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BlackRock Forecasts New Era of Lower Growth and Higher Interest Rates

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Wojciech Zylm
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BlackRock Forecasts New Era of Lower Growth and Higher Interest Rates

BlackRock, the world's largest asset manager, has signaled a new era for the global economy. Marked by lower growth and higher interest rates, this shift is anticipated to cause volatility in inflation rates, differing considerably from recent years. The economic landscape is adjusting to conditions that may persist for an extended period, impacting investments, savings, and financial planning for individuals and institutions alike.

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The Paradox of Growth and Inflation

The US economy showcased a robust growth of 4.9% in the third quarter, despite a strong dollar. This growth was largely fueled by a surge in consumer spending, which has increased every month of 2023, with a 0.7% rise in September alone. However, this economic vigor contrasts with the slowdown observed in Europe and Asia. European retail sales, for instance, declined by 1.8% year over year in September. The Federal Reserve's move to raise interest rates from near zero in 2022 to a range of 5.25 to 5.50 has contributed to the strengthening of the US dollar against other major currencies.

Global Factors Influencing Economic Shift

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Several factors have contributed to the economic shift. Russia's invasion of Ukraine sent prices for oil and natural gas higher, affecting Europe more than the US. Additionally, a slowdown in China's domestic economy, marked by a drop in GDP growth from 6.3% to 4.9% in the third quarter, impacted global trade. This slowdown is expected to continue, with the IMF projecting China's GDP growth at 4.6% next year. This due in large part to weakness in the property market and subdued external demand.

Implications and Outlook for 2024

With the 2024 market outlook indicating that markets may be overly optimistic about a soft landing scenario, recession risks remain high for most developed economies. The US is expected to experience a cautious equity market backdrop with 10-year Treasury yields around 4.5% offering good value. Europe and China, on the other hand, are expected to face tight monetary policy and recession risks in 2024. The potential for a global recession in 2024 could result in further upside for the dollar in the short term.

The OFR's 2023 Annual Report to Congress concluded that financial stability risks to the U.S. financial landscape have increased since last year and remain elevated in 2023. The report highlighted threats posed by risk areas such as commercial real estate, cybersecurity, and digital assets.

Global GDP growth is forecast to slow to 2.7% in 2024, slightly lower than in 2023 and significantly below the five-year pre-pandemic average of 4.6%. These changes underscore the need for investors and institutions to recalibrate their strategies to navigate the new economic landscape.

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