Outlook for 2024: a degree of normalisation in returns - AG Employee Benefits
Economic Outlook 2024

Published on 09/01/2024


Outlook for 2024: a further rise in the markets?


​In his economic outlook for 2023​, Olivier Colsoul, Senior Strategist at AG, predicted that the rampant inflation of 2022 would gradually ease towards the hallowed 2% target. The least we can say is that 2023 was a year of disinflation. In another piece of good news, the financial markets seem to have come to terms with positive returns, meaning that we can look forward to 2024 with confidence. Our economic expert at AG explains.

What is your take on the last few months of 2023, in economic terms?

2023 was without doubt the year of disinflation. Central banks used the various measures at their disposal – including a steep rise in interest rates – to bring down inflation quickly and sharply. And their efforts paid off. The sharp fall in energy prices and the easing of supply-chain disruptions were other contributing factors. In other good news, the monetary shock induced by central-bank tightening has not stopped growth in its tracks. However, although inflation is less of a concern than it was, growth patterns are not uniform: the eurozone and Chinese economies are unquestionably in slowdown mode, whereas the US economy is proving to be much more resilient. The upshot is that we are not completely out of the woods yet, since core inflation is falling a little more slowly. Nevertheless, we can be satisfied with the overall economic picture as it stands at the end of 2023.

2022 was the year of soaring inflation. 2023 has been the year of disinflation. How do you see 2024 playing out?

In economic terms, 2024 is predicted to be the year of the soft landing. There are no indications of a looming recession. Instead, we expect disinflation to continue in the coming year, although possibly at a slower pace. At the same time, we envisage purchasing power gradually improving and central banks starting to ease their monetary policy stances. Fiscal policy is not expected to be restrictive, although some eurozone countries will need to tighten their belts on this front. Having helped households, governments are now taking steps to support business investment. The EU recovery plan will also provide a much-needed boost.

In 2023, the financial markets experienced a tumultuous yet favorable year for bonds, and an exceptionally positive one for equities. The year concluded on a high note, marked by a comprehensive rally. This surge was amplified by the US Federal Reserve's proactive shift in stance, expressing concerns about the overall economy beyond just inflation. Consequently, it foresees a greater number of interest rate reductions in 2024 than initially projected. This led to a continuous rise in stock prices coupled with a decline in bond interest rates.

However, our predictions indicate that the combined returns on equities and bonds will continue to be substantial moving forward. As central bank interest rates are set to decrease, the economy is expected to recover gradually, although the rates will not return to their lowest levels. Considering these factors, we anticipate a certain ‘degree of normalisation in returns' in 2024.

Are you saying that bonds and equities are back in favour with investors? Or should we remain cautious about the performance of these assets?

Let's start with bonds. Volatility is still very high, with sharp and extended upticks but also some downward movements. This kind of trend can, of course, affect the price of fixed-income securities, both positively and negatively. That said, now that central-bank interest rates appear to have peaked, the headwinds should ease. What's more, despite a slight decrease, bond yields continue to be appealing when viewed from a historical standpoint. ​​Within this asset class, corporate bonds are and will remain interesting over the long term thanks to their higher yield relative to government bonds. However, sovereigns offer specific or ad hoc investment opportunities.

As far as equities are concerned, we need to maintain a healthy dose of caution, especially when it comes to the future growth of listed companies. US corporate earnings releases made generally positive reading, but European figures were disappointing. The current growth may be somewhat subdued, but it is expected to enhance progressively. Also, in 2023, the equity markets had already priced in an upturn that has yet to materialise in the figures. That's why we are maintaining a fairly neutral stance in the short term. In the longer run, our position is more constructive, bearing in mind that higher interest rates have reduced the relative attractiveness of the US equity market when compared with fixed-income securities.


"Outlook for 2024: a degree of normalisation in returns"


In conclusion, risk mitigation means that investors can look forward to positive returns in 2024.

From an economic point of view, 2023 was the year of disinflation. Although the sluggish economic conditions of the past few months could persist for some time, prices are rising at a slower pace, providing welcome reassurance for economic operators, central banks and investors.

While the financial markets’ optimism may seem somewhat overstated, it doesn’t negate the fact that investors can still benefit from the ongoing opportunities in bonds throughout 2024 and capture the long-term potential of equities. 


Olivier Colsoul in a few words

For almost 30 years, Olivier Colsoul has held a variety of investment-related positions: equity analyst, portfolio manager, third-party fund analyst and economist at various renowned financial institutions. Since 2020, Olivier has been our Senior Strategist at AG. He devises AG's overall short- and long-term investment strategy by analysing macroeconomic developments and the evolution of fin​​​ancial markets.

The Pension & Health Academy will be back in 2024

Building on the success of the previous years, the Pension & Health Academy will be back in 2024 with some fascinating new webinars. And Olivier Colsoul, AG's Senior Strategist, will be giving the first of these digital Snack & Learn sessions on Thursday 18 January 2024 (French session) or Tuesday 23 January 2024 (Dutch session), from 1:00 PM to 2:00 PM. At this “Economic Outlook 2024" webinar, he'll be sharing his insights on current developments and the financial outlook for the months ahead.

Intrigued? Save the date and sign up for the first Pension & Health Academy webinar via this link. I look forward to seeing you there!