Getting private equity back on board and other cracking ideas for 2024

Weaker annual real GDP growth rates are forecast across the largest regions in 2024 compared to 2023, according to S&P Global Market Intelligence.

Global real GDP will expand at 2.3 per cent in 2024, down from an estimated 2.7% in 2023, with relative strength in some regions, including Asia-Pacific, helping avert a global hard landing.

Going straight for the jugular on inflation, S&P Global Market Intelligence’s Global Economist Ken Wattret says the downshift in price pressure could trigger all sorts of excitement.

As confidence builds that consumer price inflation rates will return to target, central bank policy rate cuts are forecast across advanced economies during 2024.

“Monetary policy pivots look increasingly likely during the first half of 2024,” Wattret says, “although recent market expectations of around 150 basis points of rate cuts in the US and eurozone over the year as a whole look somewhat overdone.”

End of rate hikes can trigger M&A turnaround

That said, with deal announcements (and total value) off a cliff in 2022, S&P notes the global M&A scene remained well in the doldrums over 2023.

“The rising interest rate environment has been the primary reason for that weakness, as it caused higher financing costs and lower equity prices.

And bidding adieu to the Federal Reserve’s hiking cycle would do all sorts of wonders for the M&A outlook.

Global M&A activity since 2019

Private equity and global VC entries worldwide, 2019–2023

Getting private equity back in the game

Private equity firms often rely on leverage for deals, and greater comfort with the outlook for debt markets should entice financial sponsors to get back into dealmaking, according to S&P.

“A proliferation of private equity funds helped drive M&A to historic highs in 2021. However, rising rates and concerns over a possible recession have reduced activity among these sorts of buyers.”

Ken’s 10 to chew over in ’24

Ken Wattret VP, Global Economics, S&P Global Market Intelligence

1. Inflation will moderate further

The sharp initial decline in global consumer price inflation from late 2022 stalled in mid-2023, reflecting a rebound in energy prices and sticky core inflation, particularly for services. The downward trend has resumed and is expected to continue through 2024.

S&P Global Market Intelligence analysts forecast annual global consumer price inflation at 4.7% in 2024, down from an estimated 5.6% in 2023 and a peak of 7.6% in 2022. Lower consumer price inflation rates in 2024 compared with 2023 are forecast across most regions.

Consumer Price Inflation (% annual change)

2. Growth in America and Europe will fall short

This is consistent with the goal of bringing inflation back to target rates. Weaker annual real GDP growth rates are forecast across all the largest regions in 2024 compared with 2023.

Global annual real GDP is forecast to grow at a slower pace in 2024 – 2.3% compared with an estimated 2.7% in 2023 – although strength in some regions including Asia Pacific will help to avert a global hard landing.

3. China’s economy will recover slowly

S&P says mainland China’s economy will be supported by more accommodative policy, a gradual improvement of private-sector confidence, and an expected bottoming out of the housing market downturn.

“We forecast annual real GDP growth in mainland China of 4.7% in 2024, down from an expected 5.4% in 2023.”

Real GDP Growth (% change)

4. Policy rates will be cut in advanced economies from mid-year

With confidence building that consumer price inflation rates will fall back to target, monetary policy pivots are predicted by mid-2024.

Rate cuts will begin once concerns about underlying price pressures have abated.

Quantitative Tightening (QT) by the world’s major central banks will continue.

5. Emerging markets will get an earlier start on easing cycles

S&P Global Market Intelligence says global central banks that are already easing generally tightened their monetary policies relatively early, keeping inflation expectations stable and second-round effects in check.

“In Latin America, for example, inflation rates have fallen relatively rapidly, while labor market conditions are generally not tight. Easing cycles that are already under way in Chile, Brazil and Peru are forecast to continue in the period ahead, with rate cuts also forecast in Mexico in the first half of 2024.”

6. The US dollar will depreciate

The depreciation, S&P says, will be reinforced by a relative slowing of both US real economic growth and inflation as well as the overhang of a current-account deficit which, as a share of US GDP, is unsustainably high.

The yen is expected to appreciate against the US dollar more strongly than many of its peers during 2024, in tandem with the forecast divergence of monetary policy.

7. Financial headwinds to growth will persist

“We expect the lagged impact of higher interest rates and the quickly waning effect of COVID-19-related support measures to weigh more heavily on debt servicing capacity in 2024.”

And that’s likely to drive nonperforming loans (NPL) higher just about everywhere.

“Banks will likely maintain a more cautious stance to lending as a result, requiring higher collateral, and restricting credit to lower quality borrowers.

“Credit growth is expected to come in below trend in most countries, dampening growth.”

8. Falling home prices in Europe have further to go

Tight credit conditions and rising borrowing costs will continue to drive prices down in 2024, Ken says.

“The speed and intensity of the correction among economies varies, depending on the imbalances accumulated in the last decade in each housing market as well as mortgage rate fixation periods.”

9. A busy electoral calendar will create policy uncertainty

“Geopolitical factors will remain an important source of risk and uncertainty surrounding our economic forecasts, potentially aggravated by important elections taking place across an unusually large number of countries.

“Election campaigns will set the policy agenda across several important emerging economies, including India and Indonesia in the spring and Mexico in midyear, with elections to the European Parliament also scheduled in June.

“Uncertainty about the outcome of the US election, along with the policy implications, will likely be a hindrance to economic prospects,” Ken reckons.

10. The energy transition will support growth in Nth America

“US fiscal policy has turned somewhat stimulative again as the incremental funding in the Infrastructure Investment and Jobs Act begins to support actual construction, as Inflation Reduction Act subsidies for green energy projects supports a huge rise in construction of electrical manufacturing and related facilities, and as the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act similarly boosts production of US fabrication plants.

“These policy initiatives are one of various factors leaning against a US recession. In Canada, climate initiatives have already been in place in Alberta and Saskatchewan with the existence of eight operational carbon capture facilities. New, similar projects are in the planning stages or under construction.”

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