Asset Allocation Strategy
4 December 2023
Outlook 2024 Part 1: The Economic Outlook
Soft Landing Still our Base Case for 2024

Amidst a climate of heightened confidence, risk assets are rallying, underpinned by a broader improvement in global economic sentiment.

Investors are increasingly optimistic that policymakers will orchestrate a soft landing, a sentiment that gains support from recent economic data releases. 

Market sentiment has solidified in recent months, driven by resilient US consumption, marginally more positive Chinese activity data, and glimpses of optimism in the latest sentiment surveys across Europe. Crucially, global inflationary pressures are abating, and tight labour market conditions are showing signs of moderation. 

Within this global context, Australia’s outlook is less clear. The domestic economy is experiencing a declining growth rate, buoyed by very high immigration rates, alongside easing but relatively sticky inflation, with a still tight labour market. This suggests an extended period of “on-hold” rates through 2024. This stands in contrast to the recent trends observed globally, where there is an encouraging deceleration in inflation, and significantly greater confidence that policy rates have reached their peak.

We expect the global inflation pulse to continue fading over coming months as the market’s attention pivots from inflation concerns to a sharper focus on growth, labour market dynamics and central bank easing in 2024. The soft landing narrative (our base case) will still likely face challenges, as factors that have contributed to the unexpectedly resilient economy this year are expected to fade throughout 2024.

Will the Goldilocks US Economy Continue?

The US economy has surprised with its resilience this year, defying consensus expectations of a 2023 second-half recession. Resilience has been a function of excess savings and a historically tight labour market, which has supported robust consumer spending levels. Recent data remains consistent with a soft-landing, as inflationary pressures are abating, and tight labour market conditions are showing signs of moderation. Against this backdrop, the market has firmed up its view of no further hikes and is pricing a total of 100 basis points (bps) of cuts into 2024.

Figure 1: Growth is forecast to slow further in 2024, from surprisingly resilient levels this year

A larger-than-expected slowdown in the US economy looms as arguably the greatest risk for 2024. We do not see this as an imminent threat over the next few months due to the quite gradual cooling in economic activity currently playing out. 

On the inflation front, the US consumer price index (CPI) has shown the capacity to bounce around the declining trend. However, we have reasonably high confidence that inflation will continue to ease on a 3- to 6-month view. If the US economy can stay on this path of decelerating inflation while avoiding a recession, the outlook should be positive for US equities and fixed income. 

We believe the odds are still tilted towards a US soft landing, although the risk of recession appears higher in 2024 than in 2023. We are watching the labour market and consumer stress for cracks in the soft-landing scenario.

Figure 2: The market is now pricing 4+ Fed cuts by the end of 2024

Labour Market Holds the Key

The anticipated ongoing deceleration in US inflation throughout 2024 should allow the Fed to concentrate its reaction function predominantly on the labour market. The size and speed of a labour market softening is what will ultimately drive the trajectory of the Fed easing cycle next year, in our view.

Figure 3: Shelter is the key reason core CPI remains elevated; core CPI excluding shelter is already back to 2%

Key signposts for the US over coming months will be employment data, with a focus on more frequent and alternative data like payrolls, jobless claims, job listings and hiring surveys, which should give a timelier edge on an impending slowdown in employment.

Figure 4: There has never been a case where the unemployment rate has risen by more than 0.3% without a recession taking place; monitoring real-time employment metrics is key

The first negative payrolls print is typically a warning signal as shown on Figure 6. We expect payroll growth to persist in the upcoming months before gradually tapering to a marginally below pre-pandemic monthly average pace of ~170k. A reduction in the breadth of payroll gains could signify a weakening underlying trend, so we are watching if the pullback in hiring is broad-based.

Figure 5: Key US labour market signposts
Non-farm Payrolls

• Monitoring the breadth of payroll gains across industries and the speed of the decline towards average pre-pandemic monthly pace.

• A reduction in the breadth of payroll gains signifies a weakening underlying trend, the first negative payroll print is a recession warning signal.

Initial Weekly Jobless Claims

• Initial jobless claims provide a timely and high-frequency indicator of the state of the US labour market.

• Higher than expected number of initial jobless claims suggest the labour market is weakening and many workers are facing hardship due to layoffs.

ISM PMI Survey Employment Components

• The ISM PMI survey employment components tend to have a positive correlation with the nonfarm payrolls report, they provide insights into manufacturing and service sector hiring intentions.

• Readings below 50 indicate employment is contracting.

