Our economic baseline scenarios
Global backdrop
Global growth is cooling, as the rapid monetary policy tightening is weighing on economic activity, particularly in the advanced economies. The impact will be mostly felt in the first half of 2024, before growth can pick up moderately in the second half of the year.
Monetary policy
Central banks have raised policy rates to restrictive levels. With inflation receding and economic activity slowing, policy rates have peaked in most economies, and the focus of major central banks is turning towards easing.
US
The economy has shown remarkable resilience to high interest rates but is likely to stagnate in the first two quarters of 2024. We expect the Fed to start cutting interest rates in May, with a total of 75bps in cuts in 2024.
Eurozone
Tight monetary policy burdens economic activity. The growth stagnation is likely to continue in H1 2024 while inflation recedes further. The ECB is thus likely to start cutting in-terest rates already in April of this year.
UK
Economic growth is stalling, burdened by still elevated inflation and tighter monetary policy. Given the weak economic backdrop but sticky inflation, we expect the BoE to wait with rate cuts until June 2024.
Japan
The economy is set to remain relatively robust thanks to the ongoing services recovery. The Bank of Japan is shifting away from its ultra expansive stance only very gradually.
China
The ongoing weakness in the housing market remains a major drag on the economy. We expect growth dynamics to remain weak in the early part of the year before stabilising.
Switzerland
The economy is stagnating as the global economic slowdown is weighing on growth. Delayed inflation pressure in Switzerland warrants a Swiss National Bank hold throughout 2024.
Big Picture: Monthly Outlook
The Economy
Growth rebalancing
Economies are digesting tight monetary policies well, but growth is cooling and must overcome the averse mix of restrictive monetary and fiscal policy headwinds in its transition to a new normal.
Easing inflation
Inflation continues to recede towards target due to vanishing supply constraints.
Monetary policy easing
Policy rates have peaked, as major cen-tral banks have shifted their focus towards easing. However, barring growth slumps or financial accidents, central banks will be reluctant to cut rates swiftly.
China policies
Property-crisis-related deleveraging weighs on domestic demand and increases deflationary risks. ‘Common prosperity’ will remain in focus in the midterm, limiting China’s global economic impact.
Key Dates
7 May Australia: Rate decision
The Reserve Bank of Australia (RBA) kept rates at a 12-year high of 4.35%.
8 May Brazil: Rate decision
It was unanimously concluded that a more contractionary and more cautious monetary policy was needed with the central bank cutting the benchmark Selic rate by a quarter-point to 10.5%.
8 May Sweden: Rate decision
Sweden’s central bank cut its key interest rate to 3.75% from 4.00%, as expected, and said it was likely to cut the rate two more times in the second half of the year if inflationary pressures remain mild.
9 May UK: Rate decision
The Bank of England meeting resulted in “no change”, with interest rates held at 5.25%.
17 May China: Activity data
China to release it’s activity data for April. The focus will be on China’s trade data and PMI’s improving. Some improvement is expected.
22 May US: Federal Reserve meeting
The Federal Reserve will release the minutes from their spring meeting. This will provide insight on their thoughts about future policy steps.
23 May: Flash purchasing managers PMI
The Manufacturing Purchasing Managers’ Index (PMI) measures the activity level of purchasing managers in the manufacturing sector.
24 May Japan: Japanese Inflation
The core consumer prices index (CPI) is expected to decelerate to 2.2% from 2.6% in March, the lowest level in three months, but still at or above the central bank’s 2% target for more than two years.