Economics
Global
Q1 2024
By: Janet Henry and James Pomeroy
www.research.hsbc.com
Global Economics
Navigating the global disorder (updated)
Ongoing geopolitical shifts and
countless looming elections…
…amid an already very complicated
global economic picture…
…mean more policy quandaries, even
as inflation slows
Play video with
Janet Henry
Disclosures & Disclaimer: This report must be read with the disclosures and the analyst certifications in
the Disclosure appendix, and with the Disclaimer, which forms part of it.
Economics ● Global
Q1 2024
Executive Summary
This report is an updated version of our Global Economics Quarterly, originally published on 14
December 2023. This follows the latest national accounts data for the UK, the US, Argentina
and Russia, inflation data in the UK and eurozone, a central bank announcement in Russia and
adding in our forecasts for Chile.
It’s complicated
2024 looks set to be another
eventful year
One forecast for 2024 that can be made with confidence is that it will be an eventful year. The
unequivocally good news over the past few months is that inflation has slowed by more than
expected globally. There are also signs of labour markets cooling. Major central banks are relieved
their most aggressive tightening in four decades now appears to be over. But their task of ensuring
that inflation remains on a steady trajectory back towards their targets is not set to get any easier. An
overlay of geopolitical conflicts and tensions poses further risks to what is already a complicated
global economic picture and in a year which will be a record one for the sheer numbers of voters
heading to the polls in more than 70 countries.
Policy quandaries
Big policy decisions for
governments and central
banks
Difficult policy choices lie ahead for governments facing an array of new spending needs but, in the
absence of market pressure, they will likely wait until after elections before taking firmer tax and
spending decisions to make the public finances more sustainable. As we explain in our separate
political/geopolitical section on page 29, the outcomes of the elections will inevitably impact on
the fiscal outlook, but could also have implications for trade protectionism, green policy, and
potentially immigration policy, as well as geopolitics. The latter has become even more complex in
the last three months, whether on US-China relations, the conflict in the Middle East or uncertainty
regarding future US and EU funding for Ukraine. We are in an era of global disorder.
The policy quandaries for central banks are more immediate. They will need to decide both when to
cut interest rates, and by how much. Cutting too soon would mean they find themselves having to
quickly reverse course if the downward trend in inflation does not persist, as allowing inflation to
settle too high would mean politicians and populations blame them for it. But for central banks it
would also be a big policy error to leave it too late, not because it might cause a very hard landing –
even if that is what is required to return inflation to target – but if it resulted in a significant undershoot
of their inflation mandates over the medium term.
Slowing but how much?
Growth slowing as higher
rates bite
We are not yet overly concerned about the latter. We have never described our global economic
outlook as either a hard or a soft landing. We continue to look for a marked slowdown in the coming
months but we do not envisage a global or US recession, which is traditionally one involving a big
rise in unemployment and a fall in consumer spending and typically followed by a V-shaped
recovery. We expect activity across most of the world to remain weak and/or to slow further in the
first half of 2024 and a gradual recovery thereafter.
1
Economics ● Global
Q1 2024
Tighter monetary policy is clearly taking its toll with bank lending slowing and corporate bankruptcies
on the rise, even if not yet at worrying levels. Debt servicing costs are generally still rising around the
world though the speed of pass-through and the magnitude of the impact on activity is not clear cut
as it varies between countries and sectors and the duration of the debt maturity: housing markets are
feeling it more in some economies tied to variable rates but in the US it is auto loan and credit card
holders that are seeing some of the biggest rise in delinquencies.
Real wage growth could
support the global consumer
But the consumer story looks set to slow rather than stall as this is an unusual cycle whereby inflation
has already slowed much more than wage growth, so the real wage picture is improving, which
should offset some of the slowdown in employment. There are even signs that eurozone households
are saving a bit less which bodes well for future consumption. Changes in both the stock and flow of
savings could bring surprises in the coming year given the enormous distributional differences across
households and companies but the aggregate picture still looks quite robust: OECD data suggest
that the stock of excess household savings still exceeds 10% of disposable incomes in most
advanced economies and US national accounts data show that corporate cash holdings and profits
were still rising in Q3.
There are also tentative signs that the worst may be over for the world trade cycle even it proves to
be more of an inventory adjustment rather than a sustained recovery. The China story will be a key
determinant of the latter but we also ask whether some other large emerging economies, notably
India, could take up the baton from here.
The balance of risks has shifted
Inflation is still too high
Our forecasts are for growth to weaken to varying degrees across countries in 2024. Given that the
recent dovish turn in G10 has been driven more by lower inflation than weak activity, those expecting
very quick rate cuts may be increasingly reassured by further signs of labour markets cooling and
growth weakening. As with the major central banks, we agree that the balance of growth and inflation
risks has shifted, but inflation is still too high and we fear it could be a little stickier in the coming
months in G10 than currently seems to be expected by markets.
Our global inflation forecasts are little changed: we have lowered our forecasts a touch for the US
and the eurozone, and more significantly for Türkiye, but raised our CPI forecast for Japan and parts
of Latin America but not Mexico or Brazil.
Energy will no longer be the disinflationary force it was in 2023, food is adding to inflation in places
and core inflation has been easing around the world, particularly in the US and Latin America while
still remaining muted in Asia. Wage growth still poses a risk of inflation persistence or at least a
slower pace of disinflation, particularly in Europe where two thirds of workers are covered by
collectivised pay deals which lock in above-inflation target gains for multiple years.
Rate cuts to start in June
from major central banks
We set out the range of criteria the major central banks will need to see before starting to cut rates
which, based on our forecasts, leaves us expecting the Fed and ECB to start easing in June 2024.
Central banks will also need to communicate their plans for their balance sheets and the
consequences of their framework reviews in 2024 (ECB) and 2025 (Fed).
Some emerging market central banks are well advanced in their rate-cutting cycles and we expect
Latin America to continue to lead the way while in mainland China, further liquidity injections, such
as via RRR cuts, appear likely, and the PBoC may deliver outright policy rate cuts again in the
second half of the year. Elsewhere in Asia our forecast changes have generally been to move the
start of the easing cycle later and lessen the magnitude of easing. Our forecasts show Japan and
Türkiye are among the very few countries where we are looking for tightening. In Japan robust wage
growth and slowly climbing inflation expectations, may offer the best chance in years for the
central bank to embark on a gradual normalisation of monetary policy.
2
Economics ● Global
Q1 2024
Growth upgrades; inflation downgrades
Despite the many unpredictable events that lie ahead, our global forecasts are broadly unchanged
from three months ago. We have edged up our global growth forecasts from 2.3% to 2.4% in 2024,
largely driven by small upgrades to the US, China and India while still seeing a subdued 0.6% pace
across Western Europe and still looking for some strengthening in ASEAN.
Growth set to be below trend
in 2025
In 2025 we see global growth reviving a little – to 2.6% up 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 and our forecast of only a modest rise
in unemployment over the next year implies that there will be neither much stimulus nor much slack
to provide scope for an above-trend rate of growth rebound in 2025.
Key forecasts
% Year
World
Developed
Emerging
US
US (Q4/Q4)
Mainland China
Japan
India*
Eurozone
UK
Brazil
Mexico
_________________ GDP ________________
___ 2023f ___ ___ 2024f ___ ___ 2025f ___
2.7
(2.5)
2.4
(2.3)
2.6
(2.5)
1.6
(1.5)
1.1
(1.0)
1.4
(1.4)
4.1
(3.8)
4.0
(3.9)
4.1
(3.9)
2.4
(2.3)
1.7
(1.4)
1.5
(1.6)
2.6
(2.2)
1.2
(1.2)
1.7
(1.7)
5.2
(4.9)
4.9
(4.6)
4.5
(4.4)
1.9
(1.8)
0.8
(0.8)
1.1
(1.1)
7.0
(6.2)
6.0
(5.8)
6.3
(6.5)
0.5
(0.5)
0.5
(0.5)
1.3
(1.0)
0.3
(0.4)
0.6
(0.5)
0.9
(0.9)
2.9
(2.9)
2.0
(2.0)
2.3
(2.3)
3.4
(3.3)
2.7
(2.1)
2.5
(2.5)
_________________ Inflation _________________
___ 2023f ___
___ 2024f ___
___ 2025f___
6.3
(6.5)
5.8
(5.9)
3.8
(4.0)
4.7
(4.8)
2.8
(3.0)
2.5
(2.5)
7.5
(7.7)
7.8
(7.9)
4.6
(4.9)
4.1
(4.2)
3.1
(3.3)
2.9
(2.9)
3.2
(3.6)
3.3
(3.1)
2.9
(2.8)
0.2
(0.5)
0.5
(1.8)
1.3
(1.7)
3.3
(3.2)
2.6
(2.2)
2.0
(1.9)
5.4
(5.4)
5.0
(5.0)
5.0
(5.0)
5.4
(5.6)
2.5
(3.1)
2.2
(2.2)
7.3
(7.3)
2.4
(3.1)
2.3
(2.6)
4.6
(4.7)
3.8
(4.2)
4.2
(4.2)
5.5
(5.6)
4.0
(4.1)
3.6
(3.6)
Source: HSBC Economics, Bloomberg. Note: *India data is calendar year forecast here for comparability. GDP aggregates use chain nominal GDP (USD) weights and inflation
aggregates calculated using GDP PPP (USD) weights. Parenthesis show forecasts from the Global Economics Quarterly Q3 2023.
3
Economics ● Global
Q1 2024
Contents
4
Executive Summary
1
Key forecasts
5
Navigating the global disorder
6
Eurozone
81
Eurozone
81
Germany
83
France
85
Italy
87
Spain
89
Other Western Europe
91
Politics/geopolitics in 2024
28
Global economic forecasts
35
UK
91
GDP
36
Switzerland
93
Consumer prices
38
Sweden
95
Policy Rates
40
Norway
97
Exchange rates vs USD
41
Exchange rate vs EUR & GBP
42
CEEMEA
99
Consumer spending
43
Investment spending
44
Poland
99
Exports
45
Russia
101
Industrial production
46
Türkiye
103
Wage growth
47
Saudi Arabia
105
Budget balance
48
South Africa
107
Current account
49
Latin America
109
North America
51
Brazil
109
Mexico
111
Argentina
113
Colombia
115
Disclosure appendix
118
Disclaimer
120
US
51
Canada
53
Asia Pacific
55
Mainland China
55
Japan
57
India
59
Australia
61
South Korea
63
Indonesia
65
Taiwan
67
Thailand
69
Malaysia
71
Singapore
73
Hong Kong
75
Philippines
77
New Zealand
79
Economics ● Global
Q1 2024
Key forecasts
% Year
World (nominal GDP weights)
Developed
Emerging
North America
US
Canada
Asia-Pacific
Asia Big Three
Asia ex-Japan
Mainland China
Japan
India*
Asia ex Big Three
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Hong Kong
Philippines
New Zealand
Western Europe
Eurozone
Germany
France
Italy
Spain
Other Western Europe
UK
Norway**
Sweden
Switzerland
CEEMEA
Poland
Russia
Türkiye
Saudi Arabia
South Africa
Latin America
Brazil
Mexico
Argentina
Colombia
Chile
________ GDP ________
2023f
2024f
2025f
2.7
2.4
2.6
1.6
1.1
1.4
4.1
4.0
4.1
2.3
1.6
1.6
2.4
1.7
1.5
1.1
0.5
1.8
4.4
4.1
4.0
4.9
4.3
4.1
4.7
4.5
4.3
5.2
4.9
4.5
1.9
0.8
1.1
7.0
6.0
6.3
2.6
3.0
3.2
2.0
1.5
1.9
1.4
1.9
2.2
5.0
5.2
5.3
1.0
3.2
2.7
2.5
3.8
3.2
4.1
4.5
4.6
1.2
2.4
2.6
3.3
2.8
2.8
5.3
5.3
5.8
0.8
1.9
1.9
0.5
0.6
1.2
0.5
0.5
1.3
-0.2
-0.1
0.9
0.8
0.9
1.2
0.7
0.5
0.8
2.3
1.2
1.5
0.4
0.7
1.1
0.3
0.6
0.9
1.1
1.2
1.1
-0.4
0.5
2.1
0.8
1.1
1.5
1.8
2.3
2.8
0.3
3.0
3.4
2.6
1.5
1.7
4.0
2.5
3.5
0.2
3.7
4.5
0.5
1.1
1.5
2.2
1.6
2.4
2.9
2.0
2.3
3.4
2.7
2.5
-1.0
-2.0
3.0
1.0
1.0
2.0
0.0
1.5
2.4
________ Inflation ________
2023f
2024f
2025f
6.3
5.8
3.8
4.7
2.8
2.5
7.5
7.8
4.6
4.1
3.0
2.8
4.1
3.1
2.9
3.8
2.5
2.0
2.3
2.1
2.4
1.9
1.9
2.3
2.2
2.1
2.4
0.2
0.5
1.3
3.3
2.6
2.0
5.4
5.0
5.0
3.7
2.9
2.5
5.7
3.5
2.8
3.6
2.6
1.9
3.7
3.2
3.0
2.5
2.1
1.8
1.3
1.6
2.1
2.5
2.4
2.3
5.0
3.5
2.4
2.1
2.6
2.0
6.0
4.1
3.6
5.8
3.6
2.8
5.7
2.4
2.2
5.4
2.5
2.2
6.1
2.4
2.4
5.7
2.3
2.0
5.9
1.7
2.0
3.4
2.7
2.5
6.6
2.4
2.1
7.3
2.4
2.3
5.5
3.7
2.5
8.0
2.7
1.8
2.1
1.7
1.4
18.8
18.1
12.4
11.6
4.8
4.3
5.1
7.3
5.0
53.7
52.5
34.3
2.3
1.9
2.2
5.9
5.4
5.1
22.0
36.9
12.7
4.6
3.8
4.2
5.5
4.0
3.6
130.7
265.4
76.9
11.5
6.2
4.5
7.6
4.0
2.9
Source: HSBC estimates. Note: *India’s GDP forecast is per calendar year and CPI forecast is per fiscal year. **Mainland. Aggregates are based on nominal GDP weights
(GDP) and PPP-weights (inflation)
5
Economics ● Global
Q1 2024
Navigating the global
disorder
◆
Ongoing geopolitical shifts and numerous looming elections…
◆
…amid an already very complicated global economic picture…
◆
…mean more policy quandaries for central banks, even as inflation
slows
It’s complicated
A lot of similarities with a
year ago
Déjà vu?
