News & Insights

The World Votes

More voters than ever before will head to the polls this year. Citizens of 88 countries, representing more than half of the global population and world GDP, will exercise their right to vote in 2024. India, the EU, Taiwan, Mexico, the U.K. and now French elections have already taken place, with the U.S. and Brazil still to come.

Evident in the early polls is the voter dissatisfaction with the parties in power, primarily in the developed world. Mexico and many of the emerging markets appear headed in a different direction, with the recent election of Claudia Sheinbaum moving Mexico farther to the left. The U.K.’s recent election delivered a resounding defeat to the ruling Tories, with Labour’s win the largest since 1997. Conservatives made significant gains in the European Parliament, though not enough to gain an outright majority, implying that there will be a more centrist coalition. The polling for Euro-level elections prompted French President Emmanuel Macron to call a snap election. The National Rally party made major gains on the first ballot, but with this weekend’s second vote it came in third behind the two largest left-leaning parties. As seen initially in France, Germany’s conservatives are on the rise, but national elections don’t happen until late next year.

Incumbents tend to stimulate the economy to gain support for their policies, as measured by an IMF analysis of the political budget cycle in election years, which shows deficits rising 0.4% above what would be expected. This year’s political polling is far from concluded, but it is already evident this cycle that there is a notable lack of fiscal restraint, with a continued glut of fiscal spending on the rise globally, providing a tailwind for global growth.

Effects of Election Years of Fiscal Deficits and Subcomponents

Source: IMF, Fiscal Rules Dataset

European Parliament Provisional Results

Source: European Parliament

Synchronizing Global Monetary Policy

It’s still early, but there’s evidence the global economy may be entering a cycle of synchronized monetary easing that should provide support for global economic growth. Global short-term interest rates peaked late last year and have begun their descent, with the EU, Canada, and Sweden recently cutting interest rates. Emerging markets have led the way with rate cuts after seeing inflation fall sharply. An exception is Brazil, where inflation is still running hot and the central bank’s credibility is low. The U.S. has been an outlier on this dovish shift, with real interest rates remaining high relative to other developed economies, which has kept the dollar strong. CPI and growth data have been softening, with the most recent rise in CPI the lowest on a month-over-month basis since July 2022. This trend may give the Federal Reserve support to begin its easing cycle in September, joining the other central banks.

Goldman Sachs expects rate cuts in developed nations to continue this year, accelerating in 2025. Lower U.S. rates would allow the dollar to weaken, easing pressure on foreign economies in the developed and emerging markets, and allaying fears of foreign sovereign debt crises. Despite the strength of the dollar, global export volumes are already perking up, as are manufacturing PMIs in several countries (manufacturing is twice as significant for the GDP in China, Japan, and Germany relative to its share of the U.S. economy). A weakening dollar would further boost trade and improve growth. If global trade continues to improve, the risks of regional debt crises will abate.

In EM, Activity Remains Solid and Inflation is Back to Pre-Pandemic Levels

Source: Bloomberg

Global Short Rates Have Peaked

Source: Evercore ISI

The Consumer is Fair to Middlin’

Frustrated by stubbornly elevated inflation, consumer sentiment in the University of Michigan survey continues to be weak, resulting in sluggish retail spending in recent months. Spending on non-essentials such as restaurants (where price increases are higher than in grocery stores due to services labor inflation) have been weakening. The health of the consumer is stratified, with the lowest wage demographics struggling, while the median and above are still coping.

After a rapid rise from very low levels, credit card delinquencies have been tapering off, with the rejection rate for auto loans and credit card applications also falling, though there are still noticeable differences among different wealth cohorts. From October 2023 to February 2024, approval rates for credit card limit increases rose for those aged 41-59, but declined for consumers under the age of 40, a less established group with fewer assets. Delinquency rates for American Express’s relatively affluent clients are very low when compared to more mass-market issuers, with interest rates still at a record-high level. According to BCA Research, household credit card balances were up 15% in 2023, as consumers depended on an unsustainable increase in debt to fund spending. Higher rates coupled with elevated debt and lagging consumer confidence may finally be restraining spending growth. Consumer finances are clearly deteriorating among lower-income households, with real deposits (including money market funds) for the bottom income quintile falling by 20% over the past four years, while they are up 10 to 20% on average for the other quintiles, reflecting a preference for higher liquid balances in an environment with more attractive short-term yields.

Savings Rate and Real Deposit and MMF Shares by Household Income Percentile

Source: BCA Research

Credit Card Approval Rates

Source: NY Federal Reserve

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Frost Investment Advisors' (FIA) family of funds provides clients with diversification by offering separate funds for equity and fixed income strategies. Registered with the SEC in January 2008, FIA manages more than $4.1 billion in mutual fund assets and provides investment advisory services to institutional and high-net-worth clients, Frost Bank, and Frost Investment Advisors’ affiliates. As of June 30, 2024, the firm has $4.7 billion in assets under management, including the mutual fund assets referenced above. Mutual fund investing involves risk, including possible loss of principal. Current and future portfolio holdings are subject to risks as well.

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