Lazard: Global Outlook 2024
Summary of key takeaways
Ronald Temple, Chief Market Strategist at Lazard, provides a comprehensive analysis of the global economic landscape, with a focus on the year 2024. Temple contrasts the situation of 2023 with the outlook for 2024, highlighting key economic and geopolitical developments and their implications.
Economic Overview:
2023 saw the highest inflation and sharpest monetary policy tightening in four decades.
The US economy demonstrated resilience, driven by consumer spending and employment, despite the wealth effects and full employment.
Weak Chinese growth was observed, mainly due to the real estate crisis and consumer confidence issues.
The Eurozone and UK experienced economic lethargy, with the UK facing stagflation, having growth below 0.5% and inflation over 7%.
Global Inflation and Growth:
Both headline and core inflation are expected to subside through 2024.
Energy prices, a key driver of inflation, have declined.
Supply chain bottlenecks and semiconductor shortages, contributing to inflation, are easing.
Central banks like the Fed, ECB, and BoE are believed to have completed their rate hike cycles.
US core CPI has fallen from a peak of 6.6% to 4.1%, and further decline is expected.
United States:
The US economy added an average of 239,000 jobs per month through October 2023.
The labor market remains strong, with significant job additions and a declining unemployment rate.
Disinflation is well underway, with core goods prices falling.
There's a likelihood of the Federal Reserve cutting rates in the second half of 2024.
China:
The real estate sector, comprising 15-30% of China's GDP, faced a crisis, impacting developers and municipal finances.
Consumer confidence remains low, despite government stimulative measures.
The Chinese housing market is a significant concern, with property prices remaining weak.
China's role as a major global exporter in sectors like electric vehicles and renewable energy is emphasized.
Eurozone:
The Eurozone faces a high probability of recession, with a 0.1% contraction in 3Q23 GDP.
Energy price shocks and ECB interest rate hikes have compounded the economic situation.
Industrial production, especially in energy-intensive industries in Germany, has been significantly affected.
Japan:
Japan is considering ending its negative interest rate policy and yield curve control.
The labor market in Japan is tight, with real wages growing.
Demographics remain a long-term challenge, with the need for increased immigration or higher birth rates.
Geopolitics:
Ongoing geopolitical tensions include the Russia-Ukraine conflict, Israel-Hamas, and China-Taiwan situations.
The Russia-Ukraine conflict is expected to continue into 2024, affecting global markets.
Tensions between China and the West, particularly over Taiwan, are significant.
Conclusion:
The report concludes with a mixed outlook for 2024, highlighting challenges such as geopolitical uncertainties and adjustments to higher interest rates.
Opportunities may arise for those prepared to navigate the changing landscape..
The report does not provide specific recommendations for asset allocation in 2024. However, it suggests that as economies adapt to higher interest rates and growth normalizes, the operating backdrop will not return to one of zero rates and persistently low inflation. This indicates that companies and investors will likely need to adjust to a new operating environment, which may include changes in their investment strategies and asset allocations.
