Mercer – Economic and Market Outlook, 2024

Mercer's Economic and Market Outlook for 2024 provides insights into the global economy and financial markets. The report notes that the global economy is still dealing with the effects of the COVID-19 pandemic and the resulting policy responses. Policymakers in the US and other developed countries applied significant stimulus to protect their economies, which led to low unemployment and overheated labor markets. In 2023, central banks tightened policies in an attempt to bring economies back to normal without causing a recession. The report predicts that policymakers will mostly achieve their goals in 2024 and 2025, leading to a return to normal levels of labor markets, wage growth, and inflation. The report highlights Japan as an outlier, having experienced low growth and deflationary forces in the past, but is now successfully reflating its economy. China, on the other hand, is under-heated and is expected to ease policies to ensure strong growth. Inflation readings will be less volatile, falling slowly in much of the developed world and gently rising in China. The Bank of Japan is expected to hike rates for the first time since 1990, which could be significant for Japan. In terms of financial markets, the report expresses slightly more optimism following bond-led weakness in 2023. Bond yields have risen to near two-decade highs and offer the prospect of decent returns. Equities are expected to benefit from a decline in inflation and interest rate fears. Emerging markets could see better equity returns, with attractive valuations and decent GDP and corporate earnings growth. The report also mentions opportunities in mainstream assets like equities and bonds, as well as slightly less mainstream assets like frontier market debt and Asian high yield. Financing risk and geopolitical risks are noted as potential challenges, but positive developments in technology, particularly artificial intelligence, are expected to have a large impact in the long term.