Market Research

2024 Macro Outlook

By Sabina Reeves, Chief Economist & Head of Insights & Intelligence

Futuristic glass building

Resilient growth and falling rates make for an encouraging Macro Outlook

The macro environment should be supportive for real assets investment in 2024 and beyond.

Figure 1: Key Calls

  1. With headline inflation decelerating rapidly, we expect central banks to cut policy rates in all major markets except China and Japan.

  2. Our policy rate forecasts are in line with central bank projections and economic consensus rather than the more aggressive market-implied pricing.

  3. Note that Japan stands in contrast as a market where we expect monetary policy to modestly tighten.

Economic growth to remain resilient

Only modest revisions to our real economic forecasts

Figure 2 shows that we have only made modest revisions to our GDP growth forecasts and that the emerging Asian economies continue to promise stronger growth than developed markets. Although we do not expect to see a recession in any major market, for several countries, growth, while positive, will be below trend. For example, the U.K. is still adjusting to its new trading arrangement with Europe. China continues to mature and is experiencing a deceleration in growth as it pivots from heavy manufacturing and construction toward services and technology.

Figure 2: GDP growth forecast 2024-2028 % Y-o-Y

Sources: Oxford Economic Forecasting and CBRE Investment Management, as of Q1 2024.

Although there has been a rapid and sizeable increase in central bank policy rates, we have not seen more economic pain due to two factors. First, many consumers with fixed-rate mortgages have not yet felt the full pass-through of more expensive credit. Second, the labor market remains incredibly strong.

Accordingly, most markets are still running at near full employment, with a sizeable structural gap between supply and demand yet to close (Figure 3). Strong wage inflation has resulted, particularly for blue-collar workers, which has driven incredibly robust consumer spending. Our revised inflation and interest rate forecasts answer the question of what will happen when interest rate increases finally bite.

Figure 3: U.S. labor demand and supply

Persons (in millions)

Sources: LSEG Datastream, BLS, as of December 2023.

Disinflation has been a positive surprise, especially in the U.S. and U.K.

Structural upward pressures will remain

Since our last set of forecasts were published, inflation undershot expectations. As a result, we significantly revised down our inflation forecasts for 2024 and 2025. Thereafter, we continue to believe that poor demographics, tight labor markets and increased frictional costs of trade will push up trend inflation relative to the benign Quantitative Easing years. We view the typical central bank target of 2% inflation as the new floor and this is reflected in our forecast that long-term inflation will run at approximately 2%-2.5% in most major markets (Figure 4).

Figure 4: CPI inflation forecast 2024-2028 % Y-o-Y

Sources: Oxford Economic Forecasting and CBRE Investment Management, as of Q1 2024.

Policy rates in Europe and North America should begin to fall in Q2 2024

Australia will prove the laggard

With inflation falling faster than expected, we have pulled forward our policy rate cut forecasts. We expect the U.S. Federal Reserve, Bank of England and European Central Bank to make their first rate cuts in Q2 2024, and the cumulative cut to be 75 basis points (bps) in the U.S. and 100 bps in Europe in 2024 (Figure 5).

Figure 5: Central bank policy rates forecast, %

Sources: Oxford Economic Forecasting and CBRE Investment Management, as of Q1 2024.

Expected cumulative rate cuts in 2024

  • 75 bps/U.S.
  • 100 bps/Europe

Our forecast is in line with the latest central bank guidance and the consensus of economic forecasters. However, it is less aggressive than market-implied pricing which anticipates the first cut in March and cumulative cuts of approximately 125 bps in 2024 in the U.S. (Figure 6). We suspect that the continued strength of the labor market, coupled with the risk of escalating tension along the Red Sea shipping route, will lead central banks to wait until Q2 to make cuts.

Figure 6: Fed funds futures, %

Source: LSEG Datastream, as of January 31, 2024.

The rate forecasts are more mixed in Asia Pacific. As an example, while we believe rates will be cut in Australia, we think the Reserve Bank will wait until Q4 given the fact that inflation has proven stickier and is still running at over 5% (Figure 7). Meanwhile, we expect the central bank in Japan to tighten monetary policy by further loosening its yield curve control policy, allowing market interest rates to rise.

Figure 7: Global headline CPIs, %

Sources: LSEG Datastream, as of January 31, 2024.

Revised bond yield forecasts are markedly more accommodative

Real yields to run at approximately 1%-1.5%

Figure 8 shows that the last six months have been volatile for government bond yields, rising to near 5% in the U.S. before falling back to sub-4% just before the end of the year, reflecting the Fed’s pivot at its November meeting as well as a surprisingly positive inflation scenario. We are not, however, surprised to see yields tick up in recent weeks as central banks pushed back against some of the more frothy market pricing and given rising Middle East tensions.

Figure 8: 10-year government bond yields, %

Source: LSEG Datastream, national sources, as of January 31, 2024.

Looking ahead, we expect bond yields to run at a markedly lower rate than in our last set of forecasts, reflecting the more rapid disinflation. Figure 9 shows that we expect nominal yields to run at approximately 3%-4% for most major markets.

Figure 10 shows that this may well be a higher level than seen in the Quantitative Easing period but is modestly lower than the level seen in the 2000s. Furthermore, real bond yields, which serve as a better comparison for real assets yields, are forecast to run at approximately 1%-1.5%.

Figure 9: 10-year government bond yields forecast 2024-2028, % average

Sources: Oxford Economic Forecasting and CBRE Investment Management, as of Q1 2024.

Figure 10: 10-year government bond yields forecast, %

Sources: Oxford Economic Forecasting and CBRE Investment Management, as of Q1 2024.

The bottom line: this is a great macro backdrop for real assets

Resilient real growth plus lower inflation and interest rates

It is historically unprecedented for global central banks to raise rates 500 bps and trigger neither mass layoffs nor a recession, but that’s what they seem to have done. Perhaps inflation was transitory all along or maybe the structural shake-out in labor markets softened the blow of rising rates. Whatever the reason, our base case of a soft landing and falling interest rates makes for a highly positive backdrop for investing in real assets. That is not to say that we are sanguine about the geopolitical risks that could impact inflation and delay policy rate cuts. That possibility is reflected in our more prudent forecasts of rate cuts than implied by money markets. However, we believe our latest Macro Outlook provides a credible and encouraging basis for investing in real assets in 2024 and beyond.

Watch our 2024 Macro Outlook Highlights

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2024 Macro Outlook