When writing a report on the outlook for the year ahead, it can be a humbling experience to look
back at how the global economic picture was perceived just a year ago. We have done that by
reading our global economics quarterly published in December 2022. The opening paragraph
summarises the markets’ perception at the time:

Goldilocks or La-la land?
Inflation may have peaked, the pace of central bank rate
rises is finally slowing, growth in many places has so far
stayed pretty resilient, China is re-opening and markets are
mainly rallying; eyeing what they see as not just a nearterm pause in rate rises but also a policy U-turn with
significant rate cuts priced in for the Fed and others by
end-2023.
Global economics quarterly Q1 2023, published December 2022
Much of that could be written today. Egged on in particular by a big downside surprise to
eurozone inflation for November and subsequently a remarkably dovish turn by Fed Chair
Jerome Powell, financial markets certainly drew 2023 to a close on an optimistic note with bond
and equity markets rallying strongly as they became increasing confident that major central
banks have not only come to the end of their aggressive tightening cycles but are preparing to
cut and to cut quite a lot. As of 14 December, markets were pricing in a strong likelihood of a
rate cut by the Fed and ECB as soon as the spring and at least 125bps of rate cuts from each in
the course of 2024.
6
Economics ● Global
Q1 2024
Inflation has dropped in
much of the world…
1. Financial markets’ pricing of policy rate
changes…
2. …have been wrong before
%
6.0
%
4.5
Fed funds futures
%
6.0
5.5
5.5
5.0
5.0
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
%
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
2.0
2.0
Jan-23 Jul-23 Jan-24 Jul-24 Jan-25 Jul-25
14 Mar 23
18 Oct 23
2 Jan 23
1.5
1.5
Jan-23 Jul-23 Jan-24 Jul-24 Jan-25 Jul-25
14 Mar 23
18 Oct 23
2 Jan 24
Source: Bloomberg
Source: Bloomberg
Inflation has surprised on the downside…
Just because the markets have been here before – and recall they briefly became even more
dovish on the Fed in March 2023 amid the US banking sector turmoil than they are now (chart
1) – does not mean they will not be right this time. We certainly do not expect further rate rises.
We just suspect the reaction to price in quick cuts is a little overdone. The balance of risks has
certainly shifted. Over the past three months, inflation has certainly slowed by more than
expected globally. There has been the odd exception, notably in parts of Asia (not mainland
China), as well as the usual idiosyncratic economies – such as Argentina and Türkiye. But
across the Americas and Europe inflation has come in below consensus forecasts. Few would
have anticipated a 2.4% release for eurozone inflation as soon as November.
4. …but not in parts of Asia
3. Inflation has recently slowed more
sharply than expected…
% Yr
8
7
6
5
4
3
2
1
0
-1
06
% Yr
World CPI
8
7
6
5
4
3
2
1
0
-1
08
10
12 14
Headline
Source: Refinitiv Datastream, HSBC
…but growth has slowed, too
Euribor Future
16
18
20
22
Core
24
% Yr
10
% Yr
10
Headline CPI
8
8
6
6
4
4
2
2
0
0
-2
2012
2014
2016
Korea
Philippines
2018
2020
2022
-2
2024
Taiwan
Mainland China
Source: Refinitiv Datastream
…and GDP growth data have been more mixed
Growth in many places has slowed too. That was not evident in the Q3 GDP data for the US
and China, which both registered strong quarterly rebounds as did a few notable exceptions
including Mexico and parts of CEE but, by our calculations, the rest of our global universe
slowed markedly and many economies contracted, including virtually all of Western Europe.
Moreover, in the West, labour markets are showing some signs of softening and already weak
bank lending continues to slow.
7
Economics ● Global
Q1 2024
6. …even if it slowed in many places
5. The US and China lifted the pace of
global growth in Q3…
% Yr
Global GDP growth
% Qtr
5.0
2.0
4.0
1.5
3.0
1.0
2.0
0.5
1.0
0.0
Q1 22 Q2 22 Q3 22 Q4 22 Q1 23 Q2 23 Q3 23
% q-o-q (LHS)
Source: Refinitiv Datastream, HSBC
Lots of uncertainties for
policymakers
% y-o-y (RHS)
% Qtr
1.0
Real GDP growth
% Qtr
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0.0
0.0
0.0
-0.5
-0.2
-0.2
Q1 22 Q2 22 Q3 22 Q4 22 Q1 23 Q2 23 Q3 23
World ex US & China
Western Europe
Source: Refinitiv Datastream, HSBC
For central banks, which is the lesser of two evils?
But there is still much that central banks cannot know and yet they will need to decide both
when to cut, and by how much? Cutting too soon would mean they find themselves having to
quickly reverse course if the downward trend in inflation does not persist: in which case a
resumption of tightening could trigger renewed economic weakness. Clearly there is also a risk
that they wait too long to ease, resulting in a much harder landing. For a central bank with any
kind of inflation mandate forcing a recession – if that is what is required to return inflation to
target in an acceptable time frame ‫ –ؘ‬would not in itself amount to a policy error. A significant
undershoot of its inflation mandate over the medium term would be.
Central banks clearly hope they will make neither error but they may ultimately need to take a
view on which policy error would be worse: keeping monetary policy so tight for so long that
inflation undershoots the target; or allow inflation to settle too high, and politicians and
populations blame them for it.
“Data dependent” means
more volatility in financial
markets
The challenge they face is that the current economic picture is hugely complicated. Among the
key moving parts:
1.
Unlike in the past, inflation has fallen without a big rise in unemployment; so will the boost
to real wages keep consumer spending resilient?
2.
Now growth is slowing, will high debt service costs force companies to shed jobs or will they
hoard labour for as long as they can?
3.
Will the impact of the evolution of accumulated savings by households and companies
surprise on the upside or the downside?
4.
The global impact of China’s recent policy measures is highly uncertain, adding to the
commodity price risks that could arise from geopolitical conflicts
5.
Monetary policy is restrictive – but at what pace will the rate rises feed through?
6.
Fiscal policy is not restrictive and the spending and regulatory demands on governments in
areas ranging from the energy transition to technology keep growing
7.
How will the transformational shift in AI impact demand, supply and the growth-inflation
trade off globally and relatively between countries?
Furthermore, central banks know that the appropriate policy setting will not just be influenced by what
is currently happening in the economy and how they currently expect growth and inflation to evolve.
Future decisions will also be shaped by how that outlook is influenced by changes in government
8
Economics ● Global
Q1 2024
policy and geopolitical factors in the course of 2024 (see separate section on pages 28-33). To say
these factors are unpredictable is an understatement. And, with central banks having committed to
being “data dependent”, the increased volatility of financial markets and their pricing of future interest
rate changes that we saw in 2023 could be a sign of things to come.
Credit cycle & financial strains
A clear impact of higher rates
in some areas
Markets/monetary data
While there is currently much talk about the extent to which rising equity and bond markets and
a weaker dollar are loosening financial conditions, the fact remains that monetary policy is
restrictive and this is becoming increasingly evident in the monetary data. Bank lending growth
has plummeted, particularly in Europe and, while spreads have tightened, lower grade credits
are facing high borrowing costs (chart 8) given the rise in sovereign yields.
7. Credit growth has dried up…
8. …and the cost of borrowing is high
%
14
12
12
10
10
8
8
6
6
4
4
2
2
0
2018
Source: Macrobond
A squeeze intensifying for
households?
%
14
USD High Yield credit y ield
0
2019
2020
2021
2022
2023
2024
Source: Refinitiv Datastream
Households’ debt service
And for households and companies, debt service costs are still rising around the world, even if
the speed and the magnitude of the impact on activity varies from country to country – due to
the differing degrees of central bank tightening, the scale of household debt and how much of
household debt is tied to variable rates. This is why the shock of higher rates on the economy
has been more evident in somewhere like Sweden (which is now in recession) than other
European economies and Canada is seeing some clear signs of consumer stress. There has
been a much smaller impact on much of Europe and the US.
That doesn’t mean that pain isn’t coming. In the US, the impact of higher policy rates is so far
much more evident in the auto and credit card sectors, where debt is typically of a shorter
duration than the 30-year fixed mortgages that are commonplace. Mortgage delinquencies have
also started to edge higher although they remain at very low levels (chart 9).
9
Economics ● Global
Q1 2024
10. …and the costs of debt are crimping
disposable incomes
%
9
8
7
6
5
4
3
2
1
0
Household interest pay ments as share of
disposable income
Latest
Source: Macrobond, NY Fed. Note: New delinquents is individuals who have a 30
day delinquency that did not have the delinquency listed in the previous quarter.
%
Austria
Portugal
Germany
Italy
Spain
France
Finland
Belgium
Ireland
Average
Denmark
Netherlands
UK
Sweden
Australia
9. Some stress is starting to appear
amongst borrowers…
9
8
7
6
5
4
3
2
1
0
2019 average
Source: OECD, HSBC
More broadly, we can see the shock that households have faced in terms of interest payments
already – with the average costs among OECD countries for which there is appropriate data
being 2ppts higher as a share of disposable income compared to 2019 (chart 10). As more
households roll onto higher interest rate debt, these squeezes could become more intense.
Housing could be an area of
upside and downside risks
So far, housing is an area that has taken the brunt of the impact of higher rates in many
economies. House prices have fallen in most markets, but have seen a bit of a revival in recent
months, in the US (with reduced existing supply due to fewer sellers), the UK, New Zealand and
Canada as households become more accustomed to a period of higher rates and mortgage
rates stop rising. Indeed interest rates on longer-term fixed rate mortgages are already off their
peaks. Nonetheless, the impact of higher rates on housing transactions and residential
construction has been more similar across countries, hitting growth in 2023, and it could
continue to hurt in 2024 in some places - notably in Germany, where building permits have
fallen a long way. However, depending on the pace of rate cuts and consumer confidence, there
could be an upside risk in 2024 or 2025 from housing-related activity in some economies.
11. House prices have felt the impact of
higher rates in most economies
12. In some, housing transactions and
construction have been weak
Source: Macrobond
Source: Macrobond. Note: Data is at annualised rate
Companies
It’s not just about the household side; corporates are seeing signs of stress, too. Some of this is
evident in the rising number of corporate bankruptcies on the back of higher rates, with many of
10
Economics ● Global
Q1 2024
the so-called ‘zombie’ companies that were only viable in a period of super-low interest rates
now struggling.
More firms may struggle with
higher debt costs
While this is grabbing many headlines currently, it should be noted that the US has fewer
zombies than the EU and Japan, according to a recent study by the IMF1. So far much of the
rise in bankruptcies is making up for the 2020-2021 period (chart 13) where volumes plummeted
as government support schemes provided a lifeline for struggling firms, but the number of new
filings for Chapter 11 in the US have picked up in the last month or so, even if the total level is
still low.
A key fear is that rising bankruptcies and a slowdown in borrowing hits employment but also
investment. Despite the sustained rise in interest rates, there has been a remarkable resilience
in business investment in the US and it hasn’t been too bad in Europe. Firms often finance
investment through internal funds and there has been strong investment in software and IT.
Some of this will likely reflect investment plans committed to before the run up in rates, and so
as business plans get renewed for 2024, we could see investment slow further.
We could see more of a
squeeze on smaller firms
13. More businesses are struggling
14. US firms’ cash holdings have fallen
back – but are not below trend
Source: Macrobond.
Source: Macrobond. Note: Straight red line shows trend
In particular, small firms, which are more tied to bank lending at variable rates, will be starting to
feel the impact of higher interest rates in the coming months as many of them will have seen
cash balances run down, while those who are more reliant on credit markets could take
advantage of what are now falling longer term borrowing costs. As with household savings,
there are enormous distributional differences across firms: at the aggregate level US corporate
profits were still rising in Q3 and the amount of cash holdings was still above the pre-pandemic
level (chart 14). As pressure grows on some of the more indebted firms, delinquencies will
inevitably rise further in 2024 and that will over time impact on labour markets. The big fear is
that this will hit consumer spending more significantly.
Consumer resilience
A turn down in the credit cycle is traditionally a strong indication that growth and inflation will
slow more markedly in the months ahead but, as we keep reminding readers, the global
economy is also being impacted by the extraordinary mix of events and policies in 2020-2023,
1
The Rise of the Walking Dead: Zombie Firms Around the World, IMF, 16 June 2023
11
Economics ● Global
Q1 2024
some of which are still finding their way through the global economy. It is not just the impact of
monetary policy that feeds through with a lag. Fiscal and structural changes do too.
