Newsletter
Rob Hayward
January 2025
Economic conditions
World economic activity has continued its recovery from the inflation shock. World-wide measures to support alternative sources of energy provide a fiscal stimulus that is expected to underpin this rebound in economic activity. Inflation is stable and monetary policy is expected to be unexciting in the year ahead. Central banks have agreed to provide monetary support for the government-financed climate measures that were agreed at the Climate Summit in Beijing. Bond markets have taken the prospect of more borrowing with calm - though yields are rising to accommodate that sales of additional government paper.
Projections
| Indicator | 2024 | 2025 | 2026 | 2027 |
|---|---|---|---|---|
| World growth | 1.5 | 3.0 | 3.0 | 4.0 |
| US GDP | 1.0 | 1.5 | 2.5 | 2.0 |
| US Inflation | 2.0 | 2.0 | 2.5 | 2.0 |
| US Unemployment | 5.0 | 6.0 | 5.5 | 4.5 |
| US bond yield | 3.0 | 3.0 | 3.5 | 4.0 |
Upcoming events
US-China-EU trade talks Further trade talks are schedule for this year and after the US elections in November. There is hope that a more cooperative global environment will facilitate agreements that will bolster trade and economic activity.
World interest rates The agreement that was reached in China to create a monetary council in Basel to coordinate world monetary policy as a way of supporting the agreement on climate change has convinced most investors that official interest rates will remain low for the foreseeable future. Liquidity should be ample as central banks purchase green bonds.
Asset classes
Stocks Developed market stocks (SPY) are stable. Commitments on renewable energy have brought winners and losers but overall monetary and fiscal support for the economy is helpful for future profits on average. There is some attention on the redistributive policies that are begin proposed by Democratic Presidential candidates. The profit share in GDP may be shifted slightly away from capital and towards labour; measures to increase competition may also reduce future profit margins. Equities in emerging economies are also helped by the global climate accord. International monetary and fiscal stimulus is also beneficial. Emerging economy stocks (EEM) have been supported by the global climate accord and the hope for a trade deal to come.
Bonds Government bonds (TLT) have weakened as a result of the prospect of more borrowing but the commitment to lower interest rates and central bank purchase of a wide range of bonds is limiting the fall in prices (JNK). Corporate bonds are mixed but positive. Those that are linked to the climate accord and eligible for central bank purchase have been driven higher but bonds of oil and car companies are in default.
Gold (GLD) prices are stable. There are some concerns in some quarters that the global momentary accord will debase hard currencies and provide a flight to stable units such as gold and Bitcoin.