A global analyst survey by Fidelity International has looked into company sentiment heading into the new year, with the majority foreseeing cost pressures to ease over the next 12 months.
According to the investment manager, the results “provide some bottom-up vindication of central bankers’ refusal to pivot on interest rate hikes for so long, while labour markets remained tight”.
“It also suggests the US Federal Reserve has picked a good moment finally to do so, with chair Jerome Powell saying in December that he expects to cut rates through 2024,” observed Gita Bal, global head of research, fixed income at Fidelity International.
The survey consulted some 137 research analysts spanning fixed income, equity, private credit, and cross-asset.
For the year ahead, the analysts forecast less strain on companies stemming from labour shortages where such pressures do exist. Fewer than a third believe it is expected to reduce earnings in 2024, compared to just over half in 2023.
It evidenced that companies were adapting to persistent labour pressures, the analysts suggested.
Bobby Missar, a fixed income analyst, said: “The skilled labour shortage remains a structural issue for US builders. But while it has increased labour costs, builders have been able to cut costs elsewhere – turning previous standard finishes into upgrades or reducing square footage of homes while limiting price reductions, for example.”
Similarly, most companies have been able to pass on any higher costs to consumers, particularly in Japan, the Asia-Pacific, and Europe.
However, China remained an outlier, as it struggles with weak demand over rising costs, along with challenges with falling property prices and high levels of youth unemployment.
Interestingly, the analysts highlighted signs that the challenges of the past few years have improved companies’ resilience.
Jonathan Neve, a fixed income analyst who looks at European airlines, observed: “If airlines don’t plan well for their growth in capacity, they may struggle to find enough staff, leading them to have to either pay more in wages, or cancel flights.
“This is exactly what happened in the summer of 2022, but one would hope that airlines have learnt their lessons and are planning accordingly. It may mean incurring slightly higher staff costs at the beginning of the year but that will ensure operational resilience.”
Ms Bal added that companies were being forced to adapt given the emergence of war, geopolitical uncertainty, and rapid advancements.
“But crimping inflation suggests a global economy that is already growing more resilient in the face of adversity,” she said.
Last year, Fidelity’s analyst survey had found 60 per cent of analysts believe their sectors are already in a slowdown, a shallow recession or worse.
Just over half of those analysts expected the business cycle to improve by the end of 2023.
