The annual World Economic Forum (WEF) annual meeting has wrapped up. From January 15 to 19, business executives and the who’s who of the global elite met in Davos, Switzerland, to discuss the future of the economy. Accordingly, many eyes and ears from the press paid attention to the discussions among these influential individuals to glean what may be ahead in 2024.
In 2023, the global economy defied expectations, showing resilience with lower inflation and stable employment. Policymakers are clearly aiming for a soft landing, addressing challenges like inflation, labor disruptions and the impact of higher interest rates. In an election year, these issues gain heightened importance.
Let’s dive more into what was discussed and what these elites are paying close attention to.
Labor Fluctuations Matter
One of the key talking points most WEF watchers noted was a focus on global labor markets in 2024.
It’s certainly true that the COVID-19 pandemic shifted the labor market in a serious way. Pandemic-related absences picked up, and a focus on vaccines and prevention became ultra-important for government organizations and corporations everywhere. Thus, it shouldn’t be surprising that this was a key talking point at the annual meeting.
While the pandemic is still ongoing and concerns around vaccine messaging remain a top priority for many, it’s clear some diverging opinions on the topic emerged. Job creation has thus far been strong (at least in the U.S. market), and while pandemic-related concerns still exist, how the job market fluctuates in 2024 will matter a great deal to policymakers at the Fed still battling inflation.
Inflation Is Still on the Horizon
That leads naturally to the second major item of discussion in many talks — global inflation rates.
In June 2022, the U.S. consumer price index surged over 9% year-over-year, but by November, it dropped sharply to 3.1%, approaching the Fed’s 2% target. Rental prices, a significant expense, showed slowing, suggesting a potential decline in CPI as more leases renew.
Economic analyst Matthew Klein highlighted various issues with rent inflation as being key to the inflation battle in 2024. Indeed, since rents make up approximately one-third of inflation readings, bringing down housing costs should be a focal point of the economic elites.
While PCE numbers have risen at around 3% per year (a heck of a lot better than the 9% seen in the high-inflation era coming out of the pandemic), there’s work to be done. Policymakers will certainly have a keen focus on inflation in 2024 and likely for years to come.
Higher Interest Rates
Thus, the question of how to deal with these relatively high real interest rates is an intriguing one to consider. This is a topic many leaders at the WEF discussed, and it’s one I think investors are increasingly focused on.
Corporate bankruptcies increased significantly in the U.S. this year, though remained below the levels seen during the great financial crisis. Businesses with floating-rate debt faced challenges, especially in leveraged buyouts.
However, experiences in other economies with more short-term borrowing indicate robust growth can mitigate higher interest costs, suggesting the overall economic impact may not be substantial.
Much like homeowners securing low-rate mortgages, major corporations extensively refinanced in recent years, locking in favorable rates before borrowing costs increased. Consequently, almost half of S&P 500 debt will mature after 2030, and interest expenses will remain relatively stable despite elevated rates.
But, some companies may face challenges when refinancing debt in a tougher borrowing environment.
Borrowers anticipating relief from high-interest rates may be disappointed, as financial markets suggest prolonged elevated rates. The era of near-zero post-financial crisis rates is unlikely to return, driven by sustained inflation and increased government spending. That poses challenges for those who locked in lower rates before recent central bank hikes. While traders expect rate cuts, projections indicate a modest decline, signaling a departure from ultra-low rates.
Bottom Line
This edition of the World Economic Forum annual meeting was certainly interesting and reading about all that was discussed really hones the focus I have on how to approach certain macro concepts. Of course, much of what was discussed isn’t news to those who follow what’s going on with the global economy. But it’s usually a good idea to think about where policymakers may place their focus this year.
