With continued job gains and positive wage growth expected to continue to boost income, we look at four reasons why to consider income in 2024.
1. Business cycles around the world are likely to diverge
- The US economy is very strong, but we expect a slowdown in mid-2024
- China's growth will be held back by problems in the property sector, even as government policies prevent a more serious slowdown
- Europe's economy is set to start shrinking
Economic activity in the major economies is expected to slow in 2024 (Chart 1), even though some economies will be more resilient than others. When growth loses momentum, less risky assets that offer investors predictable cash payments can often do better.
Chart 1. Global business cycles likely to diverge
Source: Haver, abrdn, September 2023.
2. Inflation likely to continue falling after peaking in 2022
- Weak economic growth leads to higher unemployment that will help cap pay rises
- Inflation trends should be broadly back to central banks' targets by end-2024 (Chart 2)
- It's possible there may even be concerns that inflation is too weak by year-end
Inflation erodes consumer savings and spending power. Lower inflation will boost the real value of regular payments from income-generating assets.
Chart 2. Inflation rate projections across global markets
Source: abrdn, December 2023.
3. Interest rates should start to come down as central banks move on from fighting inflation
- We believe the US Federal Reserve will also start to cut by the second half of 2024. Falling policy rates everywhere will mean lower bank deposit rates.
- Some emerging markets have already started to cut interest rates. Others are expected to follow this year.
- The European Central Bank is likely to be the first in the developed economies to cut interest rates in 2024.
Inflation is falling in almost every major economy and will likely be back to where central banks want it by the end of this year. Lower inflation allows policymakers to cut interest rates.
When this so-called monetary easing happens, it will pull down interest rates in general, including bank deposit rates. As market rates fall (Chart 3), the price of bonds and other income-paying assets rise as they look relatively more attractive. This will deliver capital gains for investors.
Chart 3. Rate cuts likely to begin in mid-2024
Source: abrdn, Haver, November 2023. Note: Dotted lines indicate abrdn forecasts.
4. Political uncertainty may mean more volatile financial markets
- There are a considerable number of national elections in 2024 (Figure 1), with the US presidential election particularly important to global economies and markets
- International political risks are still around, with the latest conflict in the Middle East and tensions between the US and China adding to uncertainty
Investment values go up and down over a short period of time when markets are volatile. This increases the risk that investors make emotionally driven decisions at the worst times. Behavioral investing traits, such as greed and fear, can often push investors to buy when markets are high and sell when they're low. However, investments that deliver an income may take some pressure off, especially in fast-changing market conditions.
Figure 1. 2024 political elections may prove pivotal
Source: abrdn, November 2023.
Final thoughts
Different investments can produce a regular income stream. Investors are able to select income-generating investments across different asset classes, such as equities, multi-asset, and fixed income, that best reflect their risk appetite (Figure 2).
Figure 2. Income across different asset classes
Source: abrdn, December 2023.
Important information
Projections and forecasts are offered as opinion and are not reflective of potential performance. These are not guaranteed, and actual events or results may differ materially.
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