We still expect a marked slowdown and a sustained period of sub-trend growth but we are not
forecasting a meaningful consumer recession because:
Consumer spending has held
up quite well
1.
we do not expect a big rise in unemployment;
2.
the savings story is still not over;
3.
this is a highly unusual cycle in that inflation has already slowed much more than wage
growth, so the real wage picture is improving.
So far the consumer story has recently been quite resilient in countries ranging from the US to
Brazil to China and even in the eurozone where, despite GDP contracting by 0.1% q-o-q in Q3,
domestic consumption grew 0.3% as real wage growth turned positive and there were also
signs that households are saving a bit less.
Employment slowing not stopping
Despite a rise in unemployment rates in some economies in recent months, these, for now,
don’t appear to be a cause for too much concern, with most of the rise in unemployment coming
from people re-entering the labour force, rather than a rise in layoffs.
Higher unemployment rates
due to more workers, not
layoffs
12
15. Unemployment rates may have risen…
16. …but layoffs remain low
Source: Macrobond. Note: Sahm rule looks for 3m average of the unemployment
rate to rise by 0.5ppts from the low of the previous 12m. Typically, when this
happens, the economy is already in recession. Grey bars are US recessions.
Source: Macrobond
This appears to be evident in the UK data, too, where the recent rise in the unemployment rate
(and there are questions over the reliability of this data) appears to be more heavily driven by
the rise in people moving from being economically inactive into being unemployed than a rise in
people losing their jobs.
Economics ● Global
Q1 2024
Firms are still hiring at an
elevated rate
17. The UK unemployment rate is also
rising…
18. …but with people moving from
inactivity to unemployment making up a
bigger share
Source: Macrobond. Note: Same methodology is used as for Sahm rule, but there is
no specified historical level at which this becomes a signal outside of the US. Grey
bars are UK recessions.
Source: Macrobond
This is possible because firms are still hiring at rates well-above pre-pandemic rates. The hiring
data from Indeed (chart 19), which is comparable across countries, echo national data in a
variety of economies. Firms are still looking to bring in more workers even if the jobs that are
being created are in different sectors than they were in the initial stages of the re-opening from
the pandemic. The likes of transport and information, which boomed at that time, are now
shedding jobs while the majority of jobs created in the past year have been in education,
hospitality and particularly healthcare (chart 20). Healthcare has also been a big driver of UK
employment with the latest data for Q3 showing that it was public sector employment (+0.6%
q-o-q), which drove overall employment growth of 0.2% in the quarter.
19. Firms are still hiring…
20. …even if the jobs are in different
sectors now
000s
1000
US: No of jobs* created since end 2022
800
800
600
600
400
400
200
200
0
0
-200
Dec-22 Feb-23 Apr-23 Jun-23 Aug-23 Oct-23
Information
Education/health
Manufacturing
Transport/warehouse
Source: Macrobond
Wages are rising more
quickly than prices now
000s
1000
-200
Business services
Hospitality
Construction
Wholesale/retail
Source: Macrobond. * Non-farm payrolls
Real wage growth revival
So with employment still growing and labour markets still tight, wage rises are now outstripping
inflation in almost all economies across the world. This is now very clear in places where
inflation has dropped quickly, such as Brazil and Mexico, as well as across many of the
advanced economies.
From 2021 until mid-2023 when employment growth was strong but a majority of workers were
seeing their real incomes squeezed, consumer spending was stronger by those households who
13
Economics ● Global
Q1 2024
either were receiving above-inflation wage gains or had a pot of savings or wealth that they could
draw on. Looking forward the improving real wage growth should lessen the hit to consumer
demand as employment growth slows, given we expect there will be no big rise in unemployment.
We assume no significant impact on the spending story, either positively or negatively.
There are still some savings
left to be spent
21. Real wages are rising…
22. …partly offsetting the impact of
slowing employment growth
Source: Macrobond. Note: Eurozone figures use negotiated wages
Source: Macrobond.
Savings could still play a role
Many posit that the so-called excess savings accumulated during the pandemic are running low
in some economies, though that doesn’t appear to be the case everywhere. It may seem
surprising but OECD estimates for a wide range of economies (chart 23) suggest that the stock
of excess savings still exceeds 10% of disposable incomes in most economies. Even in the US,
where the stock has been run down to some degree, households still added to their stock of
financial assets over the past year.
Of course, the bulk of these savings still lies in the hands of higher-income households – which
explains why the strongest areas of global demand in recent quarters have been in those parts
of the economy where higher-income households make up a disproportionately large share of
total expenditure – travel, leisure and recreation. In 2024, the improving real wage picture could
potentially mean a broader distribution of spending across income cohorts even if the pace
weakens somewhat.
Last (Q2 2023)
Source: OECD
14
A year before
%
30
US: Financial assets by income percentile
%
30
15
10
10
5
5
0
0
-5
-5
-10
-10
Change between Q4-19 and Q3 23
Total
20
15
0-20
25
20
20-40
25
40-60
%
30
25
20
15
10
5
0
-5
60-80
Ex cess household savings as % of household
disposable income
Ireland
Canada
Spain
Australia
Japan
UK
Netherlands
France
Eurozone
Belgium
Germany
Austria
Finland
Italy
US
Portugal
Sweden
Hungary
Denmark
%
30
25
20
15
10
5
0
-5
24. …even if the bulk of them are with
higher income households
80-100
23. Households still hold savings…
Q2 22 - Q3 23
Source: US Federal Reserve Distributed Financial Accounts. Note: Financial assets
includes checkable deposits, fixed income securities, equities and money market
funds
Economics ● Global
Q1 2024
More mixed consumer story
in the emerging world
In the emerging world, consumer demand has broadly held up OK. In Latin America, buoyed by
falling inflation, consumer spending volumes have continued to rise steadily in Mexico and Brazil.
In Asia, timely data are more sparse and consumer spending has been a bit more mixed between
economies (chart 26). In India, despite the stronger Q3 2023 GDP print, rural consumption was a
clear weak spot (see: India GDP: Hits it out of the park, 30 November 2023).
25. Retail sales have held up well in
Latam…
26. …but in Asia, they’ve been more of a
mixed bag
Source: Macrobond
Source: Macrobond
The downside risk
Of course, while the labour market remains a reason for optimism for now, that could always
change quickly. Should we start to see layoffs rise due to the lagged impact of monetary policy
on firms, households could quickly become even more cautious and cut back on spending.
If weakness appears, a
nervous consumer could cut
back
27. Consumer confidence is subdued in
Europe
28. Americans are becoming more wary
about the labour market
Source: Macrobond. Note: GfK indices shown
Source: Macrobond. Note: From the US Conference board series
Confidence is already depressed in consumer surveys, despite some recent minor upticks, and
optimism about the labour market has faded slightly. The “jobs hard to get” component of US
consumer confidence has ticked up a little since early 2023 but is still very low. It is still only
back where it was in the first half of 2018 (see chart 28). Nonetheless, a downward spiral from
cracks appearing on the jobs front remains one of the big downside risks to our forecast of
slowing but not contracting consumer demand in 2024.
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Economics ● Global
Q1 2024
Upside trade risk
Global trade could stop being
so weak in 2024
Having cut back orders, firms
may need to increase them
soon
16
Green shoots
While a reversal of the very strong labour market of the past three years is probably the biggest
risk to the economic outlook for 2024, the biggest potential upside risk is probably world trade.
The 2023 growth picture was characterised by a weak global manufacturing and world trade
cycle and the manufacturing surveys such as the PMIs are certainly still at pretty dismal levels,
but there are tentative signs elsewhere that the worst may be behind us for now. There has
recently been a slew of slightly better trade data coming from Asia (see: Green shoots in trade:
Asia Chart of the Week, 1 December 2023). We caution about becoming overexcited about this
though as it is slightly at odds with the weaker export orders data within the PMI surveys.
29. There’s still a gap between the
manufacturing and services sectors…
30. …that is also evident in the hard data
Source: Macrobond, S&P Global
Source: Macrobond
The inventory cycle may be turning…
The global trade cycle could turn for one of two reasons – either because of a sustained pick up in
global goods demand, or because inventory levels have now largely returned to more normal levels,
which would lead to an upswing, even if temporary, in the trade cycle. The latter seems reasonably
likely in 2024, given that inventory levels have started to move lower for many durable goods
companies (chart 31), and imports and orders have been so weak through 2023.
31. The inventory cycle may lead to a mild
upswing in global trade…
32. …with leading indicators suggesting a
muted rebound in the near term
Source: Macrobond
Source: Macrobond, S&P Global
Economics ● Global
Q1 2024
A more robust Chinese
rebound could support other
economies
…but could China offer a more sustained improvement…
A more sustained rebound could come from a stronger recovery in mainland China, which few
seemingly envisage currently given the recent move back into deflation, some disappointing activity
data and an apparent need for a medium-term deleveraging in the property sector. However, given
the numerous policy measures that have been unleashed, we look for 4.9% growth in 2024 (see:
China GDP upgrade: Policy tailwinds to support faster growth, 20 November 2023) with one reason
for some cautious optimism in 2024 likely to be the continued, even if gradual, broadening out of
consumer demand.
The latest set of trade data may not have been the most encouraging, with imports contracting 0.6%
y-o-y, but on a sequential basis, the data suggest that the trough is behind us for both Chinese
imports (which have been held back by weakness in the property market and the associated
materials demand) and exports (potentially as overseas firms start to rebuild inventories again). The
volume of some commodity imports is already rising.
A highly uncertain 2024 for
mainland China
Some economies are faring
better than pre-pandemic
33. The Chinese trade picture may be
tentatively improving…
34. …but the world may need more of a
domestic investment lift in 2024
Source: Macrobond
Source: Macrobond
There is, of course, great uncertainty over the Chinese outlook in 2024 and how the impact of
the recent slew of policy announcements will pan out. In view of the additional stimulus,
infrastructure spending looks set to stay quite resilient in 2024 which should also mean China’s
demand for steel and, hence, iron ore prices, holds up. The overall pace of investment though
hinges on the success of recently announced policy measures on the property sector - Beijing is
adopting a dual-track housing model and continuing to lift local housing policies. The
encouraging thing is that there are already some green shoots as existing home sales in the
largest cities are reviving (see China macro tracker, 6 December). Additionally, we expect
Beijing to continue to increase fiscal support while monetary policy is likely to remain
accommodative. Whether this is enough to lift Chinese growth meaningfully enough to lift the
rest of the world remains to be seen.
…or could other emerging economies pick up the baton?
This raises the question as to whether a handful of other economies could step up in terms of
driving global demand. As we highlighted in our previous Global Economics Quarterly, 27
September 2023, some emerging market economies appear to be now on a firmer growth path
than they were before the pandemic. India is the largest, but the same can be said for Brazil,
Mexico, Indonesia, Saudi Arabia and the UAE. These economies account for 16% of global
GDP (on a PPP basis) and 9% of global imports (vs 10% from mainland China). They have all
seen an increase in potential growth through policy changes in recent years – either reforms or
shifts in the growth models or both. In some cases, the catch-up potential is enormous. For
example, India’s GDP per capita is currently less than a fifth of the Chinese value in real USD.
17
Economics ● Global
Q1 2024
35. Other economies could potentially support areas of global demand
Share of global GDP (PPP)
%
20
%
20
15
15
10
10
5
5
0
0
Mainland China
Others
Mainland China
2023
India
Brazil
Others
2028
Saudi Arabia
Mexic o
Indonesia
UAE
China in 2015
Source: HSBC, IMF WEO. Note: 2023 and 2028 estimates are both from IMF
Some economies could be
supported by a lift in global
trade
If we were to see a rebound in global trade in 2024 and 2025, this could act as a fillip to those
economies which have struggled in 2023 from the weakness in the global trade cycle. In
Europe, Germany is the standout here, but across Asia, Vietnam has found things tricky,
particularly in the first half of the year (see: Vietnam at a glance: Light at the end of the tunnel,
5 October 2023) even though it appears to be structurally and diplomatically well placed in a
geopolitically challenged world. .
36. Some economies could get a lift from any turn in global trade
Ex ports (Goods and services) as % GDP, 2022
% GDP
100
90
80
70
60
50
40
30
20
10
0
Vietnam
Switzerland
Malaysia
Thailand
Poland
Norway
Eurozone
Sweden
Germany
Korea
Mexic o
Spain
Türkiy e
Italy
France
Canada
South Africa
UK
World
Philippines
Russia
Australia
Indonesia
India
New Zealand
Mainland China
Colombia
Brazil
Japan
Argentina
US
% GDP
100
90
80
70
60
50
40
30
20
10
0
Source: World Bank WDI
Inflation
Inflation has come off the
highs
18
On the way down
So our forecasts are for growth to weaken to varying degrees. Given that the recent dovish turn
has been driven more by lower inflation than weak activity, those expecting very quick rate cuts
may be increasingly reassured by further signs of labour markets cooling and slowing growth.
As with the major central banks, we agree that the balance of growth and inflation risks has
shifted, but inflation is still too high and we fear it could be a little stickier in the coming months
than markets currently seem to be anticipating.
