While the start of 2024 has been bleak due to intensifying geopolitical issues from the Middle East, there are reasons to be optimistic about the global economy, believes Invesco.

The December reading of the Federal Reserve’s (Fed) preferred measure of US inflation, the core Personal Consumption Expenditures price index, falling to its lowest level since March 2021 is an encouraging sign. “The disinflationary process is sloppy and can include some disappointing data points, but the reality is that the march towards the Fed’s 2% inflation target continues,” says Kristina Hooper, Chief Global Market Strategist, Invesco.

The asset manager highlights the initial report of the US fourth-quarter gross domestic product being better than expected. While some are disappointed that the data might diffuse the prospects of the Fed rate cuts in March, Hooper feels there is nothing wrong with a delayed rate cut. “I’m quite confident the Fed will begin cutting in the second quarter, and I expect a substantial amount of cutting in 2024,” the Chief Global Market Strategist explains.

Coming to the Eurozone, Invesco points to the positive manufacturing PMI numbers from the region, specifically Germany. The PMI survey also revealed an uptick in the euro area business optimism about the coming year for a fourth consecutive month in January, reaching the highest level since May. Another good news from the region is the cooling of inflationary headwinds. Hooper elucidates, “I don’t expect the ECB to cut rates before the Fed, but I do expect the ECB to start cutting soon thereafter, and that should be enough to ensure rates aren’t higher for longer.”

Furthermore, Invesco states that the Red Sea shipping disruptions have had a minor impact on the global economy so far. The asset manager further believes that after the pandemic, supply chains are better equipped to handle these issues.

Invesco finds another reason for optimism about the global economy: the increased signs of stimulus announcements in China. From the People’s Bank of China recalibrating reserve requirements to the Chinese regulators announcing restrictions on short-selling Chinese stocks, the proactiveness in policymakers is more palpable, feels the asset manager.

Hooper then talks about the consistent efforts of Japan to sustain moderately higher levels of inflation. She says that the “shunto” or the annual spring wage negotiations will be a critical event this year amid anticipation of the biggest wage hike in decades. “Such an achievement would be positive for the Japanese economy,” states Hooper.

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