4 key trends for 2024
Tomasz Wozniak 
December 7, 2023
Tomasz Wozniak
December 7, 2023 When looking at Russia’s illegal war in Ukraine, there are 3 things to look out for.
Focusing on food, as we previously covered in March of 2022, “Zero Hunger” in Asia, both Russia and Ukraine were the world’s 3rd and 7th largest wheat exporters. While initially, there were concerns about affordability with prices spiking by nearly 30%, the real threat for 2024 is total output with Ukraine’s destroyed farmlands.
Ukraine’s partners (NATO, the US, the EU, etc.) have all made it clear that they will only support the on-going war efforts through supplying equipment and financial support. Military engagement (think boots on the ground) is off the table as that would trigger NATO’s Article 5 of mutual defense pact. Russia equally has no interest in targeting countries that are supporting Ukraine for the very same reasons as the war is already contentious on the home front due to waves of conscriptions.
This is going to serve as a significant drag both on the West’s financial and military stockpiles. Due to this drag, it will be important to see how levels of support for Ukraine are managed, especially with so many countries going to the polls next year. Though all eyes will be on the US.
In contrast to the war in Ukraine, conditions are quite different in the war in the Middle East.
What comes to mind for everyone these days is the price of oil which has picked up in recent weeks adding to global inflationary pressures. Fortunately for global markets, oil producing nations have indicated they are not inclined to weaponise oil mainly because they require oil revenues to keep their government coffers full and to fuel their transition away from hydrocarbons.
As Israel began targeting Hamas, there were worries this war could engulf the entire region and bring in proxies and puppet masters alike (think Hezbollah in Lebanon, and Houthi rebels in Yemen all backed by Iran). This single front war could have easily spiralled out of control.
Thankfully, this has not happened and is in much part due to the quick and decisive role the US played in the early days of the on-going war. With two air force carriers deployed to the region and shooting down missiles fired by Yemen, it is clear that no one is looking for a bigger fight. The on-going conflict should stay between Israel and Hamas, though there are no guarantees.
Israel has a short runway, economically and politically. Economically, Israel’s economy simply cannot handle a long-term war. Its military is bolstered by reserve duty soldiers. Those soldiers receive their regular private sector wages from the government. The longer the war goes on, the more likely this will tip the Israeli economy into recession, which is what happened the last time when Israel found itself in southern Lebanon.
Politically, Israel’s leash might be even shorter. Internationally, there are calls for an extended truce or ceasefire even coming from the Oval Office. Domestically, Netanyahu’s rivals are already calling for his resignation ensuring he will only cling on for dear life even more as he knows the day he leaves office will bring about his possibility of ending up in jail. As of 05 December 2023, it was reported that Netanyahu’s corruption trials were set to resume. If convicted, the Israeli Prime Minister will most likely go to prison. For Netanyahu, this war is not only a fight for his political life, but for his freedom as well.
As the US crossed the 1-year mark before the next Presidential election, the Federal Reserve (Fed) indicated in their second-to-last meeting of 2023 that they would proceed carefully and only look to raise interest rates in the future if their work controlling inflation were to falter.
This tepid measure of good news comes on the heels of inflation in the US slowing for the month of October where consumer prices did not rise. This pause in rising inflation gave the Fed a bit of breathing room to focus not on how to raise interest rates, but how to manage the 5.25-5.50% range.
Ultimately, for the Fed, their main concern will be to continue to keep the lid on inflation and bring it down to the target rate of 2%. With this in mind, most players in the market now expect the Fed to begin cutting rates some time in 2024 between 1-2x.
While nothing is set in stone, with historically low rates of unemployment, and inflation starting to fall, it’s possible the US might achieve that soft landing it’s been striving for.
Following the UK government’s latest autumn statement (almost like a mini budget), the Bank of England’s Monetary Policy Committee (MPC)announced that it was holding interest rates at its 15 year high. This comes as no surprise as the UK is currently experiencing some of the highest levels of inflation in the OECD at 6.7%, over 3x the BOE’s target rate of 2%.
2024 will likely prove to be an on-brand tumultuous year for the UK with an election due before November. The Conservative government will be looking to play up the health and strength of the economy to cobble together a come-from-behind election night victory.
Economists have different ideas. While they are split as to when the BOE’s MPC will start decreasing rates, they do agree that inflation will most likely only hit its 2% target by the end of 2025. With that in mind, 2024 will continue to see sustained levels of inflation above what is tolerable, higher interest rates for the average Brit, and higher costs for servicing both public and private debts.
Europe is in an unenviable position. On the one hand core inflation was stuck at 5.0% indicating costs were running hot. Unfortunately, the Eurozone technically just went through a recession with this quarter shrank by 0.1% and the jobless rate was still hovering around 6.7%. With this backdrop in mind, back in October, the European Central Bank opted to leave deposit rates at banks at 4%.
With 2024 just around the corner, many economists are starting to worry about the potential for a wider and deeper looming recession in Europe. All told, most economists are predicting rates to be cut in July 2024 at current pace. Though, should the eurozone enter a sharp recession in the first half of the year, do not rule out rates being cut to give the economy a bit of slack.
What we have seen instead of this long-predicted glut of distressed assets are a series of perfectly investable, though slightly more expensive projects. With lending tight, and banks lowering their loan to value ratios, alternative credit solutions and private debt funds have happily filled in the gaps that traditional lenders have left in the market.
For 2024, at least for the first half of the year with rates remaining higher for longer, don’t expect alternative lenders to suddenly disappear from the market. If anything, pencil these alternative lenders to make headlines closing some of the most exciting real estate and infrastructure projects of the year.
In 2023, of the USD 2.8 trillion spent globally on energy, 1.8 trillion went towards clean technologies. We are already living in a world where more money is going into renewables than dirty fossil fuels. The issue is not investing in climate-friendly technologies that work. The issue is doing so at scale, and at pace.
While 1.8 trillion is admirable, to meet our climate’s stated ambitions, this will have to rise to USD 4.5 trillion per year by the 2030s. It will require a combination of investing in solar, wind, nuclear, waste-to-energy, as well as carbon capturing technologies. It may sound daunting, but if we can go from 230 gigawatts globally in 2015 to 1,050 gigawatts in 2022, we can do it again, and again, and again.
As world leaders leave COP 28 in Dubai, now is the time to pay attention to see what agreements come out of the on-going negotiations. Expect more money for loss-and-damage in emerging markets, more renewable energy targets, and more money dedicated towards renewable energy projects in both the global north and global south.