Economics ● Global
Q1 2024
37. Inflation has fallen, but is still too high in most of the world
Source: Macrobond
Much of the drop in headline inflation in 2023 shown in chart 37 was largely anticipated given
fading base effects from 2022, and the picture painted by the chart is heavily influenced by the
timing of the peak in 2022. It is notable that the more sequential improvements in recent months
have actually been more dramatic. Month-on-month changes have dropped sharply in most
economies – leading to a growing market expectation that inflation will continue to drop steadily
in 2024. Of course much of the recent decline still relates to the energy story with the oil price
having dropped from above USD95/bl in late September to around USD75/bl by mid-December.
Combined with even higher base effects from 2022, this meant that in the eurozone, energy
detracted more than a percentage point from the headline inflation rate in November (chart 38).
In the UK it had an even bigger impact – by October 2023 energy was detracting 1.2ppts from
the UK headline inflation rate of 4.6%, having added a whopping 4ppts as recently as January.
Energy will stop pulling down
inflation
The less good news is that, realistically, in Europe November is likely to prove to be the trough
for energy disinflation just as June was for the US. Even if the oil price were to stabilise at
around USD70/barrel through 2024, energy will not be exerting anywhere near the same degree
of disinflation as in 2023 (chart 39).
39. …but the oil price will now be less
disinflationary, even at USD70 a barrel
38. The energy contribution to inflation
has plummeted
% Yr Energy contribution to eurozone HICP inflation % Yr
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
2019
-2
2020 2021 2022 2023 2024
Contribution from Energy
HSBC forecast
Source: Macrobond. HSBC.
Core inflation is also starting
to look better
% Yr Oil price y -o-y change given end-2024 oil price of: % Yr
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
-20
-20
-40
-40
-60
-60
-80
-80
2020
2021
2022
2023
2024
2025
Brent crude (actual)
USD80/brl
USD70/brl
USD90/brl
Source: Refinitiv Datastream, HSBC. Note: Based on a linear move to oil price
ending the year at given level.
Better news on core inflation in the US…
Core inflation dynamics will be the main focus from here. There has been some progress here
too, even if in some countries there are signs of more persistent inflationary pressures.
19
Economics ● Global
Q1 2024
40. Inflation momentum has dropped
recently…
41. …in a wide range of economies
Source: Macrobond. Note: Based on seasonally adjusted series from BLS
Source: Macrobond. Note: Based on HSBC seasonal adjustment of Eurostat series
The most widely-reported good news has come from the US, where underlying inflationary
pressures have continued to edge lower, even if there is still a slow pass-through from the drops
in new rental prices to the measure of shelter costs. The clear divergence between sectors
continues though, with core goods prices still driving much of the disinflation, whereas services
inflation is much stickier (see chart 43).
Further progress on inflation
in Latin America and parts of
Asia
20
42. Excluding shelter, US core CPI inflation
is already back at 2%...
43. …but there is still a big divide between
goods and services inflation
Source: Macrobond
Source: Macrobond
…and in the emerging economies
With the exception of Colombia, there has also been some better news in Latin America where
core inflation has dropped sharply in most places, whereas in Asia core inflation has been
mostly muted throughout the global inflation surge of the last couple of years. However, as we
mentioned above, the past few months have seen some upside surprises to headline inflation in
parts of Asia, largely driven by food prices, notably rice. The recent shocks to food prices in the
region have caused some central bankers there to be concerned about the impact on overall
inflation and inflation expectations. Food inflation is set to lift headline inflation further in India
and there was even an off-cycle hike in the Philippines in October designed to curb these higher
inflation risks (see: Philippine central bank hikes: Off-cycle and pre-emptive, 26 October 2023).
Food price inflation is certainly no pressing challenge in China though. Indeed, food prices fell
4.2% y-o-y in November due to a more than 30% drop in pork prices and, with other price
declines broadening, overall CPI deflation deepened to -0.5% y-o-y.
Economics ● Global
Q1 2024
Europe is a different story
Currency moves have been
big over the past three
months
44. Latam inflation keeps coming down…
45. …and the same is true in Asia
Source: Macrobond
Source: Macrobond
…but in Europe it is not clear the energy shock is over
Elsewhere in the world, food price inflation could continue to ease in the near term, given the
collapse in wholesale prices which has not yet fully fed through to domestic inflation readings.
But of course other costs of production – from labour to packaging – matter for many food
products too. Moreover, for Europe in particular the energy shock has still not completely
reversed. Oil prices may be down, but they are still USD10/bl higher than in 2019, and gas
prices in Europe are much higher than they were back then. This greater shock to the input cost
level, coupled with stronger wage growth (see below) underpins why European inflation has
been slower to fall and why we expect the path lower in inflation from here to be slower than in
other parts of the world, unless we see a quick squeeze on margins.
46. European inflation has been slower to
fall than elsewhere…
47. …partly because of the big cost shock
still working its way through
Source: Macrobond
Source: Macrobond
The other notable development relating to inflation and interest rate expectations over the past
quarter is the exchange rate. It has been a somewhat volatile period but most economies have
seen some appreciation against the USD (chart 48). While FX moves influence policy decisions
in emerging economies more than G10, central banks are typically reluctant to speak about the
growth or inflationary impact of exchange rate moves. Instead much of the communication that
we are likely to hear from central banks in the coming months is the risks of inflation persistence
that might stem from tight labour markets and wage growth.
21
Economics ● Global
Q1 2024
48. Most currencies have strengthened against the USD over the past quarter
Source: Macrobond
Strong wage growth may
keep services inflation sticky
Firms still need workers
22
Inflation persistence risk from wages
Wage growth persistence is the clearest risk to inflation continuing to fall in the coming quarters.
As discussed above, many economies see worker shortages and skills mismatches and, with the
key exception of China, wage growth that is running well-above pre-pandemic rates. Hefty public
sector pay gains and minimum wage hikes continue in the likes of Türkiye and parts of CEE but
wage growth is already well off its peaks in the US. It is less clear cut in the eurozone as the most
recent data on eurozone negotiated wages accelerated which is significant as about two thirds of
eurozone workers are covered by these collectivised pay deals which will lock in above-inflation
target gains for multiple years (see Eurozone wages, 27 November 2023).
One factor that led to much higher wage growth, beyond the shortages of labour, was more
people quitting their jobs in search of a new role with higher pay. In the US, these quits rates
spiked in 2021 and 2022, and fell through 2023. This lower job churn could help to alleviate
some strains on overall wage bills, as job switchers tend to get higher pay rises. But there will
likely still be sector differences in the future. As discussed above, data for the US and UK show
different sectors such as healthcare are driving the jobs growth now which is very different to
2021-22. And as of November 2023, 40% of NFIB members in the US reported job openings
that were hard to fill. It is a similar story in Europe where another recent survey – the survey of
access to finance of enterprises – showed more companies were concerned about the
availability of labour than about access to finance.
49. Quits rates have dropped in sectors
that had the biggest labour shortages…
50. …but surveys show firms are still
finding it hard to find the right workers
Source: Macrobond
Source: Macrobond
Economics ● Global
Q1 2024
Can immigration help or hinder?
One avenue towards lower wage pressures could be increased labour supply via higher rates of
migration. We’ve seen migration flows pick back up sharply in recent quarters after border
restrictions being removed after the pandemic saw a return of cross border movement. The
number of immigrant workers in the US is now back at the 2019 level which may have been an
important factor behind the slowdown in wage growth.
Immigration could alleviate
worker shortages…
…but not necessarily
Immigration has also had a clear impact on the Australian job market (see: Downunder Digest:
A slowly loosening jobs market, 21 November 2023). However, while inward migration is
boosting labour supply, it is also lifting inflation via stronger growth and housing demand. The
same is true in New Zealand, with migration adding to labour supply, but also demand – with
the net effect proving to be modestly inflationary in the short run (see: RBNZ Observer: On hold,
as the economy disinflates, 24 November 2023).
These case studies show that migration isn’t a sure-fire way to tackle sticky inflation problems,
because many arrivals aren’t workers, they’re just consumers. The UK’s inward migration data
show that workers only accounted for a small share of the increase in migration in 2022 and
2023 (see chart 61 on page 32). Instead, a sharp rise in the number of students and
humanitarian arrivals could mean that demand rises more quickly than labour supply, keeping
inflationary pressures more elevated.
Overall, our forecasts point to a continued moderation of wage growth in the coming year, even if
we expect it to take some time to slow to a rate that is consistent with getting back to 2% inflation.
Central banks: how quick to cut in 2024…
Monetary easing may
become more widespread in
the coming quarters
Policy rates are already on the way down
Financial market pricing of G10 policy rates has taken a very dovish turn recently but some
central banks are well advanced in their rate-cutting cycles. Latin America has led the way but
roughly 20% of the central banks under our coverage have delivered a rate cut over the past
three months (chart 51). Slightly more central banks raised rates over the past three months –
including in G10 with the ECB and Australia, but also Türkiye, Russia, the Philippines, as well
as some central banks across sub-Saharan Africa. That said it is clear that monetary policy
easing will become much more widespread in the year ahead. Our forecasts show Japan and
Türkiye as the only countries where we are looking for further tightening.
51. Some central banks have started
easing policy…
52. …while some have still been tightening
Source: Macrobond, HSBC, based on 38 central banks under our coverage
Source: Macrobond, HSBC, based on 38 central banks under our coverage
23
Economics ● Global
Q1 2024
We expect cuts to start a little
later than market pricing
Where we differ from markets is on the pace of policy rate cuts that we envisage is that the
major central banks will sit on hold for a little longer. As outlined in Conditions for cuts,
20 November 2023, we believe that the major developed world central banks will be looking at a
range of criteria to feel comfortable enough to start an easing cycle – with headline and core
inflation dropping to low enough levels, likely below 3%, growth may need to be at or below
trend and wage growth may need to slow to a rate consistent with meeting inflation targets.
Based on our forecasts, we still expect the first cut by both the Fed and the ECB will be in June
as we don’t think the conditions for rate cuts will present themselves before then: with inflation
proving stickier, growth in some areas holding up better and labour markets not looking as likely
to weaken quickly. Of course, uncertainty is high around these variables.
Of course, 2024 is also about what central banks do to their balance sheets. In December the
ECB brought forward slightly the halt to its PEPP reinvestment programme, with a taper starting
in H2 2024 before a full stop at the end of that year. Balance sheet management will also be a
key discussion theme for the Bank of Japan – which has been by far the largest buyer of JGBs
– in a year when we also expect the BoJ to officially remove yield curve control (YCC) in Q1 24, and
then to exit its negative interest rate policy (NIRP) in Q2 24.
Another focus will be the upcoming framework reviews that could impact the way central banks
set policy in 2024-25.
Framework reviews loom
There was already a tweak or two around the world in 2023, the most recent one being in
Australia. The changes were more about the RBA’s processes, rather than the mandate which
has not been shifted much. It did not bolster the employment mandate as had been mooted by
some but the changes do give a bit more flexibility to the RBA as it specifically states (even if it
was already implicit) that the Board can set the timeframe and balance between the inflation
and employment objectives (see: RBA Observer Update : Inflation targeting agreement
refreshed, 8 December 2023)
Framework reviews could
impact policy setting
The ECB expects to complete its framework review in spring 2024 and the key decisions that
are expected to be made relate to the regime for steering short-term interest rates, the desired
size of the ‘steady state’ balance sheet and level of excess liquidity. Both are already in decline
and are set to shrink further but some indication on the timing and magnitude of the decline is
anticipated, as are some other changes such as raising the level of minimum reserves to 2%.
The Fed’s next framework review is in 2025. Recall the last one in 2020 resulted in the adoption
of flexible average inflation targeting (FAIT). FAIT is rarely even mentioned since inflation took
off, reinforcing the perception that it was an asymmetric policy designed to shock inflation
expectations higher rather than risk inflation sinking persistently below target. But as chart 53
shows, the price level in the US and the eurozone (just for comparison: the ECB never had an
FAIT framework) has now risen by significantly more than that required to compensate for the
undershoot in the first seven years of the past decade.
24
Economics ● Global
Q1 2024
53. The Fed has more than made up for
earlier undershoots in inflation...
54. ...as has the ECB
Index,
Jan 13=100
130
Index,
Jan 13=100
130
US PCE
vs 2% level
Eurozone headline HICP
vs 2% level
Index,
Jan 13=100
130
120
120
120
120
110
110
110
110
100
2021
2023
2% price growth level
100
100
2013
2015
2017
Headline PCE
Core PCE
Source: Macrobond
Higher inflation targets?
Index,
Jan 13=100
130
2019
100
2013
2015
2017
2019
Headline HICP outturns
2021
2023
2% price growth level
Source: Macrobond
We still think it is exceptionally unlikely that the Fed adopts a new higher inflation target, as
some very well-respected economists2 have called for. But the longer it takes to get there, the
more likely that some companies and workers could start to question whether the central bank
might be satisfied if inflation settled at say 2.5-3%. That could lead companies to set higher
prices, and workers to demand higher pay growth, in anticipation of permanently higher
inflation. Clearly markets are currently of the view that this is no longer a risk.
…and over the medium to long term
So, while we look for an easing cycle to start in virtually every economy by the end of 2024 and
to continue in 2025, our forecast of no big jump in unemployment, no deep recession and no
financial crisis means we expect them to remain well above the policy rates prevailing in the
decade following the global financial crisis. We have a total of a 150bps of easing by both the
Fed and the ECB by the end of 2025. It is interesting to note that even financial markets, which
have taken a decidedly dovish turn, see them settling at a significantly higher level that in the
pre-pandemic decade (chart 55).
