The global economy will continue to slow down next year, weighed by persistently high inflation, although the worst of the economic woes faced by the investment community this year are over, asset managers say.
Interest rates are set to start declining in 2024, which will drive growth momentum and give investors renewed confidence to start providing capital, hedge fund managers and investors told Abu Dhabi Finance Week.
But the continued accumulation of global debt, along with a rise in geopolitical uncertainty, are factors that need to be monitored closely, they said at the event, hosted by the Abu Dhabi Global Market.
“We are optimistic for 2024,” Mohammed Alardhi, executive chairman of Bahrain-based Investcorp, told delegates on Tuesday.
“I think it's the year where we will see the interest rate coming down, we will see inflation starting to get in control. It’s a year we think when investors will start having confidence in deploying their money, [as] we have [already] seen the worst of the financial and the economic challenges.”
The International Monetary Fund expects global economic growth at 3 per cent this year, slower than the 3.5 per cent expansion recorded in 2022, remaining below the historical growth average, the Washington-based fund said in its latest World Economic Outlook in October.
For next year, the IMF expects the global gross domestic product to expand by 2.9 per cent, a 0.1 percentage point downgrade from the fund’s forecast in July. It said the growth would remain slow and uneven, especially in the emerging and developing economies.
Higher interest rates and persistently high inflation have hit global growth momentum.
The US Federal Reserve hit a pause on interest rate increases this month, after raising rates 11 times since March last year to stem inflation that hit a four-decade high in June 2022.
Interest rates are now at 5.4 per cent, a 22-year high, up from close to zero in March last year.
It is the second time the US central bank has left the rates unchanged at between 5.25 per cent and 5.50 per cent as inflation continues to fall in the world’s largest economy.
“Economic activity expanded at a strong pace in the third quarter,” the US central bank said in a policy statement this month. It also said job gains were still strong.
The central bank's preferred measure of inflation has steadily fallen since its 5.6 per cent peak last year, to its current 3.7 per cent level.
Although the global economy is estimated to grow at a slower pace next year, it is unlikely to face a recession despite headwinds and geopolitical uncertainties.
“It’s hard to see the conditions for a global recession,” Ruchir Sharma, chairman of New York-based Rockefeller International, told The National.
“But you do have the same trend of growth slowing down because the impact of higher interest rates continues to bite, without causing hopefully any major damage.”
The global economy grew at about 4 per cent after the Second World War, but slowed to about 2.5 per cent during the financial crisis in 2008 as debt rose to very high levels, said Mr Sharma, who is the author of four books, including The Rise and Fall of Nations: Forces of Change in a Post-Crisis World.
“I see that period sort of persisting, the only difference being that we are likely to have somewhat higher inflation now than we did after the global financial crisis ... de-globalisation is also a bit of an inflationary force," he said.
Interest rates to remain higher for longer
The US will be reluctant to cut interest rates because of higher inflation, Mr Sharma said.
“I think interest rates will remain higher for longer but I see some stability in the interest rate regime in the next year or so," he said.
Billionaire investor Christian Angermayer, however, sees the potential for interest rates to start declining and the US economy tipping into recession next year.
Despite continued headwinds, the serial entrepreneur who invests across life science, FinTech, crypto technology and future tech, as well as the hospitality and leisure industries, said the hard times were over, especially for investors focused on the biotech industry.
"We're at the end of the pain cycle in the western world," he told The National.
"Generally, I would say it's a great time to invest globally and then you always have decoupled regions or at least regions which are doing better than others" and the Middle East is among them, he added.
Investors should also consider the interconnectivity of factors shaping the global macro and investment environment while making short to long-term investment decisions, Ray Dalio, founder of the US-based investment management firm Bridgewater Associates, told ADFW delegates.
"Our economic and debt situation affects our political situation, which [in turn] affects our geopolitical situation," he said.
"Almost everything important falls under one of those categories, and then thinking about how they relate to each other, one can create a somewhat vivid picture of the trends that are emerging," Mr Dalio said.
The billionaire investor, whose hedge fund is the biggest in world, said the next five to 10 years were going to be "radically different" as investors approached these interrelated factors as a whole.
"We talk about climate [change and its] estimated cost to the world is between $5 trillion and $10 trillion a year," he said, adding that it was a significant hit considering the size of the world's gross domestic product at $100 trillion.
Saudi Arabia and the UAE will continue to grow
Despite the macro conditions, Gulf economies will continue to grow amid investment-friendly policies, Mr Sharma said.
"The GCC region, Saudi [Arabia] and the UAE in particular, are attracting lots of capital, the demographics look strong because of the strong immigration policies that they have," he said.
The UAE, the Arab world's second-largest economy, has been open towards free trade and that will help the country boost exports, he added.
The Emirates is working towards signing 26 Comprehensive Economic Partnership Agreements as it seeks to attract more investment and diversify its economy.
"At a time when the world is not very open towards free trade, the UAE seems like signing so many of these bilateral agreements with different countries, the share in global exports is going up," Mr Sharma said.
Mr Dalio, who established a branch of his family office in Abu Dhabi this year as part of its Middle East expansion, said he remained bullish on investing in the emirate, as well as markets in the broader region.
"Abu Dhabi is one of those Renaissance states" that is financially sound and has attracted talent and venture capital, he said.
"I'm excited to invest in the region. I expect others, when they get exposure to it, will also enjoy and profit from it."