Five Important Macro Trends That Will Shape 2023-2026 and Beyond

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For every short-term trend that sways the price charts of trends today, there are several much bigger, far-reaching macro trends that will shape tomorrows for years to come. And we are arguably living in the time of some of the most powerful and unpredictable shifts in history - trends that have given rise to whole new asset classes and have disrupted the very way that financial markets work.

First things first: what is a macro trend?

Financial markets experience constant fluctuations in pricing. The strongest of these are caused by trends - one dominant sentiment shared by traders and investors that shapes that market’s price trajectory. While some are small and short-lived, the largest ‘sea change’ ones are caused by ‘macro trends’: international or national changes in sentiment, economics or circumstances. Macrotrends are long-term shifts lasting months, years or even at times decades and affect economics at the highest level, nationally or internationally.

The importance of following macro trends in the markets

Understanding what macro trends are in play and why is a huge advantage, even though many traders are more concerned with the shorter-term (i.e. price movements occurring today, or in this hour, minute or even few seconds). That’s because macrotrends have a trickle-down effect to the here and now and understanding these big market movers gives you as a trader a vital ‘bird’s eye view’ or big picture perspective.

In fact, many longer-term traders are of the opinion that understanding macro trends well can give insights into what’s going to happen in the markets, further down the line but in the short-term too.

Here are five of the biggest macro trends that we think will shape 2023 to 2025 and beyond…*

Five macro trends shaping 2023-2025

1. Monetary policy and the rates market
2. A tight labour market
3. The ongoing green agenda
4. Technological disruptors
5. Economic effects of ageing populations

Monetary policy and the rates market

If there was one overarching theme that could sum up the macroeconomy in 2022 and the first half of 2023, it would probably be interest rate hikes across the world. It was predicted by many that the rate tightening cycle would come to a close several times… and the hikes just kept coming.

“The year 2023 has been characterised by a series of questions,” says The Trade Off and TraderX markets analyst Michael Brown. “How high will interest rates peak? How rapidly will inflation fade, and to what level will inflation fall? How will economic growth hold up in the face of the cumulative impact of the fastest tightening cycle since the ‘80s?”

Now, as Brown points out, we go into the rest of 2023 and into the years that follow, macroeconomic trends will be affected by the fallout of this very hawkish period. As 2023 began, the spectre of recession loomed over the U.S. and beyond, but predictions in the immediate term have so far been of a pretty mild recession (relatively speaking) towards the later months of 2023. Will this continue to be the case, however?

As of July 2023, the raising of interest rates by the Federal Reserve, Bank of England, Bank of Japan and several other key central banks has still not completely abated. The end of this rates cycle has come to seem like a horizon - illusory and ever out of reach. However, central banks already began softening these hikes in early 2023 and all signs seem to point to an end being somewhere in sight.

What will be more interesting to witness long-term is how monetary policy adapts after ‘the year of the hawk’ 2022 and 2023 and whether central banks will be able to keep their inflation targets what they once were. It will also be interesting to see if GDP growth recovers in 2024 and 2025 in many countries, and by how much.

“The impact of rate hikes on GDP, and the economy more broadly, has, thus far, been relatively limited, though most – including myself – view it as a question of ‘when’ rather than ‘if’ the impact of cumulative tightening delivered thus far is felt,” says Brown. And as to when that ‘when is? We’ll have to wait and see.

A tight labour market

Early 2023 in several countries was characterised by an abundant harvest of jobs, but the workers have been few. This tight labour market was largely driven by the inflation and interest rate hikes of previous months. A high demand for labourers and supply of jobs tends to drive up salaries, which can in turn put extra pressure on businesses still struggling to wade out of the inflation and general uncertainty caused by war in Europe so soon after the Covid-19 pandemic.

“Labour markets across DM do appear very tight, with unemployment at, or close to, record lows in the UK, US and eurozone, Brown confirms. “However, this degree of tightness has not exerted as much upward pressure on earnings as one may have expected. If participation continues to slowly but surely recover, DM labour markets should remain relatively resilient, tempering the risks of a wage-price spiral developing.”

The United States’ Congressional Budget Office seems to think that America’s labour market will soften in 2024¹. However, this remains to be seen - especially since experts disagree as to the exact reasons for this glut of minimum-wage jobs with few to fill them. Some have pointed to the fact that several nations who’ve cracked down on immigrants, like Britain, are the ones with the tightest labour markets as that was who traditionally worked these jobs. Others, like the International Monetary Fund, have pointed to a newly choosy class of workers post-Covid, who want better employment conditions and more flexibility with their new bargaining power.²

The ongoing green agenda

There is a wise old saying from somewhere about the process of revolution, using as an illustration the transition from horse-drawn traps and carriages to motor cars. In the time it took Henry Ford to create his earth-changing Model T, was the world made over with tar roads, fuel stations and parking lots? No. The point of the story is that progress can be messy, for all that it is desirable.