55. Financial market pricing also points to policy rates being well above pre-pandemic
level over the next five years
%
6
Policy rates
%
6
5
5
4
4
3
3
2
2
1
1
0
0
-1
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Fed funds rate
BoJ policy rate
ECB deposit rate
US OIS 14-Dec
JPY OIS 14-Dec
EZ OIS 14-Dec
-1
Source: Bloomberg as of 14 December
2 For example: It is time to revisit the 2% inflation target, FT, 28 November 2023.
25
Economics ● Global
Q1 2024
Policy rates are not going
back to zero
We discussed our view and explanation of r* – the real short-term interest rate that will over the
medium term be neither expansionary or contractionary when the economy is at full employment –
and why we believe it has risen over both the medium and long term in After the peak?,
27 September 2023, so we won’t repeat them here. In summary, the increased spending and
investment needs of already highly indebted governments – defence, energy transition, age-related
spending and debt service – means they will have to tempt smaller pools of potential savings with
higher returns. This is set to be a key determinant of how much long-term r* has risen since the days
of a global savings glut when central banks also held the lion’s share of government bonds.
There are only so many ways to make a surging debt stock more sustainable: raising medium term
growth is the preferred way but there is little or no evidence of a significant improvement in debt
dynamics without sizeable tax rises, spending cuts or both. And it is rare to see those happen without
at least some degree of market pressure. The last period of any effective adjustment in the US was
as a consequence of President Bill Clinton’s 1993 Deficit Reduction Plan. Urgency is somewhat
lacking currently in most advanced economies (or many emerging economies that are not in IMF
programmes). As we note in the separate section below (page 28), there is seemingly little in the way
of fiscal tightening is in prospect in 2024 particularly in those holding national elections, even if the
pace of fiscal support slows.
Forecast summary
Slowdown looms
When it comes to our growth and inflation forecasts, we are not forecasting a synchronised global
recession but activity across most of the world appears set to remain weak and/or slow further in the
first half of 2024. After the Q3 surge, US growth looks set to slow markedly, finally edging
unemployment a little higher.
We maintain our long-held view that the US will avoid a traditional recession and financial crisis and
expect only a gradual easing cycle which we do not expect to start until June, which is also when we
expect the ECB to start. Both appear set to continue shrinking their balance sheets even as they
start to lower policy rates.
We have edged up our global growth forecasts from 2.3% to 2.4% in 2024, thanks to small upgrades
to the US, China and India while still seeing a subdued 0.6% pace across Western Europe and still
looking for 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 forecasts are virtually unchanged. We see global growth reviving a little – to 2.6% up
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 2024-2025 with only 150bps of rate cuts anticipated by the Fed and ECB.
Combined with only a modest rise in unemployment over the next year this implies that there
will be neither much stimulus nor much slack to provide scope for an above-trend rate of growth
rebound in 2025.
There are clear risks in every direction:
1.
26
On the upside, the rebound in mainland China and world trade may be sharper and more
forceful than in our forecasts, or much worse; savings may support spending in the
advanced economies more than we expect; inflation may fall more sharply in the next few
months and policy rates be cut even quicker than markets are pricing.
Economics ● Global
Q1 2024
2.
On the downside, a cocktail of higher interest rates, housing shocks and even the possibility
of commodity price shocks may cause sharper deteriorations in labour markets and
household spending in many parts of the world.
3.
On the geopolitical side, at the time of writing, the markets have seemingly concluded that
the conflict in the Middle East, despite the enormous humanitarian impact, will not have
region-wide or global implications, but that is not a given. The Russia: Ukraine conflict is
also highly uncertain. Either conflict could pose shocks to oil prices and confidence.
4.
It is also within the realms of possibility that some countries, whether in the emerging or
advanced economies, find themselves having to pay the price for having eased monetary
policy too swiftly – and instead have to back-pedal and resume tightening, triggering
renewed economic weakness and even recession.
56. Our forecasts imply a slower pace of growth, but not recessions
Real GDP grow th
% Qtr
1.4
% Qtr
1.4
1.2
1.2
1.0
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0.0
0.0
Q2 23
Q3 23
Q4 23f
World
Q1 24f
Q2 24f Q3 24f
Advanced economies
Q4 24f
Q1 25f
Q2 25f Q3 25f
Emerging economies
Q4 25f
Source: HSBC estimates
27
Economics ● Global
Q1 2024
Politics/geopolitics in 2024
◆
2024 looks set to be the biggest election year on record
◆
The outcomes could impact not only fiscal policy but also trade,
green and immigration policy…
◆
…and with little prospect of a quick end to the geopolitical tensions,
the impact on growth and inflation is mixed
A busy electoral calendar
In 2024 voters in more than 70 economies – including eight of the world’s ten most populous
countries and 27 EU members – will cast a ballot of some kind, be it for national, municipal or in
the case of the European parliament, multilateral. Some will likely bring regime change and
some will almost certainly not. The outcome of those earlier in the year will have the potential to
impact the macroeconomic and policy outlook in the coming year while for those at the tail end
of 2024 – notably in the US and, quite likely the UK – the outcome of the election could hinge on
how trends develop in the course of the year. See the timeline of some of the key elections in
chart 57.
57. Billions of people will go to the polls in 2024
TBC: UK
5 Nov: US*
6 Oct: Brazil*
Mn
1600
1400
1200
1000
800
600
400
200
0
2 Jun: Mexico
6-9 Jun: EU*
1 May: South Africa
10 Apr: South Korea*
1 Apr: India
31 Mar: Türkiye*
17 Mar: Russia*
8 Feb: Pakistan
13 Jan: Taiwan
7 Jan: Bangladesh
14 Feb: Indonesia
Key elections in 2024: Population of v oting economies
Mn
1600
1400
1200
1000
800
600
400
200
0
Source: HSBC. Note: General elections unless *. Russia: Presidential, Türkiye: Local, South Korea: Legislative, EU: Parliamentary, Brazil: Municipal, US: Presidential and
congressional. A UK election must be held by January 2025 but polls indicate November 2024 is currently viewed as the most likely timing and it could be as soon as May.
Columns show population size, rather than registered voters.
The consequences of the elections will impact the fiscal outlook but will in many cases also
have implications for trade protectionism, green policy and potentially immigration policy. We
note some points to watch below:
1.
28
First up in January is the Taiwan election, which is set to shape the nature of the island’s
relationship with mainland China. Beijing will complete its investigation into Taiwan’s
alleged trade barriers to mainland Chinese exports one day before Taiwan’s election, which
may affect the effectiveness of the Economic Cooperation Framework Agreement (ECFA)
Economics ● Global
Q1 2024
and, if it were to be terminated, would impact the competitiveness of Taiwan’s exports (see:
Taiwan election preview, 5 December 2023).
2.
Elsewhere in Asia, in Indonesia the presidential and legislative elections may also hold
fiscal implication. Having kept a tight rein over the budget under the Joko Widodo
administration, a new government may opt to prioritise infrastructure and national security
spending. While Indonesia has plenty of fiscal space, investors will be watching closely for
signs of any loosening of fiscal commitments under a new administration. In Korea,
legislative elections may hold implications for fiscal policy. A win by the party aligned with
the President could see the adoption of fiscal rules which will accelerate fiscal consolidation
in the coming years, a potential drag on growth for 2024 and 2025.
3.
African elections include Algeria, Ghana and, biggest of all, the election in South Africa in
May. Polls point to the ruling African National Congress winning the most votes although
polls suggest it could need to form a coalition government.
4.
Latin America could offer another first – having already elected the region’s first libertarian
president in Argentina in November 2023, Mexico could be set to elect in June its first
female president, albeit the chosen successor of left-wing (and fiscal hawk) incumbent
Andres Manuel Lopez Obrador (AMLO) so any policy shifts could be very limited.
5.
Aside from national elections, there are also a range of local elections in 2024. Türkiye’s in
March will likely draw the most attention, following the presidential and parliamentary
elections held in 2023 (see EM election guide 2024, 4 December 2024). In particular,
mayoral elections in major cities such as Istanbul, Ankara and Antalya will be closely
watched, as the AKP seeks to win them back from the opposition CHP.
6.
In the elections for the European Parliament migration will be a key issue for a union short
of workers but where voters could nonetheless elect right-wing representatives promising
tighter controls on immigration as happened in the recent Dutch elections which was won
by Geert Wilders’ far right Freedom Party. The election is not until early June but the most
recent polls3 point to losses by the centrist parties. Carbon emission regulations and other
green policies will also likely be a point of contention between the major parties, not least
given the cost of achieving net zero by 2050. And, although Europe is in many ways ahead
of the rest of the world on reducing emissions (it is the only region where emissions are
lower than in 1990), polls suggest that the Greens will lose around a third of their seats 4 in
the next Parliament and could go from being the fourth to the sixth largest party.
7.
A UK general election must be held by January 2025. May 2024 has been mentioned in the
media as a possible date, though November is still the favoured timing of the pollsters.
Labour has gone to some lengths to portray itself as the party of business, growth and fiscal
responsibility, with only small planned tweaks to taxation separating it from the ruling
Conservative party in terms of policy. But, high levels of debt will constrain room for
manoeuvre for whichever party ends up in power, particularly if Chancellor Jeremy Hunt
announces further tax cuts in the Spring Budget in the hope of lifting the economy or at
least the mood ahead of the election.
8.
The US will not only elect its president in November but also all members of the House of
Representatives and one third of the Senate. Clearly the Republican and Democratic
candidates for president are still not confirmed. But assuming the current two frontrunners
stand – the incumbent Biden and former president Trump – the outcome will clearly impact
the direction of fiscal policy, as well as America’s relationships around the world. That
3
See: Politico, EU Parliament elections projection
4 The Economist In Europe, green politics rule while green politicians struggle, 7 December 2023
29
Economics ● Global
Q1 2024
includes trade policy, which the world will be watching closely given Trump’s proposal to
impose an automatic 10% tariff on all goods imported to the US from other countries.
However, his first task will likely be to renew his 2017 tax cuts and possibly deliver more,
even though the budget deficit is already likely to hit 6-7% of GDP in the current fiscal year.
The impact on the relationship with China is not clear: the recent meeting between the two
leaders at best represents a stabilisation of the ongoing deterioration in US-China relations.
Taking those geopolitical conflicts and election risks together, what we can say for sure is that
the impact on both growth and inflation will be complex, posing some upside and downside risks
simultaneously both in terms of the near-term outlook and over the longer term:
Little urgency in absence of
market pressure
Fiscal – little in the way of fiscal tightening is in prospect in 2024 particularly in those holding
national elections, even if the pace of fiscal support slows. (The likes of Brazil, which will hold
municipal elections in 2024, is a rare exception where some discretionary tightening is planned.)
Varying degrees of fiscal tightening will likely follow elections either later in 2024 or in 2025 and
beyond, even if unlikely to be as ambitious as the budgetary cuts planned by Argentina’s new
president. Fiscal challenges are mounting around the world as we discussed a lot in our last
quarterly. Generally, there seems to be little urgency to take action in the absence of market
pressure. The US debt limit, which necessitated some cash balance manoeuvres from the
Treasury in 2023, has been suspended until January 2025. The issue of fiscal restraint will
remain topical in early 2024 as the US will once again need legislation to avoid a government
shutdown. However, broad efforts at deficit reduction are unlikely to be realised during an
election year, under a divided government.
58. Fiscal challenges keep getting bigger
% of GDP
% of GDP
Long-term debt projections
200
200
COVID-19 pandemic,
2020/21
150
150
Global financial crisis,
2008
100
100
50
50
0
0
1990
1995
2000
2005
2010
UK
2015
2020
2025
2030
2035
2040
2045
2050
US
Source: OBR, CBO
Apart from Germany, little
fiscal ambition in Europe
30
In much of the Eurozone, with the key exception of Germany, we see little in the way of fiscal
ambition, with countries recycling some of the savings on energy measures – due to lower
prices – into further support. Deficits remain well above the 3% of GDP Maastricht threshold in
France and Italy, among many others, with limited prospects for consolidation due to
challenging political backdrops and a lack of agreement on new EU fiscal rules. This feeds
through into our view that a meaningful recession will be avoided and the ECB will be slower to
cut than the markets anticipate. Also in Europe it is likely that NGEU implementation will speed
up, and a large chunk of the unspent grants and loans in the NGEU is finally spent by 2027.
Most recovery and resilience plans now also include a new REPowerEU chapter, designed to
accelerate the countries' transition towards clean energy, diversifying their energy supplies and
improving their energy efficiency. However, this does not reflect a comprehensive strategy at
the European level, but mainly tax breaks and state aid support for individual firms, as even
Economics ● Global
Q1 2024
within Europe, political parties diverge strongly in their views on the direction of policy and the
implementation of regulation.
Green policy – slow progress. Despite 2023 being the warmest year on record, commitments
made by world leaders at COP28 regarding a fossil fuel “phase-out” agreement fell short of what
was hoped. After various reported disagreements between countries, some of whom opposed it
for economic reasons, there was a signed agreement calling on parties to take actions including
“transitioning away from fossil fuels”5.
