2024 Market Outlook: Macroeconomic Overview

As we begin the new year, we’re reflecting on some of the key themes that impacted the markets in 2023. This includes everything from interest rates and inflation to geopolitical events and generative artificial intelligence (AI). We expect that many of these themes will continue to influence markets in 2024, and we’ll continue to monitor them for risks and opportunities as they may arise.

Monetary policy & global growth

Decelerating inflation
Central banks across most of the developed world continued their rate hiking campaigns in 2023. Although headline inflation has cooled, core inflation, which adjusts for volatile components such as housing and energy, remains stubbornly above the 2% target that most Group of Seven (G7) economies are targeting. Despite this, market sentiment seems to indicate an expectation of a “soft landing” scenario, where inflation decelerates and a recession is avoided. Read the fixed income section of the market outlook to learn how the bond market has priced in this possibility.

Global growth
Market confidence, coupled with easing labour shortages, has led to a wave of optimism heading into the new year. However, whether or not this optimism is justified has yet to be determined. According to the International Monetary Fund (IMF), global growth remains well below the 2000-2019 average of 3.8% and is expected to decline further to 2.9% from its 2023 level of 3.0%. As outlined in the Canadian equity outlook, the possibility of a significant downturn is expected to cause some uncertainty with respect to energy demand.

Politics

Upcoming elections
2024 will see elections take place across the globe. Voting in the U.S. elections kicked off this month with the Iowa caucus and the New Hampshire primary. The general election will take place later this year in November. Early polling has indicated that this will be a tight race that may see a reinstatement of the Trump presidency.

Elsewhere, Taiwanese voters headed to the polls on January 13th and re-elected the Taiwanese nationalist Democratic Progressive Party (DPP). This spring, general elections will kick off in India, where state polls suggest that the current Prime Minister, Narendra Modi, will be elected for another term.¹ Finally, nine European parliamentary elections will take place throughout the year, of which four are expected to result in a notable change in government and/or policy direction.²

China-U.S. relations
Taking a look at the geopolitical landscape, U.S. relations with China appeared to thaw during the 2023 Asia-Pacific Economic Cooperation (APEC) Summit. However, many points of contention remain unresolved, such as export controls levied on semiconductor components to China among other trade restrictions, and military confrontations over the South China Sea. The deterioration in relations and increasingly antagonistic environment for foreign firms have encouraged many companies, backed by local government grants and loans, to rethink their supply chains and shift risks away from China. Read the global equity outlook to learn about some of the other headwinds the Chinese economy faces heading into the new year.

War in Ukraine
With minimal advancements on either side, it appears that the war between Russia and Ukraine has reached a stalemate. However, as we approach the second year of the war, Ukraine’s demand for aid continues to grow. This has put pressure on the budgets and weapons stockpiles of countries within the North Atlantic Treaty Organization (NATO) alliance. As we approach the coldest months of winter, natural gas supplies in Europe also remain a persistent concern.

Innovation and the global transition to a green economy

Renewable Energy
The transition to renewable energy continues to face challenges south of the border. A large backlog of renewable energy projects has prompted the Federal Energy Regulatory Commission to announce that it will issue a final rule this year changing how new energy projects connect to the grid. Among the key goals listed were identifying efficiencies in linking up planned solar, wind and battery storage projects, along with reducing energy costs and making the grid more reliable.

Although the International Energy Agency (IEA) projects that demand for fossil fuels will peak before 2030, Brazil announced that it will join the Organization of Petroleum Exporting Countries (OPEC+) this year. At the COP28³ in Dubai in December 2023, Brazil’s President, Luiz Inacio Lula da Silva, attributed the move to the need to convince the 23 oil-producing countries that they must transition away from fossil fuels. We’ll also monitor the
increasing popularity of nuclear as an alternative to fossil fuels.

Electric Vehicle (EV) sales
Global electric vehicle (EV) sales grew by 65% between 2018 and 2022, accounting for 10% of passenger car sales.⁴ It appears, however, that demand has cooled in North American markets. As we discuss in the U.S. equities outlook, we’ll continue to monitor this.

Generative AI
Finally, we’ll continue to monitor generative AI tools and other innovative technologies, particularly as they pertain to product integration. This includes Adobe’s plans to integrate AI into some of its most popular applications, such as Photoshop and Illustrator, and GitHub’s launch of Copilot Chat, which embeds a chat assistant into Visual Studio, in an effort to boost creativity.

These are some of the themes the Empire Life Investment team will continue to monitor in 2024. In this special annual report, we will take a deeper dive into some of these themes, and provide an outlook for the different asset classes as we head into the new year.

Download the full Empire Life 2024 Market Outlook (PDF). 

¹ Carnegie Endowment for International Peace, “Decoding India’s 2024 Election Contest”, December 7, 2023
² Economist Intelligence Unit, “Europe: Elections to Watch in 2024”, November 17th, 2023
³ Stands for the Conference of the Parties to the United Nations Framework on Climate Change (COP28 to the UNFCCC)
⁴ “Tracking Climate Action: How the World Can Still Limit Warming to 1.5 Degrees C”, https://www.bezosearthfund.org/news-and-insights/state-climate-action-2023-how-we-can-still-limit-warming-1-5-degrees-c November 14, 2023

This document reflects the views of Empire Life as of the date published. The information in this document is for general information purposes only and is not to be construed as providing legal, tax, financial or professional advice. The Empire Life Insurance Company assumes no responsibility for any reliance on or misuse or omissions of the information contained in this document. Please seek professional advice before making any decisions.

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Information contained in this report has been obtained from third party sources believed to be reliable, but accuracy cannot be guaranteed. Empire Life Investments Inc. is the Portfolio Manager of certain Empire Life segregated funds. Empire Life Investments Inc. is a wholly-owned subsidiary of The Empire Life Insurance Company.

February 2024