Even if investors didn’t experience the recession they were braced for in 2023, they’re still likely to be faced with a moderation in global economic activity in 2024. The factors that count here are the continued reverberations of stringent monetary policies, constrained government finances, lingering inflation and unpredictable geopolitical shifts. Against this backdrop, here are the 10 key trends we are closely monitoring on our macro radar:
Trend #1: Economic gravity catches up
Across the globe, inflation is receding and unemployment rates have largely remained stable, with major central banks hitting pause on monetary tightening measures. While China wrestles with a property crisis, it may still benefit from state stimulus measures. Still, the underpinnings of last year’s resilience appear tenuous. Previous interest rate hikes are likely to start biting and economic hardship could follow, should interest rates remain high for longer.
Trend #2: Growth paths diverge
Prospects for the world economy remain mixed, not least due to varied post-pandemic output losses. Robust consumer spending in the US is expected to slow as pandemic-related savings diminish further. In Europe, a slowdown in major economies such as Germany, pressure on real wages and calls for fiscal austerity should limit the extent of recovery in 2024. Though investors were critical of Chinese authorities’ muted fiscal and monetary policy responses at the start of 2023, meaningful policy announcements were made later in the year and should positively benefit growth this year.
Trend #3: The inflation descent slows
The Bank for International Settlements has shown that it takes longer to wring the last bit of excess inflation out of the economy than it does to bring price pressures down initially after a high inflation episode. Despite global inflation more than halving from its peak, the International Monetary Fund warns that nearly 90% of the 72 inflation-targeting countries covered will see inflation exceed central bank targets in 2024.
Trend #4: Monetary policy, meet fiscal shortfall
The abrupt and substantial recession caused by the pandemic placed extraordinary demands on both fiscal and monetary policies, necessitating closer co-ordination of domestic policies. Louder calls for fiscal responsibility through a more credible and better-targeted fiscal framework should help address looming pressures on debt sustainability.
Trend #5: Geopolitical atmosphere darkens
Investors were already navigating a complex global landscape before the tragic events in the Middle East. The Israel-Palestine war nevertheless threatens to introduce a new layer of uncertainty for the global economy, particularly if the war escalates into a broader regional conflict. What’s more, we expect heightened political tensions worldwide, in no small part due to the fact that more than half of the world’s population will experience an election in 2024.
The Bank is likely to continue talking tough on inflation, with rate cuts expected only from the middle of 2024 onwards
Trend #6: South Africa’s coalition conundrum
Decreasing voter turnout and substantial advances for fringe parties at both ends of the political spectrum can be interpreted as indications of South Africa’s evolving democracy, yet they may also signal a more divided society. The ANC has persevered with a diminished majority, but the party faces plenty of challenges as we approach this year’s national elections. Key detractors for the ANC are its inability to resolve our energy and logistics crises, alongside insufficient progress in curbing widespread corruption.
Trend #7: National logistics nightmare
Eskom’s generation turnaround plan and increasing investment appetite from the private sector for wind and solar power suggest that the worst of the energy crisis is behind us. Nevertheless, South Africa’s logistics crisis is worsening, with rail inefficiencies and inadequate port terminals severely affecting the economy.
Trend #8: The debt dilemma
Last year’s medium-term budget policy statement announced new budget forecasts that were worse than the National Treasury had previously flagged, owing to a slide in tax collections. South Africa’s government debt has risen significantly and the interest burden has mushroomed, preventing a faster stabilisation in the country’s debt ratio.
Trend #9: A respite from inflation
Inflation in South Africa has traded within the Reserve Bank’s target range, and effective monetary policy communication has prevented a blowout in inflation expectations. Renewed inflation risks exist, but demand-led price pressures and wage inflation are expected to remain contained.
Trend #10: Rate pause, rhetoric roars
Major central banks hit pause towards the end of 2023 but have warned they are ready to act should disinflation trends reverse. The Bank is likely to continue talking tough on inflation, with rate cuts expected only from the middle of 2024 onwards.
Serving as navigational aids for the year ahead, these trends are poised to shape the fate of global politics, economics and financial markets in the coming months.
* Packirisamy is an economist at Momentum Investments
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