10 Global Macro Themes for 2024

As we hit the halfway point in 2024, several global macro themes are shaping the economic landscape, influencing markets, and impacting investment strategies. Here are ten key themes to watch:

1. A driverless global economy

After a challenging 2023, the global economy is set to bottom out in 2024 with growth falling below 3% for the first time in more than two decades outside of recession years. The world’s top-three economies (US, EU & China) will see structural and cyclical slowdowns that mean demand drivers for the rest of the world will be weak in 2024 and beyond just as headwinds from high rates and geopolitical uncertainty persist.

Implications

Labour Markets: Western labour markets and household consumption have proven resilient in the last few years. Wage and employment dynamics will be key economic indicators to watch in 2024.

Import Demand: Import demand will remain sluggish, slowing growth in many export-oriented economies.

Low Growth: We could be in an extended period of low growth. Markets in which popular discontent with governments is high and rising could see elevated risks of civil unrest and instability.

2. Monetary easing is getting real (somewhat)

Implications

High Real Rates: High real rates will incentivise consumers to defer spending, especially on big ticket items. Businesses will be under pressure to protect margins and increase returns (or else go bust).

Renewed Stresses: We could see renewed stresses in the financial system, also fuelled by concerns about rising public debt burdens. The Fed could be forced to expand liquidity provisions to banks.

Rate Cuts: Fed rate cuts should be negative for the US dollar, especially if deeper than expected.

3. The West focuses on its own affairs in election year

Leaders in the US, UK and EU will have their next meeting with destiny in 2024. General elections in the US and UK, plus elections to the European Parliament (besides a series of national and local elections in EU member states) will force politicians to focus their efforts on domestic issues and on winning over voters. This will also impact the level of alignment between the three transatlantic partners.

Implications

Election Campaigns: Election campaigns this year will be messy but could lay the foundations for a pro-growth agenda beyond 2024. It is the best time to partake and shape the policy debate.

Policy: Differences in US economic policy approaches between Biden and Trump will likely drive financial returns in the second half of the year.

Competition: Economic competition between the EU and US will intensify and affect bilateral ties.

4. Chinese overcapacity adds to rivalry with EU and US

China is rebalancing its economy but not in ways Europe or the United States would like. As domestic demand remains weak, Beijing is pursuing a major push to build a dominant position in greentech and other advanced manufacturing. While supporting disinflation globally, China’s aggressive policies and overcapacity will put further pressure on industry elsewhere and strain relations with major Western economies.

Implications

Overcapacity: Chinese overcapacity will deepen concerns about unfair competition and fuel the ‘derisking’ agenda established as the common EU/US approach towards China. Pressure on companies to de-risk from China will persist. Despite China’s slower growth, it remains a crucial market for many.

Counter-Reaction: The EU’s hardening approach will spark a counter-reaction from Beijing, which risks European firms being caught in the crossfire.

5. Economic interests drive geopolitical diversification

2024 will see greater pressure on governments to choose sides along geopolitical fault lines, but those who can afford it will pursue multi-alignment strategies to maintain political and commercial ties with different sides. New forms of economic cooperation are gaining prominence to hedge geopolitical risks and safeguard economic interests.

Implications

Pressure: The pressure on companies and governments to align with Western sanctions will remain high. Compliance failures will likely be made costly.

Diversification: Currency diversification in trade invoicing is likely to continue, led by the CNY.

Independence: Middle East powers will seek to play a more independent role to maintain their energy and security interests, and as the West’s position on Israel becomes a political risk.

6. Taiwan tensions enter a new phase

Lai Ching-te, also known as William Lai, from the Democratic Progressive Party is likely to win Taiwan’s presidential election in January. While it likely won’t be a decisive victory, China might see it as a sign that its current strategy for a peaceful reunification is failing. Beijing deeply distrusts Lai who will look to further diversify Taiwan’s trade ties, reducing China’s economic influence. Cross-strait tensions will enter a new phase.

Implications

Risk perceptions: Risk perceptions around China will remain high, incentivising firms and investors to shift production and supply chains to lower-risk destinations in Southeast and South Asia.

Downside: Companies should plan for different downside scenarios even if we believe a Chinese invasion of Taiwan remains unlikely in the medium term.

Supply Chain: Supply chain integration between Taiwan and mainland China will become riskier.

7. New and old Asian leaders vie for shifting supply chains

Elections and leadership changes in Asia throughout 2024 will continue to shape the rewiring of global supply chains. Besides Taiwan, there will be elections in India and Indonesia, a likely election in Singapore, and a change in leadership in Malaysia. New and old leaders will seek to position their countries to benefit from the changing geopolitical and economic landscape, fuelling competition between Asian nations.

Implications

Diversification: India and Southeast Asian nations are well positioned to benefit from diversification away from China. Effective economic strategies will determine who will be able to build competitive clusters of economic activity and compete with near-shoring places like Mexico.

Consumer Market: India’s large potential as a growing consumer market and alternative to China is quickly gaining interest, though this requires a thorough assessment of market opportunities.

8. Low-income debt crisis exacerbated by great power rifts.

High debt levels in developing countries amid high global interest rates will push the most exposed countries to the point of crisis. The international policy response to debt restructuring and additional funding will be marred by geopolitical tensions.

Implications

Debt Servicing Costs: While sub-Saharan Africa is particularly impacted – debt servicing costs exceed spending on health, education and social security by a factor of two – other countries are also at risk, including Tunisia, Pakistan, Laos, Bolivia and Argentina.

Control: The lack of quota re-alignment at the IMF means the US and its allies will retain control of the fund and may be able to use its lending power to challenge the dominance of Chinese lending in areas of Asia and Africa.

9. Geopolitics key risk to commodity markets

After two strong years, commodities disappointed in 2023 as prices fell for most. This was not widely expected as the narrative of a new commodities super-cycle had taken hold. While many global macro trends provide reasons to be bullish on commodities in the second half of this decade, 2024 might only bring limited price growth. Prices are still expected to remain largely higher than pre-2021 with geopolitics adding volatility.

Implications

Behaviour: Consumer behaviour will be a key indicator to assess prospects for energy transition metals.

Competition: Geopolitical competition for secure supplies of certain commodities will continue. Firms should plan for geopolitical risks affecting their supply chains.

Interest Rates: High interest rates and lower than expected prices in 2023-24 could depress investment, exacerbating price spikes in the medium term.

10. US oil dominance challenges OPEC+

US oil production hit a record high in the last months of 2023. Never has a country produced more oil than the US is producing currently. This came as a surprise to many and, amid weak commodities demand, forced OPEC+ to commit to deeper output cuts for Q1 2024. But the GCC will continue aggressive efforts to diversify their economies.

Implications

Oil Price: An oil price at about $80 per barrel is our base case for 2024, an overall positive for the global economy. Riyadh seems keen to defend a price floor of $70 per barrel for now. Riyadh sees US oil as a challenge, but current price levels help the relationship in 2024.

GCC: The GCC remains an interesting region for investors in 2024 as governments speed up their Vision 2030 plans. Saudi Arabia also prepares for Expo 2030 and FIFA World Cup 2034.

FX Product Insights

With inflation steadily falling in all regions, the expectation for interest rate cuts and the timing of such cuts in the UK, US & EU have become the focus for markets. This has resulted in currency volatility along with a yearly high in GBP/USD. As such, to mitigate the risk which comes with currency volatility, Fiscal FX has a range of products which we can offer to help you better manage your FX exposure. These include Market Orders, Forward Contracts and Window Forward Contracts, along with Spot Contracts. Please feel free to reach out to your Portfolio Manager, who will be more than happy to discuss this further with you.