Wealth Outlook 2024 - Slow then grow

118 Wealth Outlook 2024 | Regional outlook Europe: a slow recovery, with stronger equity returns later into 2024 FIGURE 2 Fixed income opportunities -2 0 2 4 6 2020 2021 2022 2023 Yield (%) Germany 2-year Germany 5-year UK 2-year UK 5-year Sources: Eurostat, Office for National Statistics, Bloomberg and Citi Global Wealth Investments, as of November 16, 2023. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. Less inflation After the many challenges to growth in the second half of 2023, and the likely-tepid recovery especially in the first half of 2024, we expect headline inflation to decelerate meaningfully and to converge gradually towards the 2% target favored by both the European Central Bank (ECB) and the Bank of England (BoE). We continue to think that peak policy rates have been reached in Europe, at 4% for the ECB and 5.25% for the BoE. However, the chances of actual rate cuts in the short-term appear slim unless more severe risks to economic activity begin to materialize. As a result, we expect rates to stay at those historical highs at least until the spring of 2024, and possibly throughout the summer. We do expect economic activity to pick up in the second half of 2024 against a backdrop of well-above- average household savings ratios, higher interest income and close to full employment. We see those trends further extending into 2025 as price pressures continue to normalize, providing some relief for households and businesses – enabling the former to finally enjoy positive real wage gains, and putting the latter in a better position to protect their margins. Fixed income With ECB and BoE policy rates having probably peaked in September 2023, we believe that both euro area and gilts yields are at an inflection point, especially for short- and medium-termmaturities ( FIGURE 2 ). We anticipate some steepening in sovereign yield curves and largely agree with the market’s pricing in a first 25-basis point rate cut for both central banks around the middle of 2024. Historically, the ECB and the BoE have been more conservative with monetary policy changes than the US Federal Reserve (Fed), a situation explained by