Restrictive monetary policies and fading fiscal expansion are curbing growth and inflation in major economies. Recessions look unlikely but central banks are starting on a new cycle of rate cuts at a time of divergent growth rates, sticky price pressures, constrained fiscal policy and rising geopolitical risks. Despite the uncertain outlook, markets in some regions are priced for the best outcome. We therefore favour asset allocations that can withstand different scenarios.
Equities, barring US mega caps, are still attractive with those in emerging markets likely to be supported by valuations and the prospect of Fed easing. And a window of opportunity is opening in fixed income given yields are at historically appealing levels. Additional sources of diversification are on offer in commodities as well as real and alternative assets.
Key convictions for H2 2024
Multi-speed growth with sticky inflation
Global growth is expected to reach 3.1% in 2024. However, there are divergences in play: the US is slowing down (without a recession), the Eurozone is on a recovery path, India’s strong growth continues while China is on a controlled slowdown trajectory. Inflation has been stickier than expected, but it is expected to further decelerate and reach central bank targets in 2025. This will allow central banks to initiate and continue the new cycle of cuts at different speeds.
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