Analysts and Money Managers Divided on Economic Growth Prospects

As 2024 approaches, analysts are reportedly reassessing their predictions for a U.S. recession that had been anticipated for the past two years.

While investment bank analysts remain optimistic about growth prospects, money managers are adopting a more cautious approach, Reuters reported Wednesday (Dec. 20).

Sell-side analysts, known for their bullish forecasts, have become optimistic about growth prospects, Federal Reserve rate cuts and a consumption recovery, according to the report.

However, real money managers are placing more trust in the cautious stance adopted by top companies, the report said.

The discrepancy between these two groups is not new, but what sets this instance apart from past predictions is the level of prudence and caution exhibited by major companies as they outline their plans for the coming year, per the report.

Consensus forecasts from major banks indicate that global growth in 2024 will be constrained by elevated interest rates, pricier oil and a weakened China, according to the report. However, the likelihood of a recession remains low.

Last year, many banks were predicting a U.S. recession, the report said.

Companies are now sounding more pessimistic about demand, per the report. Management commentary from 150 earnings calls in the third-quarter reporting season revealed that companies characterized demand as weak, soft, sluggish and constrained.

Fund managers are not perturbed by the discrepancy between sell-side analysts and companies, according to the report. Their primary concern lies in whether the Federal Reserve can avert a recession while containing inflation without negatively impacting consumers.

The Fed’s most recent update indicates that officials recognize the need for balance and are sensitive to the risks of over-tightening policy, the report said.

Consumer spending has been cooling, as indicated by surveys from the Institute for Supply Management, per the report. A November survey from the Conference Board revealed that approximately two-thirds of consumers still perceive a recession to be somewhat or very likely in the next year. Economic indicators, such as manufacturing surveys and the U.S. yield curve, have also pointed towards a potential slowdown or recession.

However, Reuters polls of economists found that the probability of a U.S. recession within a year has decreased from above 60% to around 45%, according to the report.

This report comes on the same day that The Conference Board reported an uptick in consumer confidence in December. This increase was driven by greater optimism in consumers’ assessments of both current business and labor market conditions and those they expect to see six months from now.