As always, the world is complicated, and there are many moving parts. As a result, a number of different scenarios might change the market environment. As part of our 2024 Market Outlook we look at four current uncertainties and the possible ‘setback’ scenarios that could impact investors in 2024.

Economic growth in the first half of 2024 is set to be constrained, in our view, since we expect to see monetary policy on hold – most likely until sometime in the second quarter. Thereafter, we expect the current cycle to come to an end when the first rate cuts are implemented by central banks, marking the beginning of a new cycle. This end-of-cycle environment could, however, result in some nervousness in the first few months of the year, because there are still a number of uncertainties.

Where will inflation settle?
Inflation usually lags growth, i.e. there is generally a delay in terms of when inflation is visible in an economy. However, in the current cycle, the effects have been immediate and enormous. Looking ahead, inflation should continue to fall closer to the comfort zone of central banks. The question now is when will inflation bottom? The risk is that overly restrictive policies for a longer period of time could hamper the recovery of economies. Thus, we believe that Western governments and central banks will choose to accept slightly higher inflation of around 3%. The reasons for this include the post-crisis normalisation of demand, and more importantly, supply-side factors, e.g. geopolitical tensions have led to a change in global supply chains, and demographic pressures in the workforce in the West and in China could limit the labour supply going forward and put upward pressure on wages.