Indeed Job Listings

• Watching if the deceleration extends across industries, 50% of industries exhibiting diminished job demand compared to long-term levels serves as a crucial benchmark.

Job openings and quit rates

• Job openings and quits can help assess the tightness or slackness of the labor market, as well as the availability and quality of jobs.

• A declining trend in job openings indicates waning labour demand, this series tends to lead the unemployment rate. 

• Declining quits indicate workers have less bargaining power, this series coincides with consumer confidence.

Source: Refinitiv, Wilsons Advisory.

Figure 6: Non-farm payrolls typically turn negative at the onset of recessions
Recessions Lead time (months)
1970 4
1973 9 months late
1980 3 months late
1981 1
1990 0
2001 5
2007 6
2020 1 month late

Source: Refinitiv, Wilsons Advisory.

Caution, Consumer Slowdown ahead

While the US consumer has demonstrated resilience, the tailwinds that fuelled spending growth in 2023 are now fading. Excess household savings are expected to be depleted within the next few months. Some stabilization is expected following rising real wage growth, although rising mortgage refinancing bills, recommencement of student loan repayments, tighter credit conditions and a slight deterioration in job security will cap willingness to spend.

Given the US consumer is one of the most important drivers of global economic activity, consumer confidence surveys and spending data will be key signposts to watch in 2024 to gauge the extent of the slowdown.

Figure 7: US excess savings will likely be exhausted next year

Inflation Remains Central to the Domestic Outlook

The Australian economy has weathered the rise in policy rates so far, and the labour market remains resilient, but we expect real gross domestic product (GDP) to slow further to ~1-2% in 2024. GDP will be dragged down by rate hikes but aided by strong population growth, which at the same time is contributing to the current sticky inflation problem, most obviously through the housing channel but also by adding to general economic demand.

Figure 8: Australian GDP growth is clearly supported by record migration, which is driving population growth to be much faster than expected
Figure 9: Underlying inflation is easing in YoY terms, but much slower than key global peers

A domestic hard landing remains a “risk case,” not our central case. The more recent activity data indicates the economy is softening, but not falling into recession. Meanwhile, the labour market has moderated over recent months, with a slower pace of employment and hours worked. The easing of the tightness is still only relatively modest, as the unemployment rate remains near a 50-year low at 3.6%.

While a number of the world’s major central banks have hit the policy pause button in recent weeks, the more stubborn domestic inflation backdrop forced the Reserve Bank of Australia’s (RBA) hand in the recent November meeting. Notably, the above-consensus readings for headline, underlying inflation and wages in the September quarter suggest domestic inflation remains sticky. 

Despite the better-than-expected monthly print for October, the possibility of another hike early next year cannot be completely ruled out. Markets imply a ~40% chance of one further hike to 4.60% in the first quarter of next year.

Figure 10: Implied path for the RBA cash rate is relatively flat through 2024; this differs from the expected rate profile of global peers where much more easing has been priced in

Fourth quarter CPI (due January 31, 2024) will be the key data signpost that will determine whether the upside surprise in the third quarter has persisted. The fourth quarter wage report (due February 21, 2024) will also be a key release.

We see the RBA keeping rates 'higher-for-longer', before commencing a modest easing cycle, with the first rate cut currently pencilled in for November/ December 2024. 


A Turnaround in European Sentiment?

Contrary to expectations, Europe surprised to the upside in early 2023, narrowly avoiding a recession, aided by falling energy prices. Recent economic data has beaten consensus expectations, with both consumer and business confidence indicators showing an upturn. The better-than-expected inflation data has further fuelled optimism, raising hopes that policy rates have peaked and that the European Central Bank (ECB) is on track to ease by mid-2024. 

Figure 11: Eurozone inflation has fallen more than expected, putting ECB rate cuts into view
Figure 12: Headwinds from energy inflation have faded, a key supportive factor for the European outlook

Much of the inflation pulse in Europe has been driven by the second-round effects of last year’s big increases in oil and gas prices. Energy inflation has flipped from a high of close to 50% early last year to -11% in the 12 months to October 2023. The energy price outlook will remain important as we approach the European winter. Our base case is that Europe should narrowly avoid recession in 2024, although growth will be lackluster. 

Although the Chinese economy – a key driver of the European industrial sector - is not rebounding meaningfully, it is stabilizing which eases headwinds for the Euro Area. 


