Silvan Mifsud

The only true certainty for 2024 is uncertainty. As I look around the global macroeconomic situation in 2024, all I am sure about is that it will remain difficult and uncertain. Having said so, I believe any business leader and policymaker should keep a watchful eye on key themes during this year. The first theme is obviously inflation. The question on everyone’s mind is whether the worst of inflation is over or not. It is true that in the latter part of 2023 inflation, both in the US and Europe, has dropped significantly. Having said so, as the saying goes, “the longest mile is the last mile home” which in this case is reaching the 2% inflation target. It is highly likely that the path to that 2% will be made up of a lot of ups and downs and that this will take quite long to be achieved. Moreover, uncertainty remains heightened. The latest information on shipping costs and turbulence to shipping lines in the Red Sea are testament to how turbulence can suddenly throw a spanner in any further expected reduction in inflation rates. The reality is that there are some differences in how inflation could pan out in 2024. While in the US, the Federal Reserve has ended 2023 on a fairly optimistic note, by not only holding interest rates steady but signalling the possibility of multiple rate cuts in 2024, the European Central Bank and Bank of England remain somewhat more hawkish in their statements. Another theme business leaders need to keep a watchful eye on is the labour market. Will it remain a tight labour market in 2024? Globally there were some signals that the labour market was cooling a bit, but not enough to really say that in the US and Europe the labour market is not tight anymore. The question on everyone’s mind is if the loosening of the labour market will be enough to cool down wage growth. The latest Eurozone HICP flash estimate indicates that in December 2024, services inflation held steady at 4% year-on-year, likely indicating that the labour market in Europe is still a tight one. Another element that business leaders need to keep a watchful eye on is whether financial markets can handle higher interest rates. Many investors have seen the value of their bond portfolios shrink as higher interest rates made bonds in their portfolios less valuable. As higher interest rates keep working their way through various economies, raising the cost of borrowing (maybe not as much through bank financing in Malta, but surely through capital markets), could this destabilise the financial markets, especially with regards corporate bond issuers who will find it difficult to roll over their debt at higher interest rates? There are other themes to keep an eye on in 2024, from the performance of China’s economy in 2023 and how it will deal with its longstanding economic structural issues to various political development expected in 2024, which could be a major driver of uncertainty – this includes the US presidential elections, European parliament elections, besides the ongoing wars in Ukraine and the Middle East. In essence, the risks are real and numerous. I truly believe that for any business leader today, it is becoming of pivotal importance to analyse deeply economic figures, to get an ongoing understanding of possible economic developments. Not doing so just adds to the multiple risks any business is already facing.

Silvan Mifsud

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