Economists at AMP expect global growth to slow to around 2.5 per cent over 2024, while the Australian economy is expected to dip to 1.5 per cent.
Speaking on a webinar on Wednesday (13 December), chief economist Shane Oliver said that recession remains a high risk, especially in Australia, but noted that if it does occur “it should be mild”.
“We do expect growth to slow down. There could be fears about recession in there as that growth slowdown unfolds,” Dr Oliver said.
Turning to interest rates, a key determinant when it comes to the likelihood of a recession, Dr Oliver said he believes rates have “likely peaked”, but acknowledged that the risk is still on the upside in Australia.
“We think they’re going to come down and, ultimately, they will separate banks to start cutting interest rates,” he said.
In terms of possible cuts, he noted that Europe and the US are likely to act first, with an expectation that from March rates across these countries could start to taper off. In Australia, however, Dr Oliver said the Reserve Bank is expected to start cutting from the September quarter, which will boost growth in late 2024 and into 2025.
These factors combined are expected to impact shares in 2024, Dr Oliver said.
“Shares are at a risk of a further near-term volatility, but should provide reasonable returns on a 12-month view helped by cooling inflation and interest rate pressures,” the chief economist explained.
He noted that recession is the main risk, but there are other areas to watch.
“What to watch, obviously, [it will be] inflation, interest rates, business condition surveys, obviously the ongoing risks around China and geopolitical issues will continue to pop up,” Dr Oliver said.
He assessed that “we have come into a more inflation-prone world”, meaning that interest rates won’t go back to the lows seen in 2020.
“That tailwind that we saw of a 30 or so year decline in interest rates is probably behind us.”
Dr Oliver does, however, see some reasons for optimism, including the hope that geopolitical risks “may not turn out badly”.
“The US has a strong incentive to avoid an escalation in the Israel/Hamas war; the stalemate in Ukraine could turn into a frozen conflict – not good for Ukraine, but no problem for investment markets; and elections won’t necessarily go in an adverse direction for markets,” he said in a note earlier this week.
“In relation to the US, the presidential election year normally sees average share returns, and since 1927 US shares have only had negative returns in four election years, and for those worried about Trump, it could turn out to be Nikki Haley.”
Other positives include an ease in inflation and rate cuts.
