2024 Outlook: Driving Resilient Growth

Each of the past several years have started with questions about how organizations should manage heightened complexity and persistent unpredictability. 2024 is likely to be no different.

Volatility, uncertainty, and dramatic shocks to our global system can no longer be considered transitory.  Geopolitical conflicts continue to make the world less safe and secure. Political divisions are at an all-time high with higher stakes than ever: over 4 billion people live in a country that will have an election this year - more than any year in history. And while the pace and scale of technological innovation - with AI at the tip of the spear - will enable entirely new business opportunities and accelerate productivity gains, we will likely see new risks in both obvious and unexpected areas emerge.

At the same time, markets and business have proven remarkably resilient. And - barring any new, major unforeseen disruption - the economic environment appears to be normalizing. If inflation continues to trend towards its target, rates should settle lower at a normalized, sustainable level while continuing to drive modest GDP growth. The table could be set for a vibrant economy in 2024.

What is different about 2024 is the necessary shift in mindset: complexity and a moderated-but-real cost of capital are here to stay, and therefore, it is incumbent upon us to build a long-term strategy to lead through these dynamics.  The confluence of externalities combined with a constructive, yet constrained, economic environment in the US will continue to put pressure on companies and investors to recalibrate their efforts to adapt to this new environment. For some, it will mean a continued push towards solidifying their resilience. For others who are further ahead on that path, it will set a course for compelling yet calculated ‘risk-on’ investments to drive their future.  

With these complex dynamics in mind, as companies position themselves for growth in 2024, we are seeing several key themes emerge:

A More Deeply Connected Relationship Between Resilience and Growth

While resilience has always been a core component underpinning both business and investment strategies, the consistent disruptions over the past few years have placed an even greater emphasis on its importance – and a renewed view on what it constitutes. We are seeing a more expansive view of resilience emerge; one that will move it from being seen as a necessary expense, to viewing it as an investment to gain a competitive advantage – the ability to adapt to threats while strengthening competitive differentiation in the process.

Dynamics across the financial services sector provide strong evidence of this: changing monetary policies globally have placed greater emphasis on banks’ ability to manage risk effectively across multiple dimensions – including liquidity, deposits and loans, and portfolio strategies. At the same time, risk for banks also comes from the threat of financial crime with criminal actors testing financial institutions’ defenses against threats such as cyber-attacks, fraud, and money laundering. Still further, the ongoing push by regulators and policymakers towards even greater regulatory complexity, presents key challenges to existing business and operating models. For banks, the ability to deliver sustainable, profitable growth will become increasingly tied to their ability, first and foremost, to protect against threats, manage risk, and fortify their resilience.

Resilience, in many cases becomes a pre-requisite – and often the source – of growth. The strong become stronger.  This is something we expect to manifest itself across other industries and sectors precisely because of the expanding set of threats and risks across every aspect of our economy: geopolitical, macroeconomic, environmental, and cyber-enabled.

Non-Discretionary Technology Spend Becomes Even More Non-Discretionary

If resilience becomes a pre-requisite for growth at the same time as the trend towards digitization and modernization accelerates, the need to upgrade legacy technology and address tech debt will become even more acute.  If 2023 was the breakthrough year for AI – one in which AI’s potential has become widely assessed and strategized around across every industry – 2024 will be the year of implementation and execution.

The ability to capitalize on AI’s potential, however, depends on several critical components: unique and proprietary data sets, the right product and engineering talent, and a future-forward technology infrastructure. As the race towards AI accelerates, the dichotomy between those that prioritize investing in these foundational pillars and those that don’t, will widen.  In fact, it is a great example about how investing in resilience can unlock growth. Investing in resilience is hard, it can be expensive and has longer payoff cycles, but it can unlock years of growth, if done with foresight. As such companies that have invested in their digital transformation for years will have a durable competitive advantage in capturing this potential upside.

Though AI will usher in a new era of growth and innovation, the long-term success of AI strategies requires an equal focus on security to protect institutions and their customers from evolving threats.  Here too, we see the deep connectivity between resilience and growth. An upfront focus on resilience and risk management should pay dividends over time and serve as a foundational tenet for companies that are leveraging AI to drive new pathways to innovation and profitability.

Transitioning From Risk-off – To Calculated Risk-on

As we enter this new era of innovation and disruption, we also expect to see bolder, conviction-driven investment decisions.  If 2023 was considered mostly a risk-off environment in which both corporates and investors were constrained in making major conviction decisions, 2024 will be a year where new opportunities arise to put capital back to work.

In 2023, companies and industries most impacted by the return of a real cost to capital were primarily those that had prioritized a growth-at-all-cost mindset. In 2024, as monetary policy shifts to a more sustainable balance of managing inflation and the cost of capital, those companies that have focused on driving profitable growth are likely to be rewarded.

I expect the balanced monetary backdrop to enable companies with more resilient balance sheets to make bolder organic and inorganic investments that further solidify their competitive market positions.  For investors, as the normalized cost of capital demands greater prioritization in capital, and the valuation reset provides new, attractive entry-points, we should see a constructive environment in which alpha and beta are more equally prioritized.

This should also translate favorably to the environment for listings, with greater appetite among investors to put some risk capital to work towards companies ready to enter the equity capital markets. Additionally, the ever-greater diversity in investment products should provide attractive opportunities for value creation – especially for investors looking for risk-adjusted opportunities to generate alpha tied to emerging megatrends that will reshape our economy. Index investments will support investors seeking to make conviction decisions in themes or ideas, while minimizing the risk of company-specific strategies.

Final Thoughts

As the underlying current of our economy continues to shift – from one where market performance tended to be more broad-based with the rising tide lifting most boats, to one in which greater discipline combined with calculated conviction decisions will receive greater rewards – we expect new opportunities for both companies and investors to differentiate, outperform competitors, and reshape their trajectory for years to come.

Those that are prepared for this environment, will widen their advantage, and will chart a new era of growth for the broader economy. What will drive their continued success is how well-positioned they are to protect themselves from an ever-evolving threat landscape while embracing new technologies to fuel their growth. In this way, a dual focus on resilience and growth will secure more resilient growth despite a more persistently uncertain macro-political environment.