Following a 12-month period marked by numerous interest-rate hikes and sustained high inflation, global economic growth will decelerate in the first half of 2024. By mid-year, amidst slower growth and reduced inflationary pressure, central banks will seize the opportunity to begin cutting interest rates, supporting a broad-based recovery over the second half of 2024 and beyond.

Those are the views of Daniele Antonucci and Nicolas Sopel, Chief Investment Officer and Head of Macro Research, respectively, at Quintet Private Bank, which today unveiled its annual forecast for the global economy, financial markets and key asset classes.

Over the course of what is expected to be a year of two halves, Antonucci notes that investors will need to cut through significant “noise,” including major elections, continued geopolitical uncertainty and regional tensions. “The shift towards a more multi-polar world that began with the pandemic continues to be evidenced by the fragmentation of supply chains, trade and finance,” he said. “In 2024, investors will need to adapt to this uncertain landscape, including by considering exposure to assets that may provide defensive benefits, reducing portfolio risk.”

High-quality government bonds continue to look appealing heading into next year, argues Quintet’s Chief Investment Officer, as he believes the current central-bank rate-hiking cycle is over, with possible rate reductions from mid-2024. Antonucci sees yields as currently attractive and notes that they may offer a cushion should the economic outlook deteriorate beyond expectations. Conversely, riskier credit looks unattractive as it may suffer due to tight financial conditions and valuations that do not reflect the risk of an increase in default rates.

“While maintaining our conservative position heading into 2024, we are nevertheless somewhat tempering our cautious stance as interest rates have now peaked and markets appear to have already broadly priced in a moderate slowdown,” said Antonucci, explaining that this translates into a marginal increase in allocation to equities, adding exposure to European and developed Pacific ex-Japan equities on top of quality US shares to support regional diversification and potentially capture very different growth dynamics. “Emerging-market equities, by comparison, currently carry elevated risk levels that are not fully justified by their relatively cheap valuations,” he said.

At the same time, increasing exposure to commodities may provide additional levers to protect against inflationary pressure, especially in the near term, as well as heightened geopolitical risk. Notably, this excludes increasing exposure to gold, which Sopel says currently appears somewhat overvalued relative to other safe-haven assets.

Quintet’s Head of Macro Research expects that the US dollar could weaken, albeit moderately, over the course of 2024. “US Federal Reserve rate cuts, slightly widening fiscal and trade deficits, and persistent US dollar overvaluation could all weigh on the greenback,” said Sopel. “As growth begins to rebound in the second half of the year, risk sentiment could also improve – supporting the euro and the pound sterling. However, we expect any US dollar weakness to be limited given that the European Central Bank and Bank of England will likely also begin cutting rates in the second half of 2024.”