•  AEs economies policy shift still not firmed amid sticky inflation and strong labour market
   
• Downside risk to global economy remains amid elevated inflation and prolonged geopolitical stress

• Unpredictable weather condition and a change in policy could bite global commodity prices

• The case for successive rate cuts in AEs remains a likelihood

The global economy has proven resilient so far this year, resulting in a slight upward revision of real GDP growth projections for 2024. Better-than-expected performance in the US and China are primary drivers of the improved outlook. Easing inflation, improved supply conditions and strong labour markets also continue to fuel overall economic activity.

However, growth estimates remain relatively stagnant and lower than historical levels due to the impact of high interest rates and cost pressures. Businesses and consumers continue to exhibit diligent spending behaviour amid the current financial environment. And numerous headwinds persist - geopolitical tensions threaten the disinflation trend, and a prolonged period of tighter monetary policy could arise.

Major economies are stabilising but face ongoing challenges. The US economy continues to top expectations, leading to a considerable revision in the real GDP growth forecast for 2024. But elevated interest rates, persistent inflation and high consumer debts will weigh on performance through the remainder of the year.

The Eurozone remains stagnant with an acceleration expected in 2025 as inflation moderates and anticipated rate cuts take effect. In China, a lingering real estate crisis and subdued private consumption restrict economic expansion, but the 2024 outlook was revised upward on the back of stronger investments so far this year.

Emerging economies are expected to outpace advanced economies in 2024. ASEAN countries continue to drive global economic prospects. Vietnam and the Philippines are contributing to strong regional performance, growing more than 5.0% each this year. Economic conditions should continue to normalise in the second half of the year as inflation eases and monetary policy loosens.

Inflationary pressures continue to subside compared to the previous two years as improved supply chains and tight monetary policy slow demand. However, several challenges could reverse the disinflation trend, which creates an uncertain outlook. Geopolitical tensions are a major upside risk given trade disruptions and commodity price volatility. Any potential escalation of the Israel-Hamas war to the wider region would result in upward pressures on global oil prices. Shipping disruptions in the Red Sea could hamper certain supply chains. And the war in Ukraine continues to pose a threat to the global supply of energy and food. Inflationary pressures could also increase on the back of ongoing labour shortages, lack of housing supply and geoeconomic fragmentation, among other factors.

Source: BIMB Securities Research - 17 Jul 2024