Asset Management: Monthly Macro Insights - March 2024

Global growth resilience expected in 2024 masks the continuation of sharp regional divergences. Although headline inflation in most G20 countries is projected to continue its normalisation, it is unlikely to be back to target before the end of 2025, and upside risks remain elevated. In fact, central banks may be forced to remain prudent to ensure that underlying inflationary pressures are durably contained.

Challenges for the US…

Last year, growth was particularly buoyant in the US amid high government spending and strong household consumption. However, after two years of pent-up demand, fuelled in part by surging credit card debt, massive government stimulus and the run-down of the excess savings accumulated since the beginning of the pandemic, the consumption engine may lose steam this year despite lower inflation strengthening real wage growth. Meanwhile, even though investors seem to underplay the downside risks for the US economy, inflation has generally surprised to the upside.

…and for the Eurozone

At the end of 2023, Eurozone GDP was broadly at the same level as in the third quarter of 2022. Contrary to the US, consumption and investment barely moved last year, while the weak positive contribution to growth of external demand was driven by imports falling more than exports.

Looking ahead, the European Commission economic sentiment index unexpectedly fell in February, suggesting no imminent rebound in GDP amid the fastest tightening cycle in the history of the Eurozone. In addition, the ECB could upset investors’ hopes of significant rate cuts in 2024. The inflation surprised to the upside in February and, more fundamentally, the combination of mediocre productivity and elevated wage growth implies the unit labour cost growth remains above rates compatible with medium-term inflation objectives.

Murky outlook in China

The growth target and macroeconomic policy stance have been revealed at the National People’s Congress. The 2024 growth target was set at 5 per cent, the same as in 2023, though this will be much harder to achieve given the more challenging base effect. By setting the bar high for this year, the authorities might have signalled their plans to provide stronger support for the economy, or instead tried to boost consumer and business confidence.