GS 2024 Outlook.pdf1129.7KB
Notes / Anything I Found Interesting:
- core inflation should fall back to 2-2½% by end-202
- We continue to see only limited recession risk and reaffirm our 15% US recession probability
- We expect returns in rates, credit, equities, and commodities to exceed cash in 2024 under our baseline forecast
- Since the end of 2022, sequential core inflation in this group of economies has fallen from 6% to 3% sequentially. Central banks have therefore achieved more than three-quarters of the adjustment needed to get inflation back to their targets.
- Good disinflation still has further to run
- Meanwhile, both the Euro area and the UK should see a meaningful acceleration in real income growth—to around 2% by end-2024—as the Russian gas shock fades.
- Several economic fundamentals also argue for higher longer-run rates going forward. First, global government deficits are likely to remain elevated despite incremental fiscal consolidation. Second, higher investment this cycle—whether to facilitate the transition to “net zero” or the widespread adoption of generative AI—could also put upward pressure on near-term equilibrium interest rates. Finally, the productivity boosts promised by generative AI—which recently prompted us to upgrade our longer-run growth forecasts by 0.4pp in the US, 0.3pp in other DMs, and 0.2pp in advanced EMs—could put upward pressure on rates, especially if the generative AI adoption timeline is more frontloaded.
- While our 2024 growth forecast is slightly above consensus, we continue to see a challenging longer-run growth outlook for several reasons. First, the property downturn is likely to endure, and there is still a risk that the resulting pessimism becomes entrenched in self-fulfilling expectations. Second, China’s ongoing demographic deterioration will require the country to reinvent its growth model with a persistently shrinking working-age population. Third, a modest cyclical rebound in exports is unlikely to reverse the ongoing diversification of global value chains away from China and toward some of its peers. We expect China’s trend rate of growth to continue to slow, reaching just 3% within a decade—less than half the pre-covid norm.