Financing may not be as easy
as IMF suggests
Financing for poorer countries to make that shift was apparently not discussed but the fiscal
reality is that funding is no easy task for Western governments either. Difficult choices will need
to be made. The IMF’s fiscal monitor published in October offered insights on how governments’
policy trilemma between achieving climate goals, fiscal sustainability and political feasibility
could be managed. It argued that governments must take “bold, swift and coordinated action,
and find the optimal mix of both revenue- and spending-based mitigation measures”. That’s
easier said than done. As a guide to the sheer magnitude of the energy transition cost, the UK’s
OBR estimates that alone will add 20% of GDP to the public sector debt to GDP ratio by 2050.
59. Investment of up to 7% of global GDP
each year may be needed
USDtrn
3.5
Estimates of global phy sical investment USDtrn
needs, per y ear, to acheive net zero
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
Energy
Transport
Water &
Sanitation
US Inflation reduction act: Inv estments by sector
(USDbn)
4.7
Energy
Manufacturing
Environment
Transport & EVs
Agriculture
23.4
20.9
46.4
47.7
250.6
Water
Telecoms
Source: Grantham Research Institute on Climate Change and the Environment,
Investments for Green Recovery and Transformational Growth 2020–30, June 2021.
Note; Energy estimate is 2.8-3.3 USDtrn pa.
Inflation risks?
60. The IRA is a start
Source: Based on estimates from CBO
Central bankers, past and present (eg, Mark Carney, Christine Lagarde and Mary Daly) have
warned that the required related spending on the energy transition will be inflationary but it is
impossible to say what the impact on growth and inflation will be over the next two years if much
of the spending is delayed further. It is clear that Mr Biden’s green agenda (as well as other
more protectionist steps) has already fuelled an investment and construction boom and added
to demand pressures in the US. Some IRA-related projects have already been delayed and the
future of the IRA itself would be highly uncertain should the US administration change hands in
the election.
Immigration: this is already a key political issue and set to become even more so. In the UK
the government is still attempting to achieve its goal of sending asylum seekers to Rwanda and
the minimum salary threshold for foreign workers to get visas will rise from GBP26,500 to
GBP38,700, with an interim increase to GBP29,000, unless it is for a role deemed to be in short
supply such as areas of social care. In France, President Macron is facing opposition from left
and right wing parties on different elements of his immigration bill that relate to undocumented
5
Countries reach ‘historic’ COP28 deal to transition from fossil fuels, Financial Times 13 December 2023
31
Economics ● Global
Q1 2024
workers. Immigration will certainly be a key issue in the European elections and in the US,
Republicans are refusing to pass spending bills for Ukraine and Israel unless border controls
are tightened.
Would higher immigration
help or hinder?
But, as we discussed in the main section earlier, easing/tightening controls on immigration could
have various effects on growth and inflation. Immigration in the US has lifted the growth rate of
the population above its pre-pandemic rate of about 1% pa - which could well have played a
role in the slowdown in wage growth without any notable rise in unemployment. But as we noted
above, in Australia and New Zealand immigration has boosted labour supply but also lifted
inflation through stronger growth and housing demand.
There may be some overlap with the UK picture. Many arrivals aren’t workers, they’re just
consumers. Only a small amount of the increase in migration through 2022 and 2023 was led by
workers (chart 61). There was a much bigger rise in the number of students and humanitarian
arrivals.
61. The mix of migration may not lower inflation
Thousands
000s
000s
Net migration to the UK, 4 quarter sum
1000
1000
800
800
600
600
400
400
200
200
0
0
-200
Jun-19
Work
Jun-20
Work (dependent)
Study
Jun-21
Study (dependent)
Jun-22
Family
Other
-200
Jun-23
Humanitarian
Source: ONS
Trade policy and geopolitics This is a much broader topic relating to major developments
already under way, including the conflicts in Ukraine and the Middle East as well as
protectionism, as well as policy changes that may happen as a consequence of the elections
that lie ahead. A December poll by FT-Michigan found that 48% of American voters believed the
US was spending too much on military and financial aid to Ukraine6 and it is clear that the two
major presidential candidates favour different approaches to geopolitical issues.
Trump plans a 10% tariff on
all imports
Trump’s proposed 10% tariff on all imports cannot be ignored as he has shown from his
previous term. Anything close to that could be expected to prompt retaliation elsewhere. Global
Trade Alert estimates there are already 35,000 protectionist measures currently in place which
is up from about 9,000 ten years ago. As Western countries and the US, in particular seek to
improve supply chain resilience and reduce dependence on geopolitical rivals, some countries
in Asia – notably Vietnam – and Mexico are benefiting from higher FDI from mainland China
and stronger exports to the West.
Trade within politically aligned blocs is certainly growing more quickly than world trade, a point
highlighted in a recent speech by IMF deputy, Gita Gopinath7. It is adding even more friction to
6 Financial Times, Nearly half of Americans think Biden is spending too much on Ukraine aid, 10 December
2023.
7
Europe in a Fragmented World, IMF, 30 November 2023
32
Economics ● Global
Q1 2024
trade flows and is just one of the factors we have highlighted as contributing to a deterioration in
the global growth-inflation trade relative to the era of persistent global trade liberalisation, a truly
global labour market and rapid automation in goods production from the early 2000s.
Is Germany being hit more by
the sanctions than Russia?
62. India’s trade patterns have changed…
63. …and German exports to Kyrgyzstan
have too
Source: Macrobond
Source: Macrobond
The effectiveness of sanctions is also mixed so there could be some tightening up on any
evasion. For all of the increased restrictions on trade flows– from China’s restrictions on rare
minerals, to Russia’s restrictions on gas supplies to Europe, to a Western-imposed price cap of
USD60/barrel on the Russian oil supply – many of the products targeted are still finding their
way into global markets and in the case of Russian oil at a price much above that cap8.. In other
words, the sanctions may not have had the intended impact on Russia’s economy (we have
revised up our Russia GDP forecast again) but continue to weigh on Europe. The recent record
low for output in Germany’s energy intensive sectors is testament to that.
8 Kyiv School of Economics estimates that 99% of seaborne Russian crude was sold at above USD60/bl
and that 29% of those were transported on vessels owned or insured by G7-registered entities. (quoted in
FT)
33
Economics ● Global
Q1 2024
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34
Economics ● Global
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Global economic forecasts
35
Economics ● Global
Q1 2024
GDP
Annual
% Year
World (Nominal GDP weights)
World (PPP Weights)
Developed
Emerging
North America
US
Canada
Asia-Pacific
Asia Big Three
Asia ex-Japan
Mainland China
Japan
India
Asia ex Big Three
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Hong Kong
Philippines
New Zealand
Western Europe
Eurozone
Germany
France
Italy
Spain
Other Western Europe
UK
Switzerland
Sweden
Norway**
CEEMEA
Poland
Russia
Türkiye
Saudi Arabia
South Africa
Latin America
Brazil
Mexico
Argentina
Colombia
Chile
2014
3.0
3.0
2.0
4.6
2.6
2.5
2.9
4.7
5.1
6.1
7.4
0.3
7.0
3.6
2.6
3.2
5.0
4.7
1.0
6.0
3.9
2.8
6.3
3.7
1.8
1.4
2.2
1.0
0.1
1.4
2.9
3.2
2.3
2.8
2.2
2.5
3.8
0.7
5.3
4.0
1.4
1.0
0.5
2.5
-2.5
4.5
1.8
2015
3.0
3.0
2.3
4.2
2.7
2.9
0.6
4.9
5.6
5.8
7.0
1.6
7.5
3.2
2.3
2.8
4.9
1.5
3.1
4.9
3.0
2.4
6.3
3.6
2.0
1.9
1.2
1.0
0.8
3.8
2.3
2.2
1.6
4.2
1.4
1.6
4.4
-2.3
6.0
4.7
1.3
-0.4
-3.5
2.7
2.7
3.0
2.2
2016
2.8
2.8
1.7
4.5
1.8
1.8
1.0
5.0
5.6
6.0
6.8
0.8
9.0
3.5
2.7
2.9
5.0
2.2
3.4
4.4
3.6
2.2
7.1
4.0
1.8
1.8
2.1
1.0
1.4
3.0
1.8
1.9
2.1
1.8
0.4
1.8
3.0
0.3
3.3
2.4
0.7
-1.0
-3.3
1.8
-2.1
2.1
1.8
2017
3.5
3.3
2.5
4.9
2.5
2.5
3.0
5.0
5.4
5.9
6.9
1.7
6.1
3.8
2.4
3.2
5.1
3.3
4.2
5.8
4.5
3.8
6.9
3.4
2.7
2.8
3.0
2.5
1.7
3.0
2.5
2.7
1.4
2.8
2.5
3.1
5.1
1.6
7.4
-0.1
1.2
1.7
1.3
1.9
2.8
1.4
1.4
2018
3.3
3.2
2.2
4.8
2.9
3.0
2.7
4.9
5.3
5.9
6.7
0.6
7.3
3.6
2.8
2.9
5.2
2.8
4.2
4.8
3.6
2.8
6.3
3.5
1.8
1.8
1.0
1.8
0.8
2.3
1.8
1.4
2.9
2.0
2.3
2.9
5.9
2.3
3.0
2.8
1.6
1.4
1.8
2.0
-2.6
2.6
4.0
2019
2.7
2.4
1.8
3.9
2.4
2.5
1.9
3.9
4.3
4.8
6.0
-0.4
4.6
2.7
1.8
2.2
5.0
3.1
2.1
4.4
1.3
-1.7
6.1
3.1
1.6
1.6
1.1
1.9
0.5
2.0
1.7
1.6
1.2
2.0
2.4
1.8
4.4
2.0
0.9
0.8
0.3
0.6
1.4
-0.3
-2.0
3.2
0.7
2020
-2.9
-3.6
-4.2
-1.1
-2.4
-2.2
-5.0
-0.8
-0.3
-0.1
2.2
-4.1
-6.0
-2.5
-2.1
-0.7
-2.1
3.4
-6.1
-5.5
-3.9
-6.5
-9.5
-1.5
-6.6
-6.3
-4.2
-7.7
-9.0
-11.2
-7.5
-10.4
-2.3
-2.3
-3.4
-2.5
-2.0
-3.0
1.9
-4.3
-6.0
-6.1
-3.3
-8.7
-9.9
-7.3
-6.1
2021
6.2
5.9
5.5
7.2
5.8
5.8
5.3
6.7
7.2
7.5
8.4
2.6
8.9
4.9
5.6
4.3
3.7
6.6
1.5
3.3
8.9
6.4
5.7
6.0
6.0
5.6
3.1
6.4
7.0
6.4
7.4
8.7
5.4
5.9
4.5
6.5
6.8
5.6
11.4
3.9
4.7
6.8
4.8
5.8
10.7
11.0
11.7
2022
3.0
3.4
2.6
3.7
2.1
1.9
3.8
3.2
3.1
3.5
3.0
1.0
6.7
3.6
3.8
2.6
5.3
2.6
2.6
8.7
3.6
-3.5
7.6
2.7
3.5
3.4
1.9
2.5
3.8
5.8
3.9
4.3
2.7
3.0
3.7
2.7
4.9
-2.1
5.5
8.7
1.9
3.8
3.0
3.9
5.0
7.3
2.4
2023f
2.7
2.6
1.6
4.1
2.3
2.4
1.1
4.4
4.9
4.7
5.2
1.9
7.0
2.6
2.0
1.4
5.0
1.0
2.5
4.1
1.2
3.3
5.3
0.8
0.5
0.5
-0.2
0.8
0.7
2.3
0.4
0.3
0.8
-0.4
1.1
1.8
0.3
2.6
4.0
0.2
0.5
2.2
2.9
3.4
-1.0
1.0
0.0
Source: HSBC estimates. Notes: Real GDP. *Mainland. India’s calendar year number is shown here. Fiscal year is on country page. We calculate the weighting system using chain nominal GDP (USD) weights.
