- 2023 can be summarised as a year of resilience as advanced economies avoided sharp downturns despite rapid monetary policy tightening. The US economy was a particularly bright light with buoyant domestic demand driving an upswing through the year. The Japanese economy also expanded strongly in H1 2023, before losing steam in the second half of the year. It’s been tougher going in Europe with the euro area economy now teetering close to a mild technical recession against a broader backdrop of stagnation.
- This tees up some key questions for the year ahead from a macro perspective, the most important of which relates to the durability of the US expansion. As it stands, a so-called US ‘soft landing’ seems increasingly plausible, although we still look for a cyclical slowdown. The European economy, starting from a position of relative weakness, may be able to catch up a little ground in the second half of the year. We are also cautiously optimistic about the outlook for the Japanese economy.
- 2023 was also a year of disinflation as energy base effects weighed on headline rates, but we have now moved into what has been dubbed the hard ‘last mile’ with the focus shifting to underlying price growth. Our view is that core dynamics are favourable in developed economies and overall headline inflation should continue to ease in 2024.
- Despite this, we suspect that markets are currently pricing in too much in the way of rate cuts given our US soft landing/no imminent recession call, although we do expect easing from the Fed, ECB and BoE this year. Meanwhile, the BoJ is likely to be swimming against the global monetary policy tide as it will look to raise interest rates back to positive territory.
