Three big surprises and three big questions - Outlook 2024

When thinking about the outlook for financial markets over the coming year it pays to start with a little humility.

This time last year, economists had pencilled in recessions for 2023 on the back of swingeing rate hikes and extremely high energy prices. And yet, as is so often the case, things didn’t turn out the way they were meant to.

A resilient world economy…

The first big surprise for 2023 was that the world economy was much more resilient to higher interest rates than anyone expected. The previous year had seen the most dramatic tightening in monetary policy in generations after inflation turned out not to be as ‘transitory’ as central banks had hoped. And yet the US economy trundled on as if nothing special was happening with growth more or less in line with its long run average. US home buyers are on 30-year fixed rate mortgages so, as long as they don’t move house and refinance their loan, their payments don’t increase. Most corporates are also benefitting from fixed rate borrowing. The Federal Reserve’s underpinning of ultra-low rates in 2020/1 gave indebted companies something of a Get out of Jail Free card, allowing them to term out their debt at lower rates. Elsewhere in the world, a sharp decline in energy prices kept Europe and the UK bumping along the zero growth line and China’s economy continued to expand, if not in spectacular fashion.

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The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.