Source: Wall Street News

In 2023, the global economy withstood the pressure of high interest rates and high inflation, maintained growth momentum, and stock market returns generally soared. In the US market in particular, not only did GDP growth exceed expectations in the year of interest rate hikes, but investors also gained a lot from various types of assets.

Looking ahead, FrancesDonald's team, chief strategist at Manulife Group of Canada, predicts that in 2024, as Wall Street recessions weaken and bullish sentiment rises, there will be five key changes in the market.

01 The peak of growth has passed

The strategists pointed out that compared to 2023, this year's economic growth will be more challenging.

However, compared to other major economies, the US has a strong labor market and steady consumer spending, so the economy is expected to perform better.

The strategist wrote:

Whether or not there is a technical recession, 2024 will be a more challenging year for global economic growth compared to 2023. The economic difficulties experienced by different income groups or countries are not the same. Compared to many other major economies, the US is more likely to withstand a systemic recession, as America's strong job market and relatively healthy consumer conditions should support it.

In addition, strategists also believe that countries that are heavily dependent on international trade and have limited borrowing capacity will face challenges in the first half of 2024, but as central banks shift to easing, these countries' plight will improve:

The current environment requires us to adopt a post-cycle investment strategy (late-cycle), especially in the first half of this year. Despite this, for many economies, the dawn is the darkest, and by some point in 2024, it is time to consider the beginning of the next cycle. However, predicting an eventual rebound too early is dangerous because we haven't gotten through the storm yet.

02 The war on inflation is not over

Manulife believes that although this year is expected to usher in a general wave of interest rate cuts by central banks around the world, the final stage of the fight against inflation will also be the most difficult stage.

Strategists expect that central banks will begin to relax their policies before inflation clearly returns to target levels, while also facing the risk of accelerated demand and a possible rebound in inflation. Central banks, including the Federal Reserve, will either be forced to switch to easing as economic growth worsens in the future, or maintain high interest rates to completely curb inflation.

Regarding the reason for stubborn inflation, Manulife points out that the essence of current inflation is inflation caused by supply shocks, and the financial instruments in the central bank's hands are prepared for inflation caused by demand shocks:

Central bank instruments are designed to cool demand-driven inflationary pressures, but they are less effective against supply shocks, whether caused by the pandemic, climate change, or geopolitics. Some central bankers have acknowledged this and demonstrated the limitations they face in resisting external shocks.

03 The world is shifting to be supply-driven

Manulife predicts that under the anti-globalization wave, traditional demand drivers will take a back seat, and the world trade pattern will shift from demand-side dominance to supply-side dominance. Looking at it now, there are three major supply trends worth paying attention to:

Labor Shortage

The aging workforce is likely to continue to affect employment dynamics in two ways: First, as people over 55 approach retirement, available labor reserves will be affected. Second, the departure of more experienced workers may leave institutions with knowledge gaps.

AI

The expanded use of artificial intelligence is likely to bring about a “productivity miracle” similar to the early Internet boom, drive rapid economic growth, and create moderate inflationary pressure.

weather

Climate events are playing an increasingly important role in supply chain disruptions and corresponding inflationary shocks.

Manulife believes that in a supply-driven world, new investment opportunities may emerge, and topics related to ESG or defense spending have high investment value.

04 Economic decoupling intensifies

The strategists said that in the next few months, the global anti-globalization process will continue to accelerate, which may lead to supply chain disruptions caused by similar pandemics.

The growth challenges facing countries are uneven; some economies will continue to grow while others will stagnate:

For example, the global manufacturing industry is now unusually disconnected. In major exporters such as Germany, the manufacturing slump is obvious, and Germany is close to recession.

However, in places where demand for services is slowing down, such as Spain, the manufacturing industry is still doing well.

05 Increased government spending

Manulife pointed out that the COVID-19 pandemic and increased defense spending have begun a wave of fiscal stimulus from governments. Some of these may be necessary, while others have been too aggressive, leading to high inflation.

Strategists expect government spending to accelerate further this year:

In 2024, we expect the growth of government shares in individual countries and global spending to become more prominent and structural. This is likely to have more practical effects, including the disruptive nature of a sharp increase in the supply of sovereign bonds and the rising cost of large amounts of sovereign debt overhang.

Some major elections will be market-focused events, which may reduce the clarity of key policy measures and increase volatility.

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