Barclays – Outlook, 2024

Barclays predicts a base-case scenario for the global economy in 2024, expecting it to muddle through with some regions narrowly avoiding a recession. However, forecasting the next twelve months is challenging due to factors such as an unprecedented interest rate hiking cycle, a tense geopolitical backdrop, and the lagged effect of the COVID-19 pandemic. This article explores both the potential risks and positive surprises that could occur. One potential risk is worsening credit quality. Consumers, especially those in the lower income quartile, are running out of excess savings and credit card delinquencies in the US have already started to increase. Companies with upcoming refinancing needs may struggle to find the necessary funding, posing a risk to their survival. Another risk is a sovereign debt crisis redux. Governments have been closely monitored by financial markets due to years of fiscal largesse, and the global debt-to-GDP ratio has jumped to 99% from 91% before the pandemic. With the cost of borrowing increasing, some countries may find it difficult to roll down their debt, including the US with its polarized and divided government. Inflationary shocks are also a concern. Central banks have faced challenges in accurately forecasting inflation due to factors like the Ukrainian war. Another major conflict, such as one involving Taiwan, could further disrupt forecasts and have global repercussions. The article also highlights the danger of unexpected curve balls that can disrupt markets. Examples of such surprises include the COVID-19 pandemic and the war in Ukraine, which were not anticipated by most investors. The importance of appropriate diversification and a strong commitment to investment goals is emphasized to account for such risks. Despite these potential risks, the article acknowledges the possibility of positive surprises in 2024. This could include a more resilient global economy, a faster-than-expected cooling of inflationary pressures, geopolitical détente, or technological advancements. The ability of societies, companies, and financial markets to innovate and adapt to changes is also noted, making staying invested in financial markets likely to be the most appropriate strategy for those with longer time horizons.