Mathilde Lemoine (Ph.D) is Edmond de Rothschild's Group Chief Economist and a member of the Group Investment Committee. She also draws up strategic development plans and supports the Group's major clients. We met her at the annual "Investment Strategy" conference organized by Edmond de Rothschild Monaco.
Analysts point to the complex economic environment in which we operate. What do you think, and what should we remember about 2023?
We're in an extremely complex environment: we've developed indicators to measure the political and economic volatility of recent years, and they're growing.
In 2023, we will remember the slowdown in inflation: 2.9% last December in the euro zone, 3.4% in the USA, thanks to the tightening of extremely aggressive and restrictive monetary policies.
At the same time, we have been pleasantly surprised by growth, particularly in the USA, where growth in the first 3 quarters of 2023 reached 2.3%. In China, contrary to popular belief, growth remains relatively dynamic at 5.2%. In the eurozone, growth is just 0.6%.
We are therefore seeing monetary tightening, with a sharp rise in key rates, and the same is true for long rates. What are your macroeconomic forecasts for 2024?
We expect a slowdown, due to the delayed impact of monetary policy on corporate financing capacity and on real estate markets. It's difficult to assess the consequences of this delayed effect. However, we believe that the good health of the US and Chinese economies will minimize the consequences. So, growth is slowing down, but it's not going away.
Are the post-pandemic effects still noticeable?
Of course they are. Investors often underestimate them. The extent of post-pandemic transformations in consumption patterns is undeniable. In the United States, the share of goods consumption is still much higher than before the pandemic, which explains the change in production structures. There is also a persistent catch-up effect in services. This explains why wage acceleration has been particularly strong in the hotel and leisure sector. Central bankers have been very vigilant, raising rates to slow inflation without pushing the US economy into recession.
Unspent excess savings are also a post-covid consequence. It will support economic activity in 2024. On the other hand, we will suffer a long-term effect: the pandemic has led to a deterioration in learning and skills at school and university level, and for employees who have had to postpone their training. On the job market, the unemployment rate is historically low, because the pandemic has completely disrupted learning. This will translate into lower productivity in the medium term, making it harder for companies to generate profits. We need to factor this into our macroeconomic scenarios and investments.
As regards China and Asia, can we speak of an expansionary policy?
China has increased its budget deficit to support consumption of electric vehicles and electronics. It has also lowered interest rates.
It is now exporting its deflationary situation. For us, this is a further factor in slowing inflation, which will give central banks more room for manoeuvre. Some of them have already started to cut interest rates. We therefore expect rate cuts to support economic activity at the end of the first half of 2024.
What about China/USA trade relations?
The United States has developed its relations with Asia outside China. US imports from Asia excluding China have risen by 40% since 2017 and now exceed imports from China. This is a phenomenon that will persist. The United States is testing new partnerships, for example with the Netherlands and Japan, to agree on securing imports of electronic products. This type of partnership is a source of growth.
Is 2024 also the year of the American elections?
Not only! In 2024, more than 4 billion people will be voting, but we're not including
election results into our models. Our aim is to define common trends during election periods, which can influence our results and our expectations.
What are these trends?
Volatility and uncertainty have led to a rise in the risk premium, which can weigh on corporate investment.
The end of the interest-rate hike cycle is giving central banks room to manoeuvre, which may support business activity, including in Asia.
There is competition for investment in various areas: energy transition, business development, cybersecurity... These investments are common to all governments, whatever their political orientation. Public spending never drops before an election: it's an "electoral cycle" that has been going on for centuries. And that's one of the reasons why, in 2024, we believe there will be budgetary support from governments.