36
2024f
2.4
2.4
1.1
4.0
1.6
1.7
0.5
4.1
4.3
4.5
4.9
0.8
6.0
3.0
1.5
1.9
5.2
3.2
3.8
4.5
2.4
2.8
5.3
1.9
0.6
0.5
-0.1
0.9
0.5
1.2
0.7
0.6
1.1
0.5
1.2
2.3
3.0
1.5
2.5
3.7
1.1
1.6
2.0
2.7
-2.0
1.0
1.5
2025f
2.6
2.7
1.4
4.1
1.6
1.5
1.8
4.0
4.1
4.3
4.5
1.1
6.3
3.2
1.9
2.2
5.3
2.7
3.2
4.6
2.6
2.8
5.8
1.9
1.2
1.3
0.9
1.2
0.8
1.5
1.1
0.9
1.5
2.1
1.1
2.8
3.4
1.7
3.5
4.5
1.5
2.4
2.3
2.5
3.0
2.0
2.4
Economics ● Global
Q1 2024
Quarterly
Q1 22 Q2 22 Q3 22 Q4 22 Q1 23 Q2 23 Q3 23 Q4 23f Q1 24f Q2 24f Q3 24f Q4 24f
North America
US*
Canada*
% Quarter
% Year
% Quarter
% Year
Asia-Pacific
Mainland China % Year
Japan
% Quarter
% Year
India
% Year
Australia
% Quarter
% Year
South Korea
% Year
Indonesia
% Year
Taiwan
% Year
Thailand
% Year
Malaysia
% Year
Singapore
% Year
Hong Kong
% Year
Philippines
% Year
New Zealand % Year
Western Europe
Eurozone
% Quarter
% Year
Germany
% Quarter
% Year
France
% Quarter
% Year
Italy
% Quarter
% Year
Spain
% Quarter
% Year
Other Western Europe
UK
% Quarter
% Year
Switzerland
% Year
Sweden
% Year
Norway**
% Year
CEEMEA
Poland
% Year
Russia
% Year
Türkiye
% Year
South Africa
% Year
Latin America
Brazil
% Quarter
% Year
Mexico
% Quarter
% Year
Argentina
% Quarter
% Year
Colombia
% Quarter
% Year
Chile
% Quarter
% Year
-2.0
3.6
3.9
3.9
-0.6
1.9
3.8
5.2
2.7
1.7
1.8
4.0
2.6
0.7
-0.9
2.2
2.2
1.7
2.5
1.8
2.1
2.4
1.4
1.2
4.9
2.9
-1.1
0.5
1.4
2.6
0.3
0.8
1.1
2.4
0.0
0.2
0.9
2.1
1.1
0.1
1.3
1.2
1.7
0.8
1.5
1.2
1.8
1.2
4.8
-0.6
0.3
4.0
0.5
3.6
3.1
5.0
3.8
2.2
4.8
4.0
-3.9
8.0
0.7
0.4
1.1
1.5
13.1
0.8
3.5
2.9
5.5
3.5
2.5
8.8
4.5
-1.2
7.5
0.5
3.9
-0.1
1.5
6.2
0.2
5.8
3.2
5.7
4.0
4.6
14.1
4.0
-4.6
7.7
6.4
2.9
0.2
0.5
4.5
0.9
2.3
1.4
5.0
-0.7
1.4
7.1
2.1
-4.1
7.1
2.3
4.5
1.2
2.5
6.1
0.5
2.4
0.9
5.0
-3.5
2.6
5.6
0.4
2.9
6.4
2.1
6.3
0.9
2.2
7.8
0.4
2.0
0.9
5.2
1.4
1.8
2.9
0.6
1.5
4.3
1.5
4.9
-0.7
1.5
7.6
0.2
2.1
1.4
4.9
2.3
1.5
3.3
1.1
4.1
5.9
-0.6
5.2
0.1
1.4
6.5
0.3
1.5
2.2
4.7
3.7
4.0
4.8
2.5
4.8
4.6
0.5
3.8
0.3
0.5
5.8
0.1
1.1
2.2
5.0
5.1
3.0
5.0
3.3
0.6
5.4
1.3
6.4
0.3
0.0
6.3
0.6
1.3
1.9
5.1
3.7
3.2
4.9
3.3
2.8
5.7
1.4
4.7
0.3
1.1
5.9
0.6
1.7
1.8
5.2
2.3
4.5
4.1
2.2
3.7
4.6
2.3
4.7
0.3
1.4
6.0
0.6
1.9
1.6
5.4
2.0
4.4
4.2
1.0
3.9
5.3
2.5
0.7
5.5
1.0
4.0
-0.1
4.4
0.1
6.5
0.3
6.8
0.8
4.3
-0.1
1.6
0.4
3.9
1.4
5.1
2.5
7.2
0.4
2.5
0.4
1.2
0.3
1.2
0.3
2.6
0.5
5.4
-0.1
1.8
-0.4
0.8
0.1
0.7
-0.2
1.6
0.5
3.8
0.1
1.1
0.0
-0.2
0.0
0.8
0.6
2.1
0.6
4.1
0.1
0.6
0.1
0.1
0.6
1.2
-0.4
0.3
0.4
2.0
-0.1
0.0
-0.1
-0.4
-0.1
0.6
0.1
0.1
0.3
1.8
0.0
0.1
-0.2
-0.2
0.1
0.7
0.1
0.4
0.1
1.5
0.1
0.2
0.0
-0.2
0.2
0.8
0.1
0.0
0.2
1.1
0.2
0.2
0.0
-0.3
0.3
0.5
0.2
0.5
0.3
1.0
0.3
0.7
0.1
-0.1
0.3
0.9
0.2
0.7
0.4
1.2
0.3
1.0
0.2
0.3
0.3
1.2
0.2
0.7
0.3
1.3
0.5
11.4
5.1
5.1
5.2
0.1
3.9
3.2
4.3
4.8
-0.1
2.1
1.1
2.9
2.7
0.1
0.6
1.1
-0.1
2.3
0.3
0.4
1.6
1.3
2.1
0.0
0.3
0.3
-0.4
1.1
-0.1
0.3
0.3
-1.4
0.6
0.0
0.2
0.7
-0.9
0.4
0.2
0.2
0.6
-1.1
0.7
0.2
0.4
1.1
0.1
1.1
0.3
0.8
1.2
1.0
1.4
0.3
1.0
1.3
1.8
1.6
8.8
3.0
7.8
2.5
6.3
-4.5
7.6
0.2
4.1
-3.5
4.1
4.1
2.5
-2.7
3.3
0.8
-0.3
-1.8
4.0
0.2
-0.6
4.9
3.9
1.5
0.5
5.5
5.9
-0.7
1.5
1.8
2.4
0.9
2.8
0.5
3.9
0.6
2.6
1.5
2.6
0.5
3.1
1.5
1.3
1.6
3.2
2.4
2.4
1.6
1.0
1.5
1.4
3.0
0.8
5.8
1.2
8.2
-0.8
7.5
1.3
3.5
1.0
3.3
1.7
6.8
1.6
12.3
-0.3
5.2
1.1
4.3
1.2
5.1
0.5
5.7
0.9
7.4
-1.1
0.2
-0.1
2.7
0.6
4.2
-1.8
1.5
-1.6
2.1
0.2
-2.3
1.4
4.2
0.6
3.5
0.9
1.4
2.2
3.0
0.5
-0.7
1.0
3.5
0.9
3.4
-2.8
-4.9
-1.0
0.4
-0.4
-0.8
0.1
2.0
1.1
3.3
2.9
-0.9
0.2
-0.3
0.4
0.6
0.1
1.9
0.6
3.2
-0.3
0.6
-0.5
0.8
0.2
0.8
0.5
0.1
0.4
2.4
-2.5
-2.8
0.6
-0.7
0.3
0.6
0.9
2.1
0.5
3.5
-0.5
-0.5
0.6
0.8
0.6
1.6
0.8
2.6
0.7
2.6
0.1
-3.2
0.6
1.3
0.6
1.4
0.6
3.2
0.7
2.3
1.5
-1.5
0.5
2.3
0.6
2.4
Source: HSBC estimates. Notes:*Quarterly annualised rate; **Mainland
37
Economics ● Global
Q1 2024
Consumer prices
Annual
% Year
World
Developed
Emerging
North America
US
Canada
Asia-Pacific
Asia Big Three
Asia ex-Japan
Mainland China
Japan
India*
Asia ex Big Three
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Hong Kong
Philippines
New Zealand
Western Europe
Eurozone
Germany
France
Italy
Spain
Other Western Europe
UK
Switzerland
Sweden
Norway
CEEMEA
Poland
Russia
Türkiye
Saudi Arabia
South Africa
Latin America
Brazil
Mexico
Argentina
Colombia
Chile
2014
3.2
1.4
4.7
1.6
1.6
1.9
3.1
3.1
3.1
2.0
2.8
6.0
3.2
2.5
1.3
6.4
1.2
1.9
3.1
1.0
4.4
3.6
1.2
0.6
0.4
0.8
0.6
0.3
-0.2
1.1
1.5
0.0
-0.2
2.0
6.0
0.0
7.8
8.9
2.2
6.1
9.2
6.3
4.0
38.6
2.9
4.7
2015
2.7
0.3
4.7
0.2
0.1
1.1
2.1
2.1
2.3
1.4
0.8
4.9
2.1
1.5
0.7
6.4
-0.3
-0.9
2.1
-0.5
3.0
0.7
0.3
0.2
0.2
0.7
0.1
0.1
-0.6
0.1
0.0
-1.1
0.0
2.2
8.6
-0.9
15.6
7.7
1.2
4.6
8.7
9.0
2.7
28.1
5.0
4.3
2016
2.7
0.7
4.2
1.3
1.3
1.4
2.1
2.2
2.4
2.0
-0.1
4.5
1.7
1.3
1.0
3.5
1.4
0.2
2.1
-0.5
2.4
1.3
0.6
0.4
0.2
0.4
0.3
0.0
-0.3
0.8
0.7
-0.4
1.0
3.5
5.4
-0.6
7.1
7.8
2.1
6.3
10.5
8.8
2.8
41.6
7.5
3.8
2017
2.8
1.7
3.7
2.1
2.1
1.6
2.0
1.9
2.2
1.6
0.5
3.6
2.3
1.9
1.9
3.8
0.6
0.7
3.8
0.6
1.5
2.9
1.9
1.7
1.5
1.7
1.2
1.4
2.0
2.2
2.7
0.5
1.8
1.9
4.6
2.0
3.7
11.1
-0.8
5.3
7.3
3.5
6.0
28.2
4.3
2.2
2018
3.2
2.0
4.1
2.4
2.4
2.2
2.2
2.3
2.4
2.1
1.0
3.4
2.2
1.9
1.5
3.3
1.4
1.1
1.0
0.4
2.4
5.2
1.6
1.9
1.8
1.9
2.1
1.2
1.7
2.2
2.5
0.9
2.0
2.8
6.0
1.7
2.9
16.3
2.5
4.6
7.8
3.7
4.9
31.7
3.2
2.4
2019
3.1
1.5
4.4
1.8
1.8
2.0
2.6
3.0
2.9
2.9
0.5
4.8
1.5
1.6
0.4
2.8
0.6
0.7
0.7
0.6
2.9
2.4
1.6
1.3
1.2
1.4
1.3
0.7
0.8
1.6
1.8
0.4
1.8
2.2
5.7
2.3
4.5
15.2
-2.1
4.1
10.1
3.7
3.6
53.5
3.5
2.6
2020
2.5
0.7
3.9
1.2
1.2
0.7
2.5
3.1
2.8
2.5
0.0
6.2
0.7
0.8
0.5
2.0
-0.2
-0.8
-1.1
-0.2
0.3
2.4
1.7
0.3
0.3
0.4
0.5
-0.2
-0.3
0.6
0.9
-0.7
0.5
1.3
5.4
3.4
3.3
12.3
3.4
3.3
8.1
3.2
3.4
42.0
2.5
3.0
2021
4.1
3.6
4.4
4.6
4.7
3.4
1.9
1.8
2.2
0.9
-0.2
5.5
2.2
2.9
2.5
1.6
2.0
1.2
2.5
2.3
1.6
3.9
3.9
3.5
2.6
3.2
2.1
1.9
3.0
6.6
9.1
0.6
2.2
3.5
8.9
5.1
6.7
19.6
3.1
4.5
11.7
8.3
5.7
48.4
3.5
4.5
2022
8.4
7.5
9.1
7.9
8.0
6.8
3.6
3.2
3.7
2.0
2.5
6.7
4.8
6.6
5.1
4.2
2.9
6.1
3.3
6.1
1.9
5.8
7.2
8.3
8.4
8.7
5.9
8.7
8.3
7.9
9.1
2.8
8.4
5.8
26.6
14.3
13.8
72.3
2.5
6.9
17.1
9.3
7.9
72.4
10.2
11.6
Source: HSBC estimates. Note: *Average of private estimates compiled by Congresspersons used from 2012 to 2016. We calculate the weighting system using GDP PPP (USD) weights
38
2023f
6.3
4.7
7.5
4.1
4.1
3.8
2.3
1.9
2.2
0.2
3.3
5.4
3.7
5.7
3.6
3.7
2.5
1.3
2.5
5.0
2.1
6.0
5.8
5.7
5.4
6.1
5.7
5.9
3.4
6.6
7.3
2.1
8.0
5.5
18.8
11.6
5.1
53.7
2.3
5.9
22.0
4.6
5.5
130.7
11.5
7.6
2024f
5.8
2.8
7.8
3.0
3.1
2.5
2.1
1.9
2.1
0.5
2.6
5.0
2.9
3.5
2.6
3.2
2.1
1.6
2.4
3.5
2.6
4.1
3.6
2.4
2.5
2.4
2.3
1.7
2.7
2.4
2.4
1.7
2.7
3.7
18.1
4.8
7.3
52.5
1.9
5.4
36.9
3.8
4.0
265.4
6.2
4.0
2025f
3.8
2.5
4.6
2.8
2.9
2.0
2.4
2.3
2.4
1.3
2.0
5.0
2.5
2.8
1.9
3.0
1.8
2.1
2.3
2.4
2.0
3.6
2.8
2.2
2.2
2.4
2.0
2.0
2.5
2.1
2.3
1.4
1.8
2.5
12.4
4.3
5.0
34.3
2.2
5.1
12.7
4.2
3.6
76.9
4.5
2.9
Economics ● Global
Q1 2024
Quarterly
Q1 22
% Year
North America
US
8.0
Canada
5.8
Asia-Pacific
Mainland China
1.1
Japan
0.9
India
6.3
Australia
5.1
South Korea
3.8
Indonesia
2.3
Taiwan
2.8
Thailand
4.7
Malaysia
2.2
Singapore
4.6
Hong Kong
1.5
Philippines
3.4
New Zealand
6.9
Western Europe
Eurozone
6.1
Germany
6.1
France
4.2
Italy
6.0
Spain
7.9
Other Western Europe
UK
6.2
Switzerland
2.1
Sweden
4.7
Norway
3.8
CEEMEA
