Edito

Dear readers,

In our last edition in August, we mentioned the accentuation of the economic slowdown in Europe and China, as well as some less favourable indicators in the United States, particularly in the manufacturing sector, pointing to further cuts in the key rate by the European Central Bank (ECB), as well as a first cut by the US Federal Reserve (FED). Since then, the ECB has cut its key rate twice by 0.25% and the Fed once by 0.50%.

Three months later, we see that economic momentum continues to weaken in Europe and China, with projected annual growth of around 1% and 4.8% respectively. In the United States, however, growth should be in the region of 2.8% for 2024, almost three times higher than in Europe, thanks to the astonishing resilience of consumer spending. It is therefore likely that the ECB will continue to cut its key rate by 0.25% once or twice between now and the end of the year, whereas the Fed seems to be heading towards a slower cut to favour a soft landing scenario, while keeping a close eye on core inflation .

Against the backdrop of the slowdown described above, China recently announced a package of major monetary and fiscal measures, which surprised investors by their scale. This probably reflects a sense of urgency on the part of the Chinese government to stimulate the economy and restore the confidence of Chinese consumers, who continue to save massively because of a lack of confidence in the future.

Marc-Antoine Collard takes a closer look at the economic and geopolitical context, particularly in China, which could also benefit the European economy.

Since the Covid crisis and the war in Ukraine, the geopolitical environment seems to be influencing the world economy much more than in the past, with a clear break with the globalised world we have known, leading to interruptions in supply chains, pressure on certain raw materials (upwards or downwards), an unprecedented level of government debt and the relocation of production centres from low-cost countries to higher-cost countries. It is therefore likely that in the future we will not return to interest rates and inflation rates as low as those seen in the last decade, even if fears of recession push central banks to continue cutting their key rates, but with a higher floor rate than before.

So in terms of asset allocation for financial wealth management, bonds are considered essential again. They can act as a ‘shock absorber’ in the event of a prolonged fall in the equity markets, which could be triggered by downward revisions to corporate earnings forecasts for 2025, particularly in the United States (current forecasts are for +13.5% and +8% in Europe ).

Xavier de Laforcade gives us his analysis of this environment.

With a view to seeking returns and diversifying investments in unlisted assets, Jessica Sellam (Head of Private Markets Group) and Brandon A. Freiman (Partner and Head of North American Infrastructure at KKR) shed light on the infrastructure market in the United States, at the crossroads of strategic and economic issues, generating recurring revenues and benefiting from long-term trends.

We wish you a pleasant read.

Alain Massiera

(1) The term ‘soft landing’ refers to an economic scenario in which a growing economy slows down enough to avoid recession, but without leading to a hard landing or crisis. (2) Excluding food and energy. (3) Source Bloomberg.