July 1, 2024/Cordros Report
The global economy sustained its resilient growth momentum into 2024 as the robust consumer demand and improved labour markets offset the headwinds arising from the lingering impacts of the elevated interest rates and supply chain bottlenecks. We highlight that consumer demand has been a crucial pillar supporting the global economy. Households, buoyed by increased wages, have continued to spend, driving economic activity. Across Advanced economies, solid consumer spending and improved labour market performance supported business activities across the United States, the Euro area, and the United Kingdom, while the weak local currency weighed on growth in Japan. In emerging markets and developing economies, growth has remained solid on improved consumer spending and high fiscal expenditure. Although the weak property sector continues to impact China’s broad economy negatively, economic activities have expanded due to the various measures implemented by the government to restore balance, including investment in infrastructure and high-technology manufacturing. In Brazil, increased government transfer and higher demand bolstered the growth in real GDP despite the tight financial conditions. At the same time, the Russian economy grew in Q1-24 due to higher government expenditure. Across the heavyweights in Sub-Saharan Africa, Growth was resilient in Nigeria and South Africa due to the rebound in the oil sector and fewer rotational power cuts, respectively.
At the same time, 2024 witnessed global central banks navigating a complex economic landscape with a cautious yet deliberate approach to adjusting interest rates. By carefully balancing the need to control inflation and support economic recovery, the apex banks aimed to achieve a soft landing, avoiding the pitfalls of a potential recession. Specifically, the Federal Open Market Committee (FOMC) of the US Federal Reserve has maintained rates since July 2023 in response to a stickier disinflation trend and elevated inflation risks. However, the committee slowed down the pace at which it reduces bond holdings on the central bank’s substantial balance sheet, indicating a gradual monetary policy easing. Furthermore, whilst the ECB held its policy rates steady in the first five months of the year, it initiated a 25bps cut in its monetary policy rates at its meeting on 6 June, partly to support its crawling economy. Still, given the elevated inflation risks, it signaled a limited scope of monetary policy easing for the rest of the year. Similarly, despite acknowledging that inflationary pressures are returning to target levels and the labour market continues to show signs of easing, the Bank of England (BoE) remained cautious about the timeline for initiating a rate cut. Thus, the apex bank stated that while they stay resolute in taming the unabating inflationary pressures, they will closely monitor indicators of price pressures, resilient labour market conditions, and wage increases to determine the appropriate time for policy easing.
Looking ahead, we expect the global economy to maintain its resilient momentum over the rest of the year. Our expectation is hinged on (1) robust economic activities, (2) anticipated monetary policy easing, and (3) improving supply chain bottlenecks. However, we acknowledge some key downsides and risks to our prognosis that arise from the effects of (1) still tight financial conditions, (2) high government debts, and (3) geopolitical uncertainties leading to weaker trades and geoeconomic fragmentation. While we acknowledge that interest rates will remain tight, above pre-pandemic levels, we expect these issues to gradually ease with improved labour conditions and higher productivity in advanced economies. Accordingly, the International Monetary Fund (IMF) forecasts global growth to steady at 3.2% y/y in 2024FY (2023FY: +3.2% y/y).
Proceedings in the oil market have been as predicted, with apprehension surrounding geopolitical tensions in the Middle East and Russia shaping the narrative. Markedly, the post-COVID-19 rebound in oil consumption has lost steam amid an oversupplied market, even with prolonged cuts from OPEC and its allies (or OPEC+). As witnessed thus far, output from non-OPEC+ producers – particularly the United States – is expected to shore up supply. Meanwhile, oil demand growth would remain slow, following weak consumption from advanced economies. Cascading together, we forecast Brent crude oil price will average USD83.00/bbl in 2024. Risks to our estimate are tilted to the upside, with geopolitical developments remaining the most significant risk to the overall oil market.