China Enters Growth-stabilisation Mode

In contrast to an upbeat consensus at the start of the year, China has proven to be the biggest disappointment in respect of the global economy for 2023, weighed down by property weakness and low consumer confidence. However, growth momentum has improved marginally in recent months, as policymakers have pivoted toward growth-stabilization mode and recent activity data has come in ahead of expectations. 

Figure 13: Data on Chinese economic activity has exceeded beaten-down expectations recently

Looking forward, we expect GDP growth to continue to be modest (~4-5%) with policy support and a consumption recovery countering lackluster property conditions. The prospect of property activity not stabilizing poses a large downside risk in 2024, although we expect new property starts and sales will stabilize and improve modestly through 2024, with the help of ongoing policy easing. It will be key to monitor household confidence, home prices, private business investment and hiring. Positive developments on these fronts could offer some reprieve to beaten-down investor sentiment, which, in our view, has become excessively pessimistic. 

Still, there are no signs that policymakers are about to provide “big bang” stimulus, meaning the trajectory of the global economy will be driven by the trend in the developed world, as it was this year, With the Fed and the US$ likely to be the stronger catalysts for an Emerging Market re-rating than China in 2024.


A Soft Landing Remains Our Base Case

Improved sentiment around global inflation, cooling growth and the policy cycle will be the key to further gains in risk assets in the new year. 

We expect the global inflation pulse to continue fading over coming months, as the market’s attention pivots from inflation concerns to a sharper focus on growth, labour market dynamics and central bank easing in 2024. 

We believe the odds are still tilted towards a US soft landing, although the risk of recession appears higher in 2024 than in 2023. We are watching the labour market and consumer stress for cracks in the soft landing scenario.

We expect US growth to slow (but not collapse) over coming quarters. Inflation should also continue to ease over the coming 12 months. This should be a reasonably supportive backdrop for both stocks and bonds, all things equal. 

Inflation still remains central to the domestic outlook. The Australian economy should continue to grow in 2024, albeit at a below-trend pace, aided by strong population growth, which at the same time is contributing to the current sticky inflation problem and is clearly making the RBA’s job more difficult.

Disinflationary global trends will likely provide some upside pressure, while a higher-for-longer domestic cash rate will create headwinds. Nonetheless, a domestic hard landing remains a “risk case,” not our central case. The current 4.35% cash rate likely represents the peak for the cycle, however, the prospect of RBA easing appears to be a late 2024 story in our view.

  • Share This Article

Written by

David Cassidy, Head of Investment Strategy

David is one of Australia’s leading investment strategists.

Disclaimer and Disclosures

About Wilsons: Wilsons is a financial advisory firm focused on delivering strategic and investment advice for people with ambition – whether they be a private investor, corporate, fund manager or global institution. Its client-first, whole of firm approach allows Wilsons to partner with clients for the long-term and provide the wide range of financial and advisory services they may require throughout their financial future. Wilsons is staff-owned and has offices across Australia.

Disclaimer: This communication has been prepared by Wilsons Advisory and Stockbroking Limited (ACN 010 529 665; AFSL 238375) and/or Wilsons Corporate Finance Limited (ACN 057 547 323; AFSL 238383) (collectively “Wilsons”). It is being supplied to you solely for your information and no action should be taken on the basis of or in reliance on this communication. To the extent that any information prepared by Wilsons contains a financial product advice, it is general advice only and has been prepared by Wilsons without reference to your objectives, financial situation or needs. You should consider the appropriateness of the advice in light of your own objectives, financial situation and needs before following or relying on the advice. You should also obtain a copy of, and consider, any relevant disclosure document before making any decision to acquire or dispose of a financial product. Wilsons’ Financial Services Guide is available at

All investments carry risk. Different investment strategies can carry different levels of risk, depending on the assets that make up that strategy. The value of investments and the level of returns will vary. Future returns may differ from past returns and past performance is not a reliable guide to future performance. On that basis, any advice should not be relied on to make any investment decisions without first consulting with your financial adviser. If you do not currently have an adviser, please contact us and we would be happy to connect you with a Wilsons representative.

To the extent that any specific documents or products are referred to, please also ensure that you obtain the relevant disclosure documents such as Product Disclosure Statement(s), Prospectus(es) and Investment Program(s) before considering any related investments.

Wilsons and their associates may have received and may continue to receive fees from any company or companies referred to in this communication (the “Companies”) in relation to corporate advisory, underwriting or other professional investment services. Please see relevant Wilsons’ disclosures at

Related articles