Global Economy Traversing Uphill On Rutted Road

The GDP growth projections for the US and China have been lifted amid their relative resilience versus forecasts in Jan 24.

CGS International (CGS) said today (June 7) they lifted their US GDP growth projection by more than double to reflect the current economic momentum, while still pricing in a weaker trajectory ahead.

In CGS’s Economics Note today, they said they now expect US Federal Reserve (Fed) rate cuts towards end-2024F, vs. mid2024F previously, in expectation of continued tapering of inflationary pressures.

Meanwhile, they think China’s policy-driven recovery has helped weather the worst outcome and it may register a slightly better-than-expected GDP performance in 2024F.

For the euro area, while CGS’s GDP growth outlook is relatively unchanged, they believe it will start to see policy rate cuts as early as Jun 24F, its first since Mar 16 and ahead of Feds.

Regional upside remains but domestic issues take precedence

On the regional front, CGS believes ASEAN-4’s 2024F GDP growth outlook shares common upside factors which include 1) better-than-expected growth in the US and China sustaining global demand and supporting regional exports, 2) the electrical & electronics upcycle continuing to feed into the regional manufacturing growth, 3) strong investment interest in the region as global supply chain restructuring picks up pace, and 4) for some countries, there is still space for consumption growth following further improvement in tourism on top of fiscal support through cash handouts.

That said, country growth prospects are also driven by respective domestic developments:

Malaysia: CGS lifted Malaysia’s 2024F GDP growth forecast to 5.2% yoy from 4.6% previously, owing to strong domestic consumption and investment activities despite the upcoming subsidy rationalisation.

Increase in disposable income initiatives as well as strong tourism-related activities should continue to drive spending in 2H24F.

However, CGS expects the CPI to trend higher in 2H24.

Indonesia: CGS retains their 4.9% yoy GDP growth forecast for 2024F. Downside risks include softer consumption and fiscal normalisation due to (a) the slow labour market recovery, (b) low minimum wage increase, (c) post-election precedent for softer consumption, and (d) government revenue limitations. However, we expect investments and net exports to cushion growth from further downside.

Thailand: CGS retains the estimates for 2024F GDP at 3.0% yoy with growth likely to pick up strongly in 2H24F, supported by fast-tracking budget disbursement, exports’ high-season, tourism momentum, as well as Digital Wallet implementation. They expect CPI inflation to increase in 2H24F, on rising raw food prices and new minimum wage schemes and the central bank to hold its rate at 2.50% till end-24.

Singapore: CGS 2024F GDP growth is revised slightly lower to 2.6% yoy (previously: 2.8%), dragged down by weaker pharmaceutical sector shipments.

Meanwhile, price pressures are expected to continue to soften, even amid a delayed rate cut; we expect MAS to adjust its policy stance near the year-end as markets push back against the expected Fed rate cut.

Global GDP Growth

CGS projects 2024F global GDP growth to be slightly better than their initial projections in Jan 24 with upward revision in the US and China as they raised the 2024F GDP forecast for the US to 2.6% yoy, bumping it to more than double their initial projection, and surpassing the projected growth of the EU and Japan. The US economy has proved to be far resilient than expected, boosted by robust consumer spending and non-residential investments, notwithstanding the tougher interest rate environment posed by the US Federal Reserve (Fed). Despite the strong momentum, we expect GDP growth to start to taper in 2H24 and into 2025.

In China, CGS thinks the encouraging growth seen in 1Q24 has convinced them to raise slightly its 2024F GDP forecast. However, growth drivers were primarily in a few key sectors such as manufacturing while consumption remains weak as Chinese household wealth is tied to the embattled property sector.

Price inflation, which has been the centre of global attention in 1H24 is expected to subside further. Central banks in the advanced economies have already or are on track to cut interest rates with the European Central Bank planning to do so as early as Jun 24. However, CGS has pushed back the expectation of a cut in the US policy rates towards end-2024F (from mid-2024F previously) amid more pervasive inflation.

On the other end, Japan, having exited its era of negative interest rate in 1H24 may raise rates again by end-2024F.

For ASEAN, CGS think support comes from better growth outlook in the US and China, positive spillover from global supply chain restructuring, and E&E sector recovery.

However, CGS projects its economic performance to be mixed amidst country-specific factors and have raised the GDP outlook for Malaysia following continued robust investment activity and possible fiscal support to consumers offsetting the subsidy rationalisation.

In Thailand, CGS is pricing in a robust 2H24 amid the disbursement of the delayed government spending. Meanwhile, postelection fatigue, fiscal normalisation, and taxpayers’ lower net income could spell weaker consumption ahead for Indonesia.

In Singapore, CGS made a slight adjustment downwards to GDP growth amid the projected weakness in the pharmaceutical sector.

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