It’s a lesson the world is now learning in our search for a carbon-zero footprint and more sustainable ways of building, mining, manufacturing, driving, heating - and trading and investing too.

On the corporate side, companies are feeling the pressure to ‘go green’, which certainly comes at a cost. Both climate-related lawsuits and regulators cracking down on ‘greenwashing’ are on the rise according to S&P Global.³ This may see new disruptors rise - and may also see established businesses, especially those without blue-chip budgets, become increasingly squeezed.

On the individual traders and investors’ side, the ESG agenda has given rise to whole new markets to invest in - like sustainable commodities like green lithium or sustainably-sourced metals and ESG-themed ETFs - and this is having its own effect. Many are demanding greater exposure to and variety in ESG-friendly assets, afraid to miss out on the rising green tide and the mega trends it may bring. However, these markets are still growing, and their patterns, headwinds and tailwinds are still largely unpredictable - meaning they aren’t without risk to trade on.

But what does this mean for the market’s future? “Renewable energy is going to create a significant supply-demand imbalance in base metals, for example copper, which should put sustained upward pressure on prices over the longer-term,” opines Brown, though he does add that “given the rapid nature of innovation in this space, it’s tough to have a high degree of conviction on future trends.

Still, in the next few years, it’s probable that we’ll only see more fervour for sustainability at every level of macroeconomics. As the saying goes: ‘there is no Planet B’.

Technological disruptors

With ChatGPT’s near-overnight world takeover, the AI debate began again with renewed vigour. Many have pointed out the jobs that, allegedly, ‘only a human could do’ and are uniquely suited to our imperfect, nonlinear processes… But one exception to this is surely finance and economics.

Machine learning and AI replacing some of the more menial number-crunching workforce (for a much lower cost) will almost certainly radically change the financial services industry from the inside out in years’ time. And, with that, comes massive changes to the way that society is sold insurance, loaned money from banks and given guidance on how to invest - or trade with - their money.

For the companies who get the balance right, profits will soar. For countries, things will likely be far more complex. Offsetting regulation and the march of progress, not to mention trying to dodge the potential for rising unemployment with the rise in AI, sounds like quite the balancing act. As with many technological innovations, it wouldn’t be surprising if it widened the gap between developed and developing world further, economically.

And for individuals? It’s likely to be a brave new world - one of increasingly targeted and individualised salesmanship, data harvesting, cybercrime and its prevention and much more… all of which will also affect the man in the street’s wallet, even as it affects his country’s.

Economic effects of ageing populations

This is less of a macroeconomic trend for 2025 and more for the long, long term - but we’ve begun to see it play out already and will likely see only more in the few years. The generalisation is: it’s possible to see a discernible drop in GDP growth in countries that have markedly ageing populations.

It’s understandable. A population of more old people than young people means a greater burden on the state in the form of more pensioners. It also means less workers, plus less money being spent on things like mortgages, schooling and whatever the cool kids are wearing these days.

The poster child here is Japan. In 1990, almost 15% of the country’s population was over the age of 65, with those under the age of 65 making up over 80% of the country. Now, in 2023, those 65 years old and above are expected to be over 40% of the nation.⁴ And while Japan’s GDP grew by 4.84% in 1990, it hasn’t grown above 2% in over ten years.⁵

However, this is also happening in other countries, most notably financial world leaders like the United Kingdom. There almost 19% of the population was over 65 in 2021, compared with 16.4% just 10 years before.⁶

This is sure to have an effect on the macro economy as these countries get older still in years to come.

In conclusion: the TL;DR summary

• Macrotrends are big, long-term (and often slow-moving) changes in sentiment, finances or circumstances at international or national levels.
• Understanding the macro trends shaping economies and their finances at the highest level can help you to better predict what will happen in the markets, as these macrotrends have a trickle-down effect to the man in the street.
• Some of the biggest macrotrends that will shape the next few years, and beyond, are likely to be the consequences of the 2021 and 2022 interest rate hikes and their tight labour market, continued bullishness on the ESG agenda at all levels of society, ageing populations and the march of AI and machine learning technologies.

* Forecasting the macro movements of markets is never an exact science, and it’s important to note that these are simply predictions which may or may not have a bearing on the future of finance in 2023, 2024 and beyond. Past results are no guarantee of future performance and neither are expert opinions. Instead, both of these should be combined with your own analysis and due diligence of your chosen market.

Sources:

1 Congressional Budget Office Economic Outlook, 2023

2 International Monetary Fund blog articles, 2022

3 S&P Global report, 2023

4 ESCAP (Economic and Social Commission for Asia and the Pacific), 2023

5 Macrotrends, 2023

6 Office for National Statistics, 2022