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Macro Monthly: Rate cuts and elections in focus

18 January 2024

Key takeaways

  • As we start a new year, it looks set to be characterised by

    rate cuts and elections…

  • …with the timing and magnitude of policy easing set to be

    the focus of markets alongside political events…

  • …and so tracking the macro data will be key in the

    months ahead

The global economy enjoyed a better-than-expected 2023, despite the huge shocks that continued to come – war in the Middle East, turmoil in the banking sector, and further geopolitical uncertainty, amongst many other things.

Solid consumer spending, global trade, and PMI data

While growth held up better than expected, the pace wasn’t exactly stellar outside of the US and a handful of emerging market economies such as India, Saudi Arabia, Brazil, and Mexico. But, the last few sets of data for 2023 give some reason for hope, with solid consumer spending, some green shoots in global trade, and an upturn in some PMI data. 

The drop in inflation was the big macro story of 2023
Inflation relief

The big macro story was the sharp fall in inflation across the world, particularly in the second half of the year (Charts 1 and 2). In the US, core personal consumption expenditures (PCE) inflation annualised over the past six months is now below the Federal Reserves’s 2% target, and we’ve seen sharp drops in inflation in Latin America be replicated in most of the world in recent months. Some of this is base effects in food and energy washing out of the data, but underlying inflationary pressures are abating as the unwinding of supply shocks from the pandemic continue to ripple through to pricing plans from firms. 

Source: Refinitiv Datastream, HSBC
Note: DM = Developed Markets, Latam = Latin America, CEEMEA = Central and Eastern Europe, Middle East and Africa, EM Asia = Emerging Markets Asia. Source: Refinitiv Datastream, HSBC
Two key themes for 2024 are rate cuts and elections
Rate cuts and elections

As a result, 2024 looks set to be a year of two themes: rate cuts and elections. Central banks in most of the world are now expected to start easing in the coming months – with markets looking for developed market policymakers to shift to cuts slightly sooner than our own expectations. The developments in terms of labour markets, growth and inflation will be key in the coming releases to gauge when this may occur (Charts 3 and 4).

It’s also the biggest year for elections in history. More than half of the world’s population will see a major election this year, with the US election in November the one of most focus. But elections in the likes of India, South Africa, and (likely) the UK will grab attention at various points. 

Note: BoJ = Bank of Japan, BoE = Bank of England, ECB = European Central Bank, Fed = Federal Reserve. Source: Macrobond
Source: Macrobond
Higher rates biting or disinflation reversing are the main risks

Against this backdrop, it’s important to think about the risks. The main downside risk is the squeeze of higher rates hitting more corners of the global economy, or a reversal in the disinflationary process. But, to the upside, we now have positive real wage growth in most economies and employment is still growing, so we could see stronger consumer demand. Equally, housing markets and global trade look to be bottoming out, and if progress continues, growth could be lifted. 2024 looks set to be another year of uncertainty.

We tweaked up our 2024 global GDP forecast to 2.4%
Our GDP growth forecasts

We recently edged up our global growth forecast to 2.4% (from 2.3%) in 2024, thanks to small upgrades to the US, China, and India while still seeing a subdued 0.6% pace across Western Europe and some strengthening in ASEAN. Among the other emerging economies we still think that, despite the growth upgrades we have made for 2023, the fastest pace of rate cuts will still be in Latin America given the still high level of real rates and declining inflation trend.

Our 2025 GDP forecast is virtually unchanged. We see global growth reviving a little – to 2.6% (from 2.4%) in 2024 – but only to a rate that is still below the pre-pandemic trend. Our central assumption is that the need for an ongoing disinflationary adjustment means only a gradual easing cycle in 2024-25 with only 150bp of rate cuts anticipated by the Federal Reserve and European Central Bank.

Note: *India data is calendar year forecast here for comparability. Previous forecasts are shown in parenthesis, and are from the Macro Monthly dated 11 October 2023. Green indicates an upward revision, red indicates a downward revision. Source: Bloomberg, HSBC Economics
↑Positive surprise – actual is higher than consensus, ↓ Negative surprise – actual is lower than consensus, →Actual is in line with consensus. Source: Bloomberg, HSBC
Source: Refinitiv Eikon, HSBC

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Disclosure appendix

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1. This report is dated as at 11 January 2024.

2. All market data included in this report are dated as at close 10 January 2024, unless a different date and/or a specific time of day is indicated in the report.

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