Q3 2024: Inflation, elections and their impact on markets
Adam MacRae 
July 8, 2024
Adam MacRae
July 8, 2024 As we enter Q3 (happy belated Canada Day to our Canadian clients and partners), we took the time to explore how several factors could impact real estate, infrastructure and energy projects in the months ahead.
Specifically, we will focus on situation in the US, Australia, the Eurozone.
In the US, inflation rates are cooling, with the Consumer Price Index (CPI) rising by only 0.1% month-over-month in June. This moderate rate was in line with market expectations and further increased speculation that the Federal Reserve (Fed) will look to cut interest rates as soon as September.
Should the Fed go ahead with that cut, it could lead to a flurry of activity with investors and developers looking to start projects to capitalise on more favourable rates and tax incentives through the Inflation Reduction Act before the election in November.
In Australia, inflation hit 4% back in May leading to many believing Canberra has no other alternative than to raise rates in August. While much lower than 6.1% when the government entered power in 2022, it will still make life difficult for many ordinary Australians residing in 3 of the top 20 least affordable cities on earth looking to take out a mortgage or refinance their existing mortgages: Sydney (2), Melbourne (9), and Adelaide (14).
In the Eurozone, annual inflation slowed from 2.6% to 2.5% in June across the EU. At the time of writing, the decrease in energy prices helped control inflation, but rising food prices continue to provide upward pressures. The European Central Bank (ECB) is actively keeping an eye on the markets indicating that their decisions will be “driven by the data” as they convene in Portugal until the 3rd of July and decide whether or not to lower interest rates for the second consecutive meeting in late July.
Unfortunately, the politics of the region has not been nearly as cooperative. With strong results for far-right parties, and France’s snap elections, markets are on edge. Compounding that with winter around the corner, Europe may not only pay a far-right nationalism premium on global markets, but their cheaper energy dividend might soon dry up as well.
Going into Q4 and beyond, it appears there is no universal rising tide. Depending on where you live/invest, your strategy could drastically differ.
In the US, with the uncertainty of the elections, many developers in the energy sector may be looking to cash in before a change in administration, since there is no telling what a second Trump administration would decide. Look for business leaders to make decisions now before it’s too late.
In Australia, rates may go up and dampen both homebuilding appetite along with prospective buyers. Instead, look to see more developers in the infrastructure and energy space continue investing in projects with longer-term horizons.
Finally, there is Europe. On the upside, Europe has been experiencing a slowing of inflation to more comfortable levels. On the downside, there is a lot of political uncertainty across the continent. Given the uncertainty surrounding energy policy, it may be better to pursue more real estate projects and avoid politically sensitive projects like infrastructure and energy while Brussels spends the next year negotiating a coherent strategy for the new administration.
As we navigate through Q3, there are many opportunities to invest in the future. What matters is your geographic focus, your strategy, and combining that with making the most out of the market. Ultimately, challenging circumstances are always out of one’s control, but that does not mean the right solution may be unavailable if you know where to look.
If you would like to learn more about how Holocene can support your projects, get in touch at [email protected]