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Businesses are hoping for a soft landing in 2024
Will major economies experience a soft landing in 2024? Or will the fallout from high interest rates feel more like thudding down to earth?
That’s been the question for the better part of a year, as central banks aim to walk the impossible tightrope between reigning in inflation and reviving global economies.
Central banks have only a few tools at their disposal, and these tend to be rather blunt instruments. In raising rates and restricting easy credit, policymakers are essentially putting economies on strict diets to limit the flow of money. It is an imprecise process, and one which often relies on stale data. Deciding when and how to unwind interest rates is delicate, and whether it succeeds may determine the world’s economic trajectory heading into 2024.
The state of play
Over in the US, the consensus view is that the Federal Reserve may just have pulled it off. Inflation is still above the Fed’s target but looks manageable at a tick above 3%, and the positive inflation reads have led many to suggest that central policy is doing its job in slowing the economy.
The picture is a bit more muddied in Europe, whose policymakers have a host of tricky decisions to make in 2024. Perhaps nowhere is the situation more precarious than in the UK. The Bank of England’s governor, Andrew Bailey, recently adopted a more hawkish posture. Bailey warned investors that he would not hesitate to tighten policy should inflation fail to wane. The UK has had a much harder time grappling with inflation compared to its counterparts, but the headline read has more than halved in a year, which has unsurprisingly pleased prime minister Rishi Sunak.
The European Central Bank’s (ECB) Christine Lagarde will also have a busy diary as she juggles a cohesive policy against the needs of EU member states. Recent inflation statistics from the likes of France, Italy and Spain have been promising. What Lagarde needs now is to pick her moment – no easy task as the clamor for policy loosening grows.
Wildcard in the East
One wildcard in all this may prove to be China. The manufacturing behemoth has shown it is not invulnerable to recent issues, but rebounding consumer demand is a positive sign for the rest of the world. On the flip side of the coin, it’s worth watching China’s property market next year, which remains paralysed behind a wall of corporate debt.
If China is quick to put those issues behind it, it could kickstart economic activity further afield. Chinese retail sales jumped to a 7.7% yearly increase in November, a promising start to what could be a pivotal period.
Cause for optimism but risks remain
There are several potential barriers to a soft landing next year. This worry-list includes the wars in Ukraine and Gaza, interest rates being held too high for too long, as well as the return of more esoteric risks, similar to the SCB banking crisis in March. The last few years have thrown up numerous challenges and policymakers would be wise to assume they aren’t out of the woods yet.
With that being said, the global economy seems to have reached a clearing. Whilst it is still surrounded by trees, there is a widening path that could see the worst of the economic mischief left behind.
Currency forecasts
2023 may well have been the year of peak-dollar. The greenback’s utility as a safe haven currency saw it insulated from a great deal of volatility this year, but 2024 may bring a change in fortune.
A Reuters poll found a majority of respondents believed sterling would gain around 3% against the US dollar next year to trade at $1.29. The euro is also expected to strengthen, although perhaps not by as much. Elections in the US and (most likely) the UK could throw another spanner into the works.
Businesses will once again have a lot on their plates in navigating volatile currency markets in 2023. To help you through it, Smart Currency Business has a range of solutions, from market options to forward contracts. Be sure to check out our SmartHedge feature as well, which allows your firm to visualise and adjust its currency exposures in real time.
To make sure your upcoming transactions are protected against the risks of sudden market movements, call your Business Trader on 020 7898 0500 to discuss a forward contract; alternatively, if you’re new, please register with Smart Currency Business today.
