Outlook on the economy
US elections remain a risk factor
The IMF (International Monetary Fund) still projects slightly lower economic growth in 2024 for the eurozone (0.9%) than for the United States (2.1%). These growth rates are expected to be closer together in 2025 (1.7%). The US economy has so far proved more robust than expected, but the presidential election in November remains a risk factor. The results could lead to short-sighted and inefficient public investment to commit voters. As a result, the run-up to the election may also have an impact on the confidence of American consumers and businesses.
Falling inflation argues for lower interest rates, but setbacks loom
Outside the United States and the eurozone, central banks barely took any action. The Bank of England decided that it was too early to implement an interest rate cut and the Bank of Japan also left its rate unchanged. For the time being, inflation pressures look set to ease towards the central banks’ 2% inflation target in the near future. But it is more likely that growth and inflation rates will continue to be higher is still more likely than otherwise. Central banks are thus more likely to keep policy rates higher for longer than to bring forward interest rate cuts. Countries do not have much room to absorb new economic shocks because of already high government debt.
A summer of uncertainty and caution
For the coming months, we foresee a high-uncertainty environment for financial markets, in terms of the outlook for both monetary policy and geopolitical tensions (for instance, the aftermath of the French parliamentary elections and the upcoming US presidential elections). In addition, the traditionally low liquidity in the summer months may lead to higher volatility in financial markets. In this environment, we prefer to avoid a strong tactical positioning with respect to the various asset classes.