00:00:00:00 - 00:00:41:01
When looking ahead and formulating the forecasts for 2024, it is always relevant to look back at the recent past and to have a final look at 2023. It was a year with many surprises. The resilience of the Labor market in the US in the euro area. Faced with aggressive monetary tightening, the resilience of the US economy in general with a staggering growth performance, the stagnation in the euro area, but also the decline in inflation.
00:00:41:03 - 00:01:03:23
But the thing that has been the defining characteristic for 2023 to treat undoubtedly has been the fact that the peak in policy rates has been reached in United States and in the euro area. When we now look at 2024, we can say that actually there are two quote unquote certainties. I'm saying quote unquote, because you're never 100% sure, of course.
00:01:03:23 - 00:01:31:21
But let's say there are high conviction calls that we can make, one is that inflation will continue to go down and that should pave the way for the ECB and the Federal Reserve to start using their policy to start cutting their interest rates. So lower inflation, lower policy rates. And this is something that should then be instrumental in engineering a gradual pickup in economic growth as the year progresses.
00:01:31:23 - 00:01:58:09
I insist on the word gradual, of course, to quote unquote certainties, but also a list of known unknowns of question marks. One key question mark is what is the delayed impact, if any, of the past rate hikes? Will we still see an impact on company investments? Because a number of companies in particular in the high yield space will need to refinance debt at higher interest rates?
00:01:58:11 - 00:02:29:15
Will there be an impact on the housing market when households are faced with a reset of their mortgage rate? That's one question mark important. The impact is difficult to assess, but let's say that, yeah, there is a concern that it entails some downside risk to the growth and inflation outlook. The second key question mark that we are confronted with is how swiftly or slowly will economic activity react to the easing of monetary policy?
00:02:29:17 - 00:02:52:20
This is something that matters for the pace of rate cuts by the central banks. It matters for economic confidence. It matters also for the pricing of financial markets. One should think in that respect of equity markets, of course, because it will have a very important impact on the earnings expectations. And then the third question is the soft landing in the US.
00:02:52:22 - 00:03:33:22
Soft landings, as we know, are really exceptional developments. They rarely happen, but it does seem that this time around the Federal Reserve has again engineered successfully the soft landing. That means bringing down inflation on a path towards targets without triggering a significant jump in the unemployment rate without triggering a recession. One should be cheerful about such a successful monetary tightening episode, but at the same time it does raise the question when the US economy will have soft landed, but then rates will have been brought lower.
00:03:33:24 - 00:03:56:13
Demand and activity should react. There should be a pickup in growth. But given that the unemployment rate will still be very low, that there will still be use of bottlenecks, will that mean that inflationary pressures always precious will come back quickly, yes or no, to be seen? It is a matter that is important for the conduct of monetary policy by the Fed.
00:03:56:16 - 00:04:25:00
It's also important for the behavior of bonds markets, of course, across the globe. So to conclude, 2024 is starting on a positive footing because of the prospect of lower inflation and lower policy rates. But we should also be mindful of the numerous unknowns that we are faced with, and that will mean that we will have to possibly adapt our views as the year progresses.
00:04:25:01 - 00:04:43:06
Clearly, we will keep you up to date. All these changes to our website through our publications, podcasts and videos. Thank you.
