In anticipation of the Year of the Dragon, all segments are looking forward to a year characterized by the dragon's charisma, intelligence, confidence, power, luck, and gifted nature.
Last week, the IMF raised its global growth forecast for the current year, citing the stronger-than-anticipated economic performance of both the US and Chinese economies during 2023, with Asian emerging and developing markets continuing to act as significant drivers. Similarly, the OECD emphasized this week that global growth demonstrated resilience throughout 2023, with inflation declining at a faster rate than initially projected. However, outcomes varied across nations, with robust growth observed in the US and numerous emerging-market economies, contrasted by a deceleration in economic activity in many European countries.
Global output growth demonstrated unexpected resilience last year, defying initial concerns of a sharper slowdown amidst declining real incomes and rapid monetary policy tightening at the onset of 2023, according to the OECD. The United States experienced particularly robust growth, driven by strong consumer spending. Households continued to draw down excess savings accumulated since the pandemic's onset, coupled with increased government spending. Conversely, many other advanced economies, notably in Europe, faced weaker outcomes, attributed to the relative reliance on bank-based finance and persistent adverse impacts of energy price shocks. Despite tighter financial conditions, emerging-market economies generally maintained solid growth rates, supported by substantial infrastructure investments, notably in India. Although China witnessed a rebound in activity following the economy's reopening, soft consumer spending and ongoing contractions in the property sector restrained domestic demand.
Looking ahead, OECD’s high-frequency activity indicators indicate a continuation of recent moderate growth trends. Business surveys suggest stronger activity in services compared to manufacturing, with industrial production stagnating outside of China in recent months. Notably, there are clear indications of robust near-term momentum in India, relative weakness in Europe, and mild growth in most other major economies. Consumer confidence remains subdued compared to longer-term norms in many advanced economies and China. Regarding international trade, while it remains subdued, there are emerging signs of improvement. A gradual increase in semiconductor and electronics production in Asia, coupled with stronger car sales, is bolstering merchandise trade. Additionally, services trade is benefiting from the return of international air passenger traffic to pre-pandemic levels. However, survey measures of export orders, particularly in manufacturing, generally remain modest, and new supply disruptions are beginning to emerge.
Against this backdrop, global GDP growth is projected to ease to 2.9 percent in 2024, from 3.1 percent in 2023, before recovering to 3.0 percent in 2025 as financial conditions ease. In the prominent subject of the preceding year, with energy and food price inflation ebbing and monetary policy turning restrictive, both headline and core inflation witnessed a decline throughout 2023. Goods price inflation receded to minimal levels across most countries, aided by the decrease in energy commodity prices and the gradual alleviation of supply chain bottlenecks from their previous peak in 2021-22. Conversely, services price inflation has exhibited resilience, exhibiting a sluggish downward trend.
Specifically for China, consumer prices experienced their most rapid annual decline in 15 years in January, dropping by 0.8 percent, while the country's producer price index decreased by 2.5 percent year-on-year. Food prices, in particular, were a major drag on the index. The price of pork, a staple in the Chinese diet, plunged by 17.3 percent from a year ago, marking the biggest drop among all consumption items. The recent downturn in consumer demand has exerted pressure on prices. Beijing is currently striving to restore confidence among consumers and investors while tackling challenges on multiple fronts, including a downturn in the real estate market, a stock market decline, and diminished export performance.
HSBC economists underscored another element contributing to the deflationary landscape in the Chinese economy, noting, "The Lunar New Year falls in February this year compared to the end of January last year, causing distortions to the base." In a more favourable macroeconomic backdrop, Baltic indices garnered further reinforcement from this distortion, reporting notably higher values year-on-year thus far. In anticipation of the Year of the Dragon, all segments are looking forward to a year characterized by the dragon's charisma, intelligence, confidence, power, luck, and gifted nature.
Data source: Doric