Despite potential challenges in the immediate future, there is an anticipation that conditions will likely return to a more positive state in the aftermath of the Chinese New Year celebrations.
Amidst disinflation and a stable growth trajectory, the prospect of a hard landing has diminished, and the risks to global growth are generally balanced, according to the International Monetary Fund (IMF). On the positive side, a more rapid decline in inflation could lead to further relaxation of financial conditions. However, looser fiscal policy than necessary could imply temporarily higher growth, but at the risk of a more costly adjustment later on. Conversely, on the downside, unforeseen spikes in commodity prices due to geopolitical shocks, including ongoing attacks in the Red Sea, coupled with supply disruptions or persistent underlying inflation, could extend the period of tight monetary conditions. Complications in China's property sector, an abrupt shift towards tax hikes and spending cuts may also lead to growth setbacks.
Considering the aforementioned dynamics, the IMF raised its global growth forecast for the current year, pointing to the better-than-expected economic performance of the US and Chinese economies last year, as Asian emerging and developing markets remain the driving force. In particular, global growth is anticipated to reach 3.1 percent in 2024 and 3.2 percent in 2025. This represents an increase of 0.2 percentage points from the October 2023 World Economic Outlook (WEO) projection. Despite this upward revision, it's noteworthy that the forecast for 2024–25 remains below the historical average of 3.8 percent recorded between 2000 and 2019. The IMF's chief economist, Pierre-Olivier Gourinchas, stressed that a "soft landing" was in sight, but overall growth and global trade still remained lower than the historical average. Several factors contribute to this divergence, including heightened central bank policy rates aimed at combatting inflation, a reduction in fiscal support amid escalating debt levels, and low underlying productivity growth.
In the January update of the IMF outlook, the United States experienced a substantial upgrade, with its GDP forecast now indicating a 2.1 percent expansion in 2024, a notable increase from the 1.5 percent projection in October. However, a moderated growth of 1.7 percent is anticipated for 2025. In contrast, the outlook for Europe has seen a slight downgrade for the current year, primarily attributed to weaker-than-expected growth in 2023. The region faced challenges such as tight monetary conditions, withdrawal of fiscal support post-pandemic, and low productivity, hindering overall performance. Additionally, European economies still bore the impact of relatively high exposure to the conflict in Ukraine. The IMF's estimate suggests that the Eurozone economy grew by 0.5 percent in 2023. Looking ahead to 2024, there is a 0.3 percent reduction in the growth forecast compared to the October report. Nevertheless, a recovery is anticipated, with GDP growth projected to reach 0.9 percent in the Eurozone. This revival is expected to be fueled by stronger household consumption, driven by slower inflation and real income growth.
Regarding emerging and developing Asia, India is anticipated to sustain robust growth, projected at 6.5 percent for both 2024 and 2025. This represents a positive revision of 0.2 percentage points for both years compared to the October forecast, highlighting the country's resilience in domestic demand. In the case of China, growth is projected at 4.6 percent in 2024 and 4.1 percent in 2025, reflecting an upward revision of 0.4 percentage points for 2024 compared to the October 2023 World Economic Outlook (WEO). This adjustment is attributed to the carryover effect from stronger-than-expected growth in 2023 and an increase in government spending focused on capacity building to address natural disasters.
The outlook for global trade growth indicates a projection of 3.3 percent in 2024 and a slightly higher 3.6 percent in 2025. However, this falls below the historical average growth rate of 4.9 percent. Persistent challenges, such as rising trade distortions and geoeconomic fragmentation, are anticipated to exert continued pressure on the overall level of global trade. A concerning trend is noted in the increasing imposition of trade restrictions by countries. In 2022, approximately 3,200 new restrictions on trade were introduced, followed by around 3,000 in 2023. This marks a significant rise from the 1,100 restrictions recorded in 2019, as indicated by data from Global Trade Alert.
Aligned with the IMF's upward revision of global growth, Baltic indices stepped into February considerably higher year-on-year. Despite recent downward pressure, the prominent Capesize index concluded today at $16,837 daily, marking a remarkable surge of 307 percent compared to the same period last year. Although experiencing a decrease of more than $2000 since the beginning of the week, the Baltic Panamax Index stabilized today at $12,996 daily, or 40 percent higher year-on-year. Despite experiencing a 20 percent decline in value over the past month, the Supramax segment has managed to sustain a position that is still 53 percent above the levels observed in early February 2023, currently standing at $11,446 daily. In parallel, the Handysize segment started February at a level $4000 lower than its January starting point. However, it remains 34 percent above the levels recorded during the same period last year. With the Chinese New Year holidays approaching, the short-term outlook may not appear very optimistic. Despite potential challenges in the immediate future, there is an anticipation that conditions will likely improve and return to a more positive state in the aftermath of the celebrations.
Data source: Doric