Configure Wallet
As 2024 comes to the "second half", what will be the impact on global economic growth? How will the major economies perform? For investors, how to configure their "wallet"?
An optimistic but cautious global economy
Jim Reid, head of global economics and thematic research at Deutsche Bank, and David Folkerts-Landau, chief economist and head of global research at Deutsche Bank, said in a global outlook for the second half of 2024 that they are optimistic about the global economic outlook for the second half of the year, but there are still many challenges ahead.
Specifically, the global economy is still suffering from the lagged effects of monetary policy tightening, while quantitative tightening continues. Inflation has declined, but remains high in several major economies, including the United States and the eurozone. In the second half of 2024, the European Parliament and the United States, the United Kingdom, India and other countries will hold elections, among which the results of the US election will be closely watched and may have a significant impact on the global trading system.
Kristina Hooper, chief global market strategist at Invesco, believes that despite the consensus expectation of a slowdown in global economic growth in 2024, the growth and inflation performance of most major economies continues to be higher than expected.
"The market is currently presenting a relatively optimistic macro scenario. Expect volatility in the near term as markets react to changes in the outlook for interest rates, including any positive or bearish data that emerges along the way. Hopper said that at this stage, the timing of rate cuts is more important than the exact number of rate cuts, especially when market sentiment is still very volatile. There is also a significant risk that the market may be overly optimistic and the underlying problems have not yet been fully reflected.
Hopper said that given that economies are likely to experience different growth and the pace of inflation is likely to be different, we believe divergence is likely to be a central theme for the rest of 2024.
Cheng Shi, chief economist of ICBC International, expects that in the second half of 2024, the global economy will continue to show a recovery trend. Although the recovery momentum remains strong in the short term, in the long run, the global mismatch of capital and labor factors is becoming more and more serious. The misallocation of resource factors is likely to dampen global TFP growth, thereby slowing long-term economic growth. Under the misallocation of global resources, the economic growth rate of the world's major economies may begin to slow down in the second half of 2024.
The growth rate of the United States may slow down, and China's economy has support
In terms of performance expectations for individual economies, Hopper believes that the U.S. economy has so far been less affected by monetary policy tightening. However, after a series of surprises in US macro data, growth appears to be showing signs of slowing. Due to restrictive monetary policy, the US economic growth rate is likely to be slightly below trend for the rest of the year.
Cheng Shi believes that this year's U.S. economic growth may show a trend of high and then low. Although the United States has weakened the negative impact of rising supply chain costs, resource misallocation and economic outlook uncertainty through a series of policies such as fiscal stimulus, reshoring of manufacturing, and stimulus of chips and infrastructure bills.
Cheng Shi said that we expect the seasonally adjusted year-on-year growth rate of real GDP in the United States to reach a year-to-date high of 3.3% in the second quarter of 2024, and economic growth will begin to decline in the third and fourth quarters of 2024, at 2.1% and 1.5%, respectively.
Looking at China, Deutsche Bank reported that it had raised its economic growth forecast for 2024 by 0.5 percentage points to 5.2% in April, as China's economic growth in the first quarter exceeded expectations. In the short term, economic growth will be boosted by the continued recovery of exports and the acceleration of fiscal spending, and the People's Bank of China (PBOC) is expected to cut interest rates twice this year, totaling 20 basis points.
Hopper believes that there is still ample positive upside in the Chinese market. Economic growth appears to be gradually strengthening, driven by factors such as export recovery and fiscal policy support. In terms of the real estate market, real estate investment, consumer sentiment, and local government financing are issues that need to be paid attention to in the process of economic growth. The recent export growth suggests that the economy is supported by improving external factors.
In Cheng Shi's view, the eurozone will still face a complex economic environment in the second half of 2024. Despite the easing of inflationary pressures, growth in the eurozone remains weak.
For the Japanese economy, Deutsche Bank expects to maintain stable growth over the next two years. Japan's external environment is improving, and domestic demand is expected to remain stable on the back of accelerated wage growth. While the headline inflation trend will continue to slow, it is likely to rise again as wage growth is passed through to selling prices.
Where do you put your money?
Stocks, bonds, foreign exchange and commodities, who can achieve positive returns in the second half of the year?
Cheng Shi expects that mature market equities, especially large technology companies and defensive sectors in the U.S. market, may continue to attract capital allocation and perform relatively well. Emerging market equity markets are likely to be more volatile, and frequent short-term capital inflows and outflows will lead to higher volatility. The performance of these markets will be highly dependent on factors such as the pace of Fed rate hikes and the development of inflation.
In the bond market, safe assets such as U.S. Treasuries are likely to continue to be favored. The performance of emerging-market local currency bonds is likely to diverge, with government bonds with sound fundamentals and sound economic policies being more popular.
In FX, the U.S. dollar index will dominate the performance of other currencies, and the U.S. dollar could come under pressure in the second half of the year if inflation rebounds under control and Fed rate cut expectations are released. Emerging market currencies were mixed, and overall depreciation pressures remained.
In terms of commodities, safe-haven funds favor precious metals such as gold, and gold prices are expected to fluctuate at high levels in the second half of the year and continue to strengthen with the Federal Reserve's interest rate cuts.
Hopper said that given the favorable macro environment, it tends to favor risky assets, but it is necessary to maintain risk control, because high valuations limit the upside of risky assets. "In equities, we favor cyclicals and small-caps as they have relatively attractive valuations and are more sensitive to economic cycles, as well as developed markets (ex-US) and emerging market equities."
Among the major currencies, the US dollar should start to weaken during the year as the US Federal Reserve starts to cut interest rates, which will be positive for currencies such as the euro, the British pound and the Brazilian real.
Source: Guoshi through train WeChat public account
Author: Chabin
Process Editor: U032