IMF upgrades growth outlook for 2024

The IMF upgraded its outlook for global growth in 2024 to an expansion of 3.1%, steady on the estimate for 2023 and 0.2ppt higher than their previous forecast for 2024. Advanced economies will see less of a slowdown thanks to the US growing by 2.1%, a 0.6ppt upgrade on the fund’s previous estimates, while emerging economies will see growth steady at 4.1%. For the Middle East and Central Asia region the fund expects real GDP growth of 2.9% in 2024, up from 2% in 2023. They have also revised their estimate for GDP growth in Saudi Arabia to a contraction of 1.1% for last year as oil production cuts weighed on the kingdom.

The IMF also lowered its expectations for global inflation in 2024 to 4.9%, down 0.4ppt from its October estimate. The fund still outlines balanced risks to inflation and called for governments to “focus on fiscal consolidation” to avoid reinflating economies and to tackle public debt.

The Eurozone economy just barely managed to avoid recession in the second half of 2024 with Q4 2024 showing no change after a small drop of 0.1% in Q3. Several of the bloc’s mid and large economies reported better GDP prints than expected with Spain showing growth of 0.6% in Q4. France’s economy was flat in Q4 2023, recording no q/q growth in line with market expectations. Household consumption and fixed capital formation were both lower q/q with headline GDP only prevented from declining thanks to a sharp drop (3.1% q/q) in imports. On an annual basis the economy expanded by 0.7% in Q4 and expanded by 0.9% for 2023 as a whole. Germany’s economy shrank by 0.3% q/q in Q4 2023, weakening from no growth in Q3 2023. The data confirms an initial print from the German statistics agency earlier in the month. The stagnating activity in the Eurozone highlights the risks for the ECB to keep rates at an elevated level for a prolonged period even as several ECB officials maintain a hawkish line on policy.

China’s manufacturing PMI improved in January but remains in contraction territory at 49.2, up from 49 a month earlier. In the non-manufacturing sector, which also includes construction, the gauge rose to 50.7 which was an acceleration on the December print and about in line with market expectations.

Job openings in the US rose in December to slightly more than 9m according to the latest estimate from the US Bureau of Labor Statistics. The print came in better than markets had been expecting with increases in labour demand for professional and business services, education, leisure and hospitality and manufacturing. The quits rate was flat at 2.2%. The JOLTS report follows on from the release of the stronger than expected nonfarm payrolls report for December and healthy jobless claims data for January so far.

Consumer confidence in the US improved in January to 114.8, up from 108 for December according to the Conference Board. A measure of current conditions also increased, to 161.3, its strongest level since March 2020 while consumer inflation expectations for the next 12 months dropped to 5.2%, their lowest level since March 2020. The consumer sentiment measure follows data for December which showed consumption activity at a fairly robust rate given the pressures facing consumers from elevated price levels and high interest rates.

Saudi Aramco has reportedly been asked by the government of Saudi Arabia not to increase its production capacity to 13m b/d from its current level of 12m b/d. Aramco had been given a target to increase its output to 13m b/d in 2019 and the reversal could reflect a reassessment of long-term demand expectations or capex control measures. Aramco will announce full year 2023 results in March which may provide more clarity on its capex plans.

Today’s Economic Data and Events

• 11:45 FR CPI y/y Jan: forecast 3.3%
• 17:00 GE CPI y/y Jan: forecast 3%
• 17:15 US ADP employment chg Jan: forecast 150k
• 23:00 US FOMC rate decision upper bound: 5.5%

Fixed Income

• US Treasury yields popped higher in response to the stronger than expected data coming out the US though the moves were faded later in the session. Yields on the 2yr UST rose to as high as 4.3861% before settling at 4.3345%, up about 2bps. On the 10yr UST, yields fell overnight and settled at 4.0319%, down 4bps.
• Markets will be watching the outcome of the FOMC later tonight for the next trajectory on where to take yields.

FX

• It was another mixed day in currency markets overnight with EURUSD rising 0.1% to 1.0845 while GBPUSD held more or less flat at about 1.27. USDJPY closed near unchanged at 147.61. Central bank decisions and commentary from the Fed and Bank of England will set the trajectory for currency markets in the near term.
• Commodity markets had a mixed close with USDCAD down 0.1% at 1.3398 while AUDUSD weakened by about the same amount to 0.6602. NZDUSD closed near unchanged at 0.6136.

Equities

• Equity markets had a strong close overnight with the Dow rising by almost 0.4% while the S&P had a slight downward bias and the NASDAQ dropped 0.8%. European markets were resolutely stronger, however, with the EuroStoxx up 0.5% and the FTSE adding 0.4%.
• Asian markets have opened on a softer footing today with the Nikkei down 0.6% while the Hang Seng has lost about 0.5%.

Commodities

• Oil prices closed with some modest improvement overnight. Brent futures added 0.6% to USD 82.87/b while WTI added 1.4% to USD 77.82/b. Markets are still digesting the impact of the decision from Saudi Arabia to keep its production capacity limited to 12m b/d rather than the 13m b/d initially planned.
• The API estimated a stock draw of 2.5m bbl last week, according to press reports. Gasoline stockpiles increased while distillates inventories declined.