energy and logistics, alongside insufficient progress in curbing corruption.
Trend #7: South Africa’s ongoing logistical hurdles
Despite progress in Eskom’s turnaround plan and private sector investment in renewable energy, escalating logistical challenges are affecting rail and port efficiency and dampening growth prospects.
Trend #8: South Africa’s fiscal tightrope
South Africa faces worsening fiscal challenges, with the latest budget forecasts indicating increased government debt. The interest burden and social demands remain high, hindering a swift stabilisation in the country’s debt ratio.
Trend #9: A respite from inflation
Though renewed risks to the South African inflation forecast exist, demand-led pressures and wage inflation are expected to remain contained.
Trend #10: Hawkish echoes to persist
Major global central banks have paused their rate hiking cycles but have hinted they remain ready to act in case disinflation trends reverse. The South African Reserve Bank is expected to continue talking tough on inflation even though the next move in interest rates is likely lower from here, most likely by the middle of 2024.
As investors navigate the nuances of moderating growth and geopolitical uncertainties in 2024, these 10 trends are likely to shape the trajectory of global politics, economics and financial markets in the months to come.
