MacroscopeChina is a sideshow in 2024 economic outlook, for better or worse

The main issue concerning investors is whether central banks are done raising interest rates and, if so, how large any cuts that happen will be

The spotlight shifting from China could offer policymakers more breathing room to act but also risks lulling investors into a false sense of security

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A vendor stands over the Zhapu Road Bridge in the Huangpu district in Shanghai on December 6. China’s drift from the global economic spotlight could give policymakers room to make needed adjustments but also brings risks of its own. Photo: AFP

Published: 7:30pm, 7 Dec 2023

What a difference a year makes. At the end of 2022, all eyes were on China as the abrupt end of the government’s zero-Covid policy fuelled hopes of a sharp recovery following three years of self-imposed isolation. In early January, The Economist described China’s rapid reopening as “the biggest economic event of 2023”.

Fast forward a year and China is something of a sideshow in the year-ahead outlooks released by Wall Street’s top investment banks over the past month. In a report titled “Growing apart, cutting together”, Bank of America said that, while it anticipated divergences in economic performance across the world, 2024 would be “the year of [interest rate] cuts.”

Morgan Stanley’s outlook, tellingly titled “The last mile”, said global inflation had peaked, with the United States Federal Reserve and the European Central Bank likely to start loosening policy in June. Meanwhile, Goldman Sachs was decidedly bullish in its outlook titled “The hard part is over”, predicting that the economic “plane” had “landed safely” and that there was “no imminent risk” of a US recession”.

All three outlooks concentrate on the question that is on every investor’s lips right now: are leading central banks done raising borrowing costs and, if so, when will they start cutting interest rates and by how much? While other economic, financial and political factors are assessed, they are either of secondary importance or are contingent on the path of monetary policy.

The laserlike focus on inflation and interest rates is not surprising given mounting concerns about a sharper global downturn next year caused by excessively tight policy. In Bank of America’s latest monthly fund manager survey, nearly two-thirds of respondents said the biggest tail risks in markets were policy-related, such as persistently high inflation, a global recession and a systemic credit event.

China, by contrast, is a peripheral concern. In the survey, a Chinese property bust – which was never viewed as a major threat to global markets in the first place – is no longer considered a significant risk. Although there are sections on China in each of the outlooks, the country only has a bit part that is clouded by uncertainty in the overarching narratives.