Real wage growth and inflation rollover in US pushing aside recession fears in 2024

LGT said the key argument for this view is that real wages in the US are positive. This means that even with increased inflation, workers are better off on average and that in turn should keep overall consumption and spending healthy.

"The surge in US dollar interest rates fuels speculation that there will be a US recession in 2024.  We disagree," said Stefan Hofer, Managing Director and Chief Investment Strategist of LGT. "The exceptionally low level of US unemployment gives the economy a ‘cushion’ to keep household spending and corporate earnings aloft next year. Real wage growth is positive and should support household consumption."

In aggregate, LGT sees the global market for manufacturing goods as very competitive, which in turn is a driver to help lower inflation over the medium and longer term. This is one of the reasons why the company is confident that core inflation rates can return to the traditional 2% level in the US and Europe by the middle of 2024.

Also, the European Central Bank raised rates by plus .25 basis points to 4% recently.  For Europe, LGT argues that this is the final hike before interest rates fall again in 2024.  European unemployment, like in the US, is very low as companies faced labour shortages post Covid-19 pandemic and remain reluctant to reduce staff numbers.  This means that any European recession is also unusual in nature as it is not accompanied by a material increase in jobless

"Global inflation is rolling over at varying speeds. The European Central Bank is now at peak rates and the US Federal Reserve is likely very close.  As long as the core consumer price index remains on a falling trend, then interest rates in both regions can start to come down by mid-2024" Hofer predicted. 

Contrary to popular belief, LGT also believes that globalisation remains intact post-pandemic. While Covid-19 was a negative trade shock to the global economy, it has quickly recovered. As an example, the US economy has grown very rapidly since the end of Covid-19 as US corporate profits have also surged. These positive trends in the US and Europe, both key markets for global investors, should bode well in general.

“What we see in the Asia Pacific, for example, Thailand, there has been an approximately 3% to 3.2% growth, with predictions for 2024 to be a little lower at 3% or 3.1%, depending on China’s ability to reaccelerate in 2024. With regard to the Thai equity market, my view has always been that Thailand is a South East Asia success story, not only for tourism but also for manufacturing. Manufacturing in Thailand is extremely strong, it is very competitive, and the Thai economy has really moved up the value chain. Thus, in the longer term, we expect very positive prospects for the Thai economy and Thai Baht,” Hofer concluded.