Trend n#1

Normalisation of global economic growth

Despite the Fed’s aggressive tightening campaign, the US economy has been more resilient than expected. However, growing evidence suggests that high borrowing costs are slowly filtering through the economy, which is finally cooling down toward a more sustainable and balanced pace of expansion.

In Europe and in China, 2023 was a negative year in terms of growth. Since the beginning of  2024, both economies havebeen recovering, achieving growth rates consistent with their long-term potential. For them, normalisation in 2024 means the dissipation of the troubles experienced in 2023.

In Japan, nominal GDP is growing for the first time since the 1990’s and interest rates are on the rise. In the Emerging world, countries such as India, Mexico or Vietnam are benefiting from the US-China economic war and the nearshoring / friend shoring theme.
In summary, while some fast-growing economies are expected to decelerate in 2024, others will recover from weaker conditions, contributing to a global normalisation of
economic growth.

Trend n#2
Labour market normalisation

Labour shortages in many sectors have been a remarkable feature of the past three years. Demographic dynamics and surging demand for service sector jobs have driven unemployment rates to record lows in the US and in Europe. This situation has led to an acceleration in wage growth that has fuelled domestic consumption, but also raised
inflationary pressures. Recent indicators have pointed to an easing in tensions on the labour market. Job opening and indicators of turnover are falling back from peak levels.

Underlying dynamics within the labour market have also shifted toward more temporary jobs at the expense of full-time contracts. This normalisation of labour markets will lead to a healthier situation where high employment continues to support consumer spending, but where upward pressures on wages gradually abate.

Trend n#3

Central banks kick off easing cycle

Central banks around the world have had to hike interest  rates aggressively in 2022 and 2023, in response to the inflation revival. As economic growth, labour market conditions, and inflation normalise, the necessity for restrictive monetary policies
diminishes.

Put simply, current interest rates are too high given the environment of moderate inflation and growth. Consequently, central banks are anticipated to reduce interest rates in the future. This trend has already started, with the Swiss National Bank being a precursor in March, followed recently by the Bank of Canada and the European Central Bank.

As growth and inflation normalise on a global scale, the Fed and other central banks will join this trend and gradually adjust their key rates lower too. Barring an unexpected economic downturn, the speed and magnitude of this rate cut cycle will likely be gradual and less pronounced than in the past 25 years.