What will 2024 bring for you and your business? IMD faculty and other experts offer their predictions for the year ahead.
We survey predictable and less predictable governance dimensions across four areas of governance: political governance, corporate governance, the governance of non-market institutions like central banks, as well as systems governance within the financial system. Â
Governance affects markets both negatively in the form of poor decision-making in front of key challenges, and positively such as sharp adaptation to required transformation and the capability to foresee essential matters. Â
Our top four predictable governance events for investment performance are:
Other elections will matter next year. Besides Taiwan in January, India and Indonesia later in the year, and other political or geopolitical meetings like the G20 in Rio, as the most powerful political governance event of 2024 by far, the US election will transform the world. Still, while it may not directly affect 2024 economic growth, it will still impact investments through its usual mix of social revelations and mid-term expectations. Â
Electoral promises are expected to increase divisions in an already conflicted world. The electoral process will leverage the current psycho-sociology of the masses that thrive on conflicts and scapegoats. Whoever is elected, themes such as exposure to US-China tensions, for example, and the readiness/preparedness to act will be a differentiator for corporates. Â
Some highly exposed organizations such as HSBC have prepared themselves – but not all. Some industries like automotive or utilities will be affected but in very different ways. The fast redistribution of supply chains is the new order for most global industries. Reshoring countries such as India, Mexico, and Vietnam, which are reintegrating business operations that had been moved overseas, are our preferred choices in emerging markets. Â
As economies are stressed by a combination of factors such as inflation, currency value, debt, and downright slowdowns, central banks are key actors, and the quality of their governance will continue to affect markets through smart rebalancing and sharp decision-making as the world evolves.
Despite its dual mandate, we expect the US Federal Reserve to be the better-governed choice. While the European Central Bank (ECB) is tuned to its inflation mandate, its confused communication is expected to reveal governance tensions that will materialize in less sharp decision-making at the exact times when it becomes necessary. This will become front-page news. The Bank of England’s renewed governance may prove a challenge for independence of views and brings the risk of capture, a long-lasting failure in the UK with decade-old memories looming back. The Bank of Japan appears to be in a resilient space, second only to the Fed. The People’s Bank of China will, of course, not have the independence required for long-term governance, but we expect top communist brass to navigate the short-term waves smartly.
Labor demands will keep landing inflation-driving deals that can ripple through the economy, and to the most exposed industries. This will create a double whammy on credit quality through balance sheets and macroeconomic stress.
As the spectacular implosion of the governance of US artificial intelligence research organization OpenAI in November showed, AI governance has veered towards commercial. The profitability of AI across the system will thus nourish tech valuations at least through 2024. We do expect a backlash in three to five years on ethical and/or social dimensions.
“Governance affects markets both negatively in the form of poor decision-making in front of key challenges, and positively such as sharp adaptation to required transformation and the capability to foresee essential matters.”
Further out, other governance events should be on chief executives’ radar. They could take longer to emerge and may not materialize in 2024, but they could be significant.
In a world where ESG and sustainability standards are confused and disclosures poorly audited, the risk of greenwashing (and other color washing) bears on the valuation of many corporates. The pus in the flesh could well start to leak in 2024. It is there and ready to go. This should not be underestimated – it could be a scandal on the level of Houston-based energy, commodities, and services company Enron in 2007 or US telco WorldCom in 2002. Â
We know that the actors with the most integrity are already anxious about what could emerge, but international standards are beginning to appear. In Europe, this is likely to occur only after 2025/26 on the full implementation of EU directives. Â
Enlightened authoritarianism may prove its worth for much longer, especially when supported by as strong and sophisticated a system as the Chinese Communist Party (CCP) and its most powerful agent, the Central Organization Department (COD), have developed. Â
Still, the non-market perspective will necessarily compromise long-term performance. Just one example is the impact of party representation without commercial focus holding power over commercial organizations. The surprise success of US Secretary of State Anthony Blinken in San Francisco in November during the APEC Ministerial Meeting could well indicate a fast acceleration of that deterioration. Â
We expect it to take longer but we are also readying ourselves for this predictable surprise. Â
9 April 2024 in Governance
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