Major banks predict world would slow down but avoid recession in 2024

Some of the major banks in the world expect global economic growth to ease further in 2024, squeezed by elevated interest rates, higher energy prices and a slowdown in the world's two largest economies.

An earlier Reuters poll showed next year's global growth slowing to 2.6% with a 2.9% growth forecast for this year.

Most economists expect the global economy to avoid a recession, but have flagged possibilities of "mild recessions" in Europe and the UK.

A soft-landing for the United States is still on the cards, although uncertainty around the Federal Reserve's monetary tightening path clouds the outlook. China's growth is seen weakening, exacerbated by companies seeking alternative cost-efficient production destinations.

China may be done with rate cuts for now as policymakers turn to other means to support the economy and stabilise credit growth headed into the new year.

Infograph: TBS

The nation's commercial lenders maintained their benchmark lending rates — including the five-year loan prime rate used as a reference for mortgages — last Monday. That was broadly in line with expectations after the People's Bank of China kept a key policy rate called the medium-term lending facility rate on hold last week. The loan rates are quoted as a spread over that rate and usually but don't always track its moves.

"There's not much room to lower the LPRs further" due to previous reductions in mortgage and other loan rates, said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc. "Coordinating credit extension pace and stepping up credit support to targeted sectors is a better way to expand domestic demand and lift confidence."

That shift in focus was apparent on 17 November, when the PBOC and other financial regulators told the country's biggest lenders and asset managers to meet all "reasonable" funding needs from property firms. They said banks should coordinate credit growth from now through early next year, adding that a stable expansion of credit can help boost the economy.

This year credit growth was strong in the first three months because of the post-pandemic reopening, but borrowing demand has been weak ever since.

In China's archrival and the world's biggest economy consumers are also becoming weary. Americans are increasingly tapping their retirement savings to cover housing and medical bills amid higher cost-of-living pressures, according to data released last Monday from Fidelity Investments.

Some 2.3% of workers took a hardship withdrawal last quarter, up from 1.8% a year earlier, the data showed. The top two reasons given for the uptick were to avoid foreclosure for homeowners or eviction for renters, and for medical expenses.

Euro zone recession looks more likely

A recession in the euro area is looking increasingly likely as the economic downturn persists in the final quarter of the year, private-sector activity surveys showed.

S&P Global's purchasing managers' index was in contraction again in November, hitting 47.1. While that's a bigger uptick than anticipated by economists, it marks the sixth consecutive month below the 50 level that marks expansion. Readings for both manufacturing and services showed a similar trend.

"The euro-zone economy is stuck in the mud," Hamburg Commercial Bank Chief Economist Cyrus de la Rubia said, adding that the latest figures indicate "the potential for a second consecutive quarter of shrinking GDP."

That suggestion of a contraction — following a 0.1% retreat in gross domestic product in the three months through September — contrasts with the European Commission's forecast for a return to growth and analysts' expectations for stagnation this quarter.

Still, it chimes with European Central Bank Vice President Luis de Guindos's warning that markets may not be fully pricing in the risk of a stronger hit to the euro-zone economy following a year of interest-rate hikes and rising political tensions.

"The outlook that markets are taking with respect to the evolution of the economy, I would say it is a little bit sanguine and optimistic," Guindos told Bloomberg Television on Wednesday. "There is a little bit of wishful thinking."

The region's top two economies find themselves in "the grip of considerable weakness," according to de la Rubia, though German PMI data for November put it slightly ahead of France.

Germany's contraction eased in November in a signal that growth will return to the euro area's biggest economy after a likely recession this year.

Private-sector activity declined at a slower rate than in the previous month and less than economists had expected, according to S&P Global. Both manufacturing and services saw improved conditions, with new orders falling more moderately.

"Despite remaining in recession territory, the rate of slowdown has eased noticeably," de la Rubia said. There's "growing confidence that a return to growth territory is a plausible prospect, potentially materializing by the first half of the upcoming year."

Germany's 10-year yield rose as much as 3 basis points after the data were released to the day's high of 2.59%. French bonds were little changed. The euro was trading 0.3% higher at $1.0921 amid broad dollar weakness, close to its highest levels over the past three months.

"The positive PMI surprise out of Germany could help offset some of the negative surprise from the French PMI," said Valentin Marinov, head of G10 currency strategy at Credit Agricole SA. While the impact on the euro may be muted today, the data "could still pave the way to some consolidation, especially if tomorrow the German Ifo confirms that the worst of the economic downturn is behind us."

PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.