Three Marco Trends That Will Define 2024

What does 2024 have in store? Well, if you listen to the experts, likely more of the same. The side effects of the pandemic shutdowns are still being felt across many sectors of the economy, and are quickly being compounded by rising geopolitical tensions and an astonishing lack of competent leadership.

Here are three major economic trends that many expect to define 2024.

Sticky Inflation 

Inflation - we’re all sick of it, but we’re all going to have to live with it, because it’s expected to persist through 2024 based on available data. In the last few days, the Federal Reserve announced a more dovish stance going forward, suggesting that a continuation of the current inflation rate at around 4% for the upcoming year should be seen as "normal."

Price increases are set to be persistent due to the inertial effects stemming from 2022 and 2023. Despite the decrease in their acceleration, prices are still growing, and core inflation remains the highest in 30 years. There's also the possibility of an increase beyond this level due to the partial monetary easing by the FED.

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Another factor pointing towards persistent inflation is the Producer Price Index (PPI), which measures the prices received by producers for their output. This index surged much more than the Consumer Price Index (CPI), suggesting a significant amount of “lag” in price adjustments along the economy's value chain that has yet to reach the consumer.

In other words, those situated between producers and consumers (for example, retailers) have substantially decreased their margins. Theoretically, the price increases observed in the productive sector will eventually flow downwards to the retail level, putting additional pain on an already cash-strapped consumer base. 

Despite these factors, there's still pressure from the market to reduce the quantitative tightening process. According to the latest data, the market believes that the Fed will start reducing rates by Q2. However, even with rate reductions, it could take a significant time for inflation to recede.

With markets looking overvalued as it is, there isn’t much room for appreciation in conventional equities or real estate. This indicates a broader problem: the primary market drivers aren't economic growth or corporate earnings, but rather monetary policy and the FED’s expected moves. Which leads us to our next point…

High Interest Rates

Is it even conceivable to imagine a return to easy money? The FED wants the U.S. Dollar to remain the currency of the world, and the only way to keep it that way is by restraining its availability.

A trend is clear: money isn't, and won't be, as cheap as it was during the previous QE cycle, which began post-2008 and lasted until the pandemic. The combination of a high cost of capital along with inflation will continue to impact the “real feel” of household incomes, which are already going through a prolonged period of decline.

Despite the FED's plans to begin reducing interest rates, mortgage costs will remain high, as will credit card costs, as the famous FED dot plot shows. The high base rates will continue to elevate costs for borrowers, including families, businesses, and the federal government.

An important issue stems from the bond market: it no longer trusts the FED’s words.

The dot plot median for 2024 stands at 4.7%, yet the futures market suggests that base rates will end the year just slightly above 4%. This implies that most members of the FOMC (The Federal Open Market Committee) would need to be wrong about the likely future course of their policy rate decisions for the market's prediction to be accurate.

One of the key outcomes of this high-rate policy is the diminished added value of leveraged opportunities. It's challenging to find real estate and other projects that yield real rental rates surpassing current nominal rates.

Overall, it's crucial to note that strategies reliant on passive income are changing due to high interest rates, inflated asset values, and continuous market interference by the FED. These factors are increasingly complicating the application of income strategies in the U.S.

However, these issues aren't exclusive to the United States. Instead, these are widespread phenomena in the Western world, and are gradually building towards a major slowdown in economic growth.

Slow Growth in the West

The real economy of the United States faces a challenging scenario in 2024. High capital and investment costs, internal political conflicts, and external military tensions are set to sow uncertainty in prices and economic development.

The result is evident: a year of sluggish growth in 2024.

Many economic players anticipate a market correction at the year's outset owing to the structural weaknesses apparent in consumption data and overly optimistic expectations regarding interest rate cuts, which likely won’t materialize as quickly as the market hopes.

Up to this point, the market has preferred to ignore what the FED had to say in terms of the future and believe they will try to boost output by cutting rates aggressively.

OECD projections show U.S. GDP growth at only 1.5% in 2024 and also point to geopolitical tensions as a key source of uncertainty. Not only is the era of easy money over, but also the era of relative peace.

The United States is finding it more difficult to maintain its hegemonic position, which is starting to show in many places around the globe, with foreign powers gaining ground in the Pacific, Middle East, and Europe.

This trend of slow growth encompasses not only the United States but also countries within the Western order, including Europe, and the United Kingdom, among others. For instance, expected growth in Europe stands at 1.3%, provided that no new conflicts arise and current ones don’t escalate.

For many, it will be crucial to diversify portfolios into regions with better future prospects, higher growth rates, and sufficient institutional robustness.

A Silver Lining For 2024

Things might seem grim, but remember - where there is challenge, there is opportunity. And that opportunity, for now, lies in the many emerging economies that are beginning to leverage their tremendous natural resources and access new markets across the globe. 

One such economy is Colombia. With expanding free trade agreements, bountiful natural resources, and stable relationships across the globe, Colombia is a country that is poised for tremendous growth in 2024. 

To learn how you can add prime assets in Colombian agricultural real estate to your portfolio, get in touch with our team. We can provide crucial info about how our farmland projects can benefit you.