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Francois Stofberg, Senior Economist at Efficient Wealth, says that the world is gradually shifting into a new economic mindset called ‘slowbalisation’ – where markets are steering away from rapidly interconnected economies and focusing more on local resilience and sourcing.
In an economic note this week, Stofberg said that this major shift has most recently been apparent in the disconnect between market expectations and realities that have played out in global interest rates.
Global interest rates have been sitting at 17-year highs, he said, seen by markets as primed for a transition to a cutting cycle.
In the past, similar situations have resulted in aggressive rate cuts by central banks to spur growth – yet this time around, reactions have been more tempered and moderate, with rate cuts seen to be following a gradual path over the next 12 to 24 months.
“This cautious approach, underscored by expectations of global inflation normalisation rather than an outright economic downturn, promises to reshape the investment horizon, particularly in the United States (US), where growth forecasts remain surprisingly robust,” the economist said.
The US Federal Reserve sees three rate cuts in 2024. This stands in contrast to market expectations of a rapid, more aggressive cycle that was initially expected to kick off this month.
This was echoed by Investec chief economist Annabel Bishop this week, where she noted that markets are waking up to the reality that there likely won’t be an ‘early’ cut in rates in 2024, with the first cuts only expected after mid-2024, or even in Q3.
For South Africa, this will also likely push the cutting cycle back to later in the year.
Stofberg said that this shift in approach to the global economy reflects a wider shift that investors will need to keep on top of.
“The past two decades have witnessed unparalleled investment returns fuelled by the advent of the internet and mobile technologies, driving an era of rapid globalisation. Yet, as the momentum behind these technological forces begins to wane, attention is shifting towards identifying the next group of megatrends that promise to deliver above-average growth opportunities,” he said.
“Among these, themes such as demographic shifts towards ageing populations, the ongoing digital and artificial intelligence revolution, geopolitical fragmentation, the evolving landscape of finance underpinned by blockchain technologies, and the imperative transition towards a low-carbon economy have emerged as pivotal.”
This, he said, is the move from the more “frantic” pace of globalisation in the late 20th and early 21st century towards a move away from economic and geopolitical exchanges, dubbed ‘slowbalisation’.
“Slowbalisation reflects growing reservations about open trade and the ramifications of geopolitical tensions. This trend marks a departure from the global interdependence that once defined economic and social paradigms, advocating instead for a more localised, sustainable, and resilient approach to development,” Stofberg said.
“Amidst this backdrop, businesses and communities alike are increasingly prioritising resilience, favouring local over global in the quest for sustainability and cultural preservation.”
The senior economist said that the shift in paradigm is more than a strategic re-orientation but an existential one, where the world is grappling with the complexities of environmental sustainability, geopolitical stability, and economic inclusivity.
“(The shift) embodies a commitment to balancing global cooperation with local resilience, aiming to forge a path that is sustainable, inclusive, and adaptable to the unfolding challenges of the 21st century and beyond,” he said. Warren Berriman
Managing Director - Alexander Beard RSA (Pty) Ltd.