The global economic landscape witnessed a series of unexpected turns throughout 2023. Despite the notable surge in interest rates, the United States managed to sidestep a recession, while major emerging markets navigated without descending into a debt crisis. Even Japan, often labeled as a geriatric economy, displayed remarkable resilience. In contrast, the European Union faced setbacks as its powerhouse, Germany, faltered following China’s swift end to a four-decade era of hypergrowth.

As the world sets its sights on 2024, numerous pivotal questions hover over the horizon. Will there be a shift in long-term inflation-adjusted interest rates? Can China avert a sharper slowdown amidst real estate sector turmoil and substantial local government debt? The Bank of Japan faces the challenge of normalizing rates after maintaining near-zero interest rates for two decades, aiming to avoid triggering systemic financial and debt crises. Could the cumulative impact of the Federal Reserve’s interest rate hikes eventually nudge the US towards a recession? Can emerging markets sustain stability for another year? Lastly, what will emerge as the next significant source of geopolitical turmoil? Might it manifest as a Chinese blockade of Taiwan, a potential victory for Donald Trump in November’s US presidential election, or an unforeseen event altogether?

These questions interconnect, forming a complex web of potential scenarios. A US recession could trigger a notable global interest rate decline, albeit offering transient relief. Yet, enduring factors such as remarkably high debt levels, a gradual retreat from globalization, burgeoning populism, the imperative to bolster defense expenditure, and the imperative shift towards green initiatives are likely to anchor long-term rates well above the ultra-low levels witnessed between 2012 and 2021, shaping the trajectory for the next decade.