As 2019 rolled in, risks were evident for many of the major banks. With US-China trade tensions on top of the cloud surrounding the Brexit saga, the expectations for the year ahead were low.
Those predictions turned out to be largely true for the economy, but banks got off fairly lightly. In Europe, where the overall economy has fallen, bank sentiments actually improved, with the Euro rising 8% on the Stoxx Banks Index.
With this in mind, what can we expect in 2024? In short, we may see a general improvement. The US president is looking to form a trade deal with the UK once Brexit is “done”, with the US also looking to form a large deal with China before the US election at the end of the year.
Given the confident Conservative majority, many are hoping that Prime Minister Boris Johnson can achieve a softer Brexit deal than what could have been achieved with the extreme wing of his own party pushing for a hard ‘no deal’. This would help with the transition of leaving the EU and help to cause minimal disruption to the economy of the UK as well as the broader European economy.
Aside from this, we expect two significant topics to have a large influence headed into the new year, these being green finance and technology.
A Focus on Sustainable Finance
The focus on sustainable finance is a positive trend going forwards. Indeed, European banks as a whole are committing to doing what they can to help most of the major sectors with the transition.
Lenders are expected to make a priority of stepping up when it comes to climate-related investments. At FJP Investment, they are opting for a similar approach.
When it comes to technology, it is expected that banks will begin to bring their systems up to the modern standard evident with many online competitor banks.
High street banks are expected to begin scaling up their operations and building platforms independently. Banks will benefit here and will aim to maximize the number of customers they put into such platforms, as it allows them to improve efficiency and move away from ineffective legacy systems.
Banks are likely to find themselves under increasing pressures with regards to profitability. Tech investment outlay will be costly, persistent low interest rates and high trade tensions will also put pressure on an unfavorable backdrop for the sector.
Big Tech Staying Strong
Looking further afield, will the political backlash have a hit on big tech in 2024? With growing concerns over social media impact on democracy, it is expected we will see a further fall in the sector reputation over the coming year ahead.
However, most agree that this will not have much of an effect on investor confidence in the sector. With most experts ruling out any drastic regulatory changes, the companies underlying health’s will stay strong. In the short to medium term, investors are learning to deal with the political cloud surrounding the market as the broader sector continues to record healthy profits.
In fact, 2019 saw a large uptake in shares being purchased for big tech companies such as Netflix and Facebook. With a combined jump in market value of 40% for the ‘big players’, you could argue the negative attention has drawn investors in, taking advantage of reduced stock prices.
This is traditionally a sign of risk in the market, leaving the sector vulnerable to significant risk of large hits. However, if the market continues to increase, the business outlook for 2024 in particular looks strong, leaving the companies well positioned to continue their sizable growth.
Car Manufacturers Focus on Electric
With tighter emission regulations being introduced, car makers are facing a difficult outlook headed into 2024. This doesn’t account for the UK’s likely exit from the European Union and the overhang of a potential trade war.
Manufacturers in the EU are set to face the first year of new emission rules, requiring an average of 95g of CO2 per kilometre. Five percent of vehicles are still allowed exclusions from this however, so car manufacturers will continue selling their most polluting, profitable cars in some quantity.
Most car makers will struggle to meet this requirement in the short term. A significant push of electric vehicles in the market allows manufacturers to offset the higher polluting vehicles, but with greater price tags putting consumers off, it will be hard to find a middle ground for manufacturers here.
Sales globally are likely to see a decline also as the EU and US experience slowdown in the economy.
The future of worldwide trading is obviously a key concern, particularly here in the UK. Businesses such as Vauxhall and Nissan are concerned that tariffs following the UKs exit from the EU will result in plant closures, as we have seen in several other factories.
Various individual cases, such as the Renault and Nissan alliance, as well as the Peugeot and Fiat Chrysler merger will need to be addressed with suitable plans going forward. This could cause some impact to the wider industry.
Airlines Facing Similar Issues
Much like car makers, airlines are likely to face a turbulent time in 2024 and beyond due to environmental pressures.
With consumer attention continuing to focus on the growing environmental impact of air travel, airlines around the globe and stepping up plans to collectively tackle this issue, coming up with ways to reduce their carbon footprint.
A number of EU states have proposed taxes on airline fuel, and with concerns that they will be taxed more heavily, executives are becoming more proactive in becoming transparent with their plans.
Many airlines have taken the front foot, making commitments to be net-zero carbon flying by 2050, of which Europe’s leading airline EasyJet are seemingly leading the way.
2024 is likely to continue this trend, with airlines making commitments on reducing their carbon footprint. This will aid in warding off further taxes with an encouragement towards investment in sustainable aviation fuels.
Whilst we have seen a small dip in airline travel, it is expected this will rise again over the coming year. With the introduction of the Boeing 737 MAX, we could see increased capacity in the industry causing a downward pressure on ticket prices. With competition becoming fiercer to fill seats, consumers are the ones that could benefit here.
Online Shopping Continues to Grow
Although the result of the general election was a positive one for retailers, with the uncertainty facing consumers over the past few years eroding some level of consumer confidence, there is unlikely to be a large upheaval in the retail sector.
Profits and cash flows will come under increasing pressures as retailers continue to adjust to an increasing shift to online sales. The result of this is that more UK retailers will close in 2024, Debenhams and House of Fraser being just two of the major retailers to express this.
Independent retailers are likely to do better than larger retailers, however. In 2019, net closures were significantly lower in independent retailers than large retailers.
Whilst retailers such as Asos and M&S will have a point to prove over botched warehouse expansions and three years of disturbance paying off respectively, Debenhams and House of Fraser will need to take advantage of lower rents they are now paying.
Other trends emerging in the retail space include a refinement of loyalty schemes’ that go beyond simply collecting points, and traditional retailers partnering with tech groups to better streamline their online sales.
Much as we have seen over 2019, those that look forward and stay ahead of the curve will be the ones to prosper in the ever changing and challenging industries we are currently facing.
