Global Economics & Market Strategy

Economics Weekly View: Staying Sanguine on Global Growth, But Note Signs of Normalisation

21 June 2024
 

Barnabas Gan Acting Group Chief Economist & Head, Market Research

• Based on recent incoming data from US, China, and ASEAN, our views for a relatively sanguine global economic backdrop in 2024 continue to materialise. We remain above consensus for US and China GDP growth at 2.5% and 5.0%, respectively. We maintain our view for the US Fed Funds Rate (FFR) to see only one 25bps cut in 2H24, specifically in December. Recent weaker-than-expected US-centric data is not expected to persist, owing to (1) improving externally-oriented numbers in selected ASEAN economies and (2) relatively positive rhetoric by policymakers. In our view, the US remains the final destination of ASEAN exports, thus suggesting that the improvement in ASEAN’s trade seen quarter-to-date is a testament to the US’ economic resiliency over the same period. 
   
• Recent Fedspeak suggests US FFR cuts to be slow and gradual. Minneapolis President Neel Kashkari highlighted the need to return inflation to the Fed’s 2.0% target, with Chicago President Austan Goolsbee citing the said target akin to a “sacred vow” and the path of which consumer prices to return will take “a year or two to do so”. Richmond President Thomas Barkin added that more clarity is needed on the path of inflation before lowering interest rates. We view US core PCE inflation to return to its 3.0% target in 2H24, assuming that inflation momentum persists at the current rate till year-end. We think that the Fed’s economic projection for US core PCE to slow to an average of 2.8% in 2024 may be too ambitious as this requires sequential price growth to decelerate to 0.1% MoM % by year-end. 
   
• Our global indicators suggest signs of normalisation amid plateauing (but likely temporal) trade conditions in ASEAN in 1Q24. In contrast, US labour recovery conditions normalise further against the prior pickup since the pandemic. Specifically, long-term (2011 – 2018) averages of US nonfarm payroll gains were around 1.6% annually, against 2023’s average gain of 2.3% and 2024 year-to-date average gain of 1.8%. Significantly, US nonfarm payrolls have added 28.1 million jobs since the COVID-19 trough, against the loss of 21.4 million jobs during the pandemic. Despite our relatively cautious tone, it is by no means that we are pencilling any economic landing for the US and Asia – we remain optimistic on the overall global economic outlook, whereby the normalisation of US labour data is perceived as a natural move towards the long-term trend. 
   
• We continue to stay positive on the DXY, whereby dovish market participants in pencilling two FFR cuts to be disappointed when September comes. We prefer to buy on dips for the dollar index, a strategy that may continue to play out, especially on the back of the surprise cut by the Swiss National Bank to 1.25% (from 1.50%) coupled with JPY’s purported weakness following its acceleration in inflation pressures. We do not subscribe to further ECB cuts or BOJ hikes in 2024 – ECB’s recent rate cut in early June was likely a response to its prior telegraph, and inflation risks into 2H24 will likely keep policy parameters unchanged. Meanwhile, BOJ’s higher inflation was led by cost-push rather than demand-led, as services and non-fresh food prices decelerated in the latest print. 
   
• In the prior week, we recently held discussions with policymakers and several medium-to-large firms in Thailand, and attended BNM’s Sasana Symposium 2024. Elsewhere, Singapore and Malaysia trade momentum has improved in recent prints, suggesting that ASEAN’s externally-facing industries will continue to be beneficiaries of the overall favourable global trade winds. On ASEAN central banks, we continue to see BNM, BOT and BI likely to keep policy parameters unchanged, with BI recently maintaining its rate at 6.25%. 
   

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