Poland
9.6
Russia
11.5
Türkiye
54.8
South Africa
5.8
Latin America
Brazil
10.7
Mexico
7.3
Argentina
52.8
Colombia
7.8
Chile
8.3
Q2 22
Q3 22
Q4 22
Q1 23
Q2 23
Q3 23f
Q4 23f
Q1 24f
Q2 24f
Q3 24f
Q4 24f
8.6
7.6
8.3
7.1
7.1
6.6
5.8
5.2
4.0
3.5
3.5
3.6
3.2
3.0
3.0
2.9
3.2
2.7
3.0
2.0
3.3
2.1
2.2
2.4
7.3
6.1
5.4
3.8
3.5
6.5
2.8
5.9
1.5
5.5
7.3
2.7
2.9
7.0
7.3
5.9
5.2
2.9
7.3
4.5
7.3
2.7
6.5
7.2
1.8
3.9
6.1
7.8
5.2
5.5
2.6
5.8
3.9
6.6
1.8
7.9
7.2
1.3
3.6
6.2
7.0
4.7
5.2
2.6
3.9
3.6
6.1
1.9
8.3
6.7
0.1
3.4
4.6
6.0
3.2
3.9
2.0
1.1
2.8
5.1
2.0
6.0
6.0
-0.1
3.1
6.4
5.4
3.1
2.9
2.4
0.5
2.0
4.1
1.9
5.4
5.6
-0.4
3.0
5.5
4.4
3.5
2.8
2.9
-0.3
1.7
4.5
2.7
4.4
5.0
-0.4
2.9
5.0
3.9
3.3
3.0
2.4
0.0
2.2
4.3
2.5
3.8
4.5
0.5
2.7
5.2
3.6
2.5
3.2
2.3
1.5
2.3
3.5
2.9
4.6
4.1
0.6
2.5
3.9
3.3
2.5
3.4
2.1
2.0
2.3
3.3
2.9
4.1
2.9
1.3
2.2
5.4
3.1
2.2
3.3
1.7
2.8
2.6
2.9
2.2
3.7
2.8
8.0
8.3
5.9
7.3
8.9
9.3
9.4
6.5
9.0
10.0
10.0
10.8
7.0
12.5
6.5
8.0
8.7
7.0
9.5
5.0
5.5
6.9
6.1
7.8
2.8
5.0
5.7
5.5
5.8
2.6
2.8
3.1
4.2
1.1
3.4
2.6
2.7
3.1
1.1
2.6
2.5
2.3
2.2
1.7
2.9
2.2
2.0
1.9
1.9
2.4
2.5
2.5
2.0
2.2
2.9
9.2
3.0
7.4
5.8
10.0
3.4
9.7
6.7
10.8
2.9
11.6
6.6
10.2
3.2
11.4
6.6
8.4
2.1
9.8
6.5
6.7
1.6
7.7
4.5
4.1
1.5
3.5
4.6
3.6
1.7
3.2
4.5
1.6
1.8
3.0
3.8
2.0
1.7
2.5
3.6
2.5
1.5
2.0
3.0
13.9
16.9
74.1
6.6
16.3
14.4
81.1
7.7
17.3
12.2
77.4
7.4
17.0
8.8
54.5
7.0
13.1
2.7
40.5
6.2
9.7
5.2
56.1
5.0
6.5
7.3
62.2
5.4
4.3
7.6
59.0
5.5
4.0
8.1
63.6
5.5
5.4
7.5
48.4
5.5
5.4
6.0
43.6
5.1
11.9
7.8
61.0
9.3
11.5
8.7
8.5
77.6
10.8
13.6
6.1
8.0
91.8
12.6
13.0
5.3
7.5
102.0
13.3
11.8
3.8
5.7
113.0
12.0
8.7
4.6
4.6
125.9
11.1
5.6
4.7
4.3
164.1
9.9
4.5
4.0
4.2
243.9
7.2
4.1
3.5
4.1
303.8
6.6
4.0
3.9
3.9
294.0
5.9
4.1
3.8
3.9
232.8
5.2
3.7
Source: HSBC estimates
39
Economics ● Global
Q1 2024
Policy Rates
End period (%)
North America
US*
Canada
Asia-Pacific
Mainland China**
Japan
India
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Hong Kong
Philippines
New Zealand
Western Europe
Eurozone (Refi)
Eurozone (Deposit)
UK
Switzerland
Sweden
Norway
CEEMEA
Poland
Russia
Türkiye***
South Africa
Latin America
Brazil
Mexico
Argentina
Colombia
Chile
___________ 2023 ___________ ___________ 2024 ___________ ___________ 2025 __________
Q1
Q2
Q3
Q4f
Q1f
Q2f
Q3f
Q4f
Q1f
Q2f
Q3f
Q4f
4.875
4.50
5.125
4.75
5.375
5.00
5.375
5.00
5.375
5.00
5.125
4.75
4.875
4.25
4.625
4.00
4.375
3.75
4.125
3.50
3.875
3.00
3.875
3.00
3.65
-0.10
6.50
3.60
3.50
5.75
1.875
1.75
2.75
5.25
6.25
4.75
3.55
-0.10
6.50
4.10
3.50
5.75
1.875
2.00
3.00
5.50
6.25
5.50
3.45
-0.10
6.50
4.10
3.50
5.75
1.875
2.50
3.00
5.75
6.25
5.50
3.45
-0.10
6.50
4.35
3.50
6.00
1.875
2.50
3.00
5.75
6.50
5.50
3.45
-0.10
6.50
4.35
3.50
6.00
1.875
2.50
3.00
5.75
6.50
5.50
3.45
0.00
6.25
4.35
3.50
5.75
1.875
2.50
3.00
5.50
6.50
5.50
3.35
0.00
6.00
4.35
3.25
5.50
1.875
2.50
3.00
5.25
6.25
5.50
3.25
0.00
6.00
4.35
3.00
5.00
1.750
2.50
3.00
5.00
6.00
5.25
3.25
0.00
6.00
4.00
2.75
5.00
1.625
2.50
2.75
4.75
5.75
5.00
3.25
0.00
6.00
4.00
2.50
5.00
1.625
2.50
2.75
4.50
5.50
4.75
3.25
0.00
6.00
3.75
2.25
5.00
1.625
2.50
2.75
4.25
5.25
4.50
3.25
0.00
6.00
3.75
2.25
5.00
1.625
2.50
2.75
4.25
5.00
4.25
3.50
3.00
4.25
1.50
3.00
3.25
4.00
3.50
5.00
1.75
3.75
3.50
4.50
4.00
5.25
1.75
4.00
4.00
4.50
4.00
5.25
1.75
4.00
4.50
4.50
4.00
5.25
1.75
4.00
4.50
4.25
3.75
5.25
1.75
3.75
4.00
4.00
3.50
5.00
1.50
3.50
3.50
3.75
3.25
4.75
1.25
3.00
3.00
3.50
3.00
4.50
1.00
2.50
2.75
3.25
2.75
4.25
1.00
2.25
2.50
3.00
2.50
4.00
1.00
2.00
2.50
3.00
2.50
3.75
1.00
2.00
2.50
6.75
7.50
8.50
7.75
6.75
7.50
15.00
8.25
6.00
13.00
30.00
8.25
5.75
16.00
42.50
8.25
5.50
16.00
42.50
8.25
5.50
16.00
42.50
8.25
5.25
13.50
42.50
8.00
5.25
11.00
42.50
7.75
5.00
10.00
39.50
7.50
5.00
9.00
36.50
7.25
4.50
8.00
33.50
7.25
4.50
7.00
30.50
7.25
13.75
11.25
78.00
13.00
11.25
13.75
11.25
97.00
13.25
11.25
12.75 11.75 10.25
11.25 11.25 10.75
118.00 100.00 100.00
13.25 13.00 12.50
9.50
8.25
7.50
9.00
10.25
90.00
11.50
6.00
8.50
9.75
75.00
10.50
5.25
8.50
9.25
65.00
9.00
4.75
8.50
8.75
60.00
8.50
4.50
8.50
8.25
50.00
8.00
4.50
8.50
7.75
40.00
8.00
4.50
8.75
7.50
30.00
8.00
4.50
Source: HSBC estimates. Note: *midpoint of Federal Funds target range. **1-year Loan Prime Rate (LPR). ***Turkey rate given is the one week repo rate.
40
Economics ● Global
Q1 2024
Exchange rates vs USD
End period
_______ 2022 _______
Q1
Q2
Q3
Q4
_______ 2023 _______
Q1
Q2
Q3
Q4f
_______ 2024 _______
Q1f
Q2f
Q3f
Q4f
Americas
Canada (CAD)
1.25
1.29
1.38
1.36
1.35
1.32
1.36
1.34
1.33
1.32
1.31
1.30
Mexico (MXN)
19.87 20.12 20.14 19.50 18.05 17.12 17.42 17.25 17.50 17.75 17.75 17.50
Brazil (BRL)
4.74
5.26
5.42
5.28
5.06
4.79
5.03
4.90
4.75
4.75
4.75
4.50
Argentina (ARS)
110.89 125.05 147.10 176.78 208.58 256.23 350.02 810.00 1200.00 1500.00 1750.00 2000.00
Colombia (COP)
3771 4155 4609 4851 4623 4172 4068 3960 4050 4000 3950 3950
Asia/Pacific
Japan (JPY)
122
136
145
131
133
144
149
144
140
138
137
136
Australia (AUD)*
0.75
0.69
0.64
0.68
0.67
0.67
0.64
0.66
0.64
0.62
0.62
0.62
New Zealand (NZD)*
0.69
0.62
0.56
0.64
0.63
0.61
0.60
0.61
0.59
0.57
0.57
0.57
Mainland China (CNY)
6.34
6.70
7.12
6.90
6.87
7.25
7.30
7.15
7.20
7.25
7.30
7.30
Hong Kong (HKD)
7.83
7.85
7.85
7.80
7.85
7.84
7.83
7.80
7.80
7.80
7.80
7.80
India (INR)
75.8
79.0
81.3
82.7
82.2
82.0
83.0
83.3
83.3
83.5
83.8
84.0
Indonesia (IDR)
14369 14898 15228 15568 14995 15066 15455 15600 15800 15900 15900 15900
Malaysia (MYR)
4.20
4.41
4.64
4.40
4.42
4.67
4.70
4.70
4.70
4.70
4.65
4.60
Philippines (PHP)
51.8
55.0
58.6
55.7
54.4
55.2
56.6
55.8
56.2
56.6
57.0
57.0
Singapore (SGD)
1.35
1.39
1.44
1.34
1.33
1.35
1.37
1.34
1.36
1.38
1.38
1.38
South Korea (KRW)
1212 1299 1431 1266 1302 1318 1349 1320 1320 1310 1300 1300
Taiwan (TWD)
28.6
29.7
31.9
30.7
30.5
31.1
32.3
32.0
31.8
31.6
31.6
31.6
Thailand (THB)
33.3
35.4
37.7
34.6
34.2
35.5
36.4
35.2
35.6
36.0
36.4
36.4
Western Europe
Eurozone (EUR)*
1.11
1.05
0.98
1.07
1.08
1.09
1.06
1.09
1.06
1.04
1.02
1.02
UK (GBP)*
1.31
1.22
1.12
1.21
1.23
1.27
1.22
1.27
1.23
1.20
1.18
1.18
Sweden (SEK)
9.40 10.23 11.09 10.43 10.41 10.79 10.93 10.28 10.75 11.15 11.57 11.76
Norway (NOK)
8.79
9.85 10.89
9.81 10.48 10.74 10.70 10.55 10.85 11.15 11.57 11.76
Switzerland (CHF)
0.92
0.95
0.99
0.92
0.92
0.90
0.92
0.87
0.89
0.90
0.92
0.92
CEEMEA
Poland (PLN)
4.20
4.48
4.95
4.38
4.32
4.06
4.37
3.94
4.06
4.13
4.22
4.22
Russia (RUB)
81.2
54.2
60.1
74.2
77.7
89.3
97.6
90.0 100.0 105.0 110.0 110.0
Türkiye (TRY)
14.67 16.70 18.53 18.71 19.18 26.01 27.42 29.00 30.00 31.00 32.00 33.00
South Africa (ZAR)
14.61 16.28 18.09 17.04 17.80 18.85 18.92 18.50 19.50 20.00 20.50 20.50
Source: HSBC estimates, Bloomberg. Note: *Denoted XXX-USD.
41
Economics ● Global
Q1 2024
Exchange rate vs EUR & GBP
End period
_________ 2022 ________
Q1
Q2
Q3
Q4
_________ 2023 _________
Q1
Q2
Q3
Q4f
_________ 2024 _________
Q1f
Q2f
Q3f
Q4f
US (USD)
Canada (CAD)
1.11
1.38
1.05
1.35
0.98
1.36
1.07
1.45
1.08
1.46
1.09
1.44
1.06
1.44
1.09
1.46
1.06
1.41
1.04
1.37
1.02
1.34
1.02
1.33
Japan (JPY)
Australia (AUD)
New Zealand (NZD)
135
1.48
1.59
142
1.52
1.68
142
1.53
1.75
140
1.57
1.69
144
1.62
1.73
157
1.64
1.78
158
1.64
1.76
157
1.65
1.79
148
1.66
1.80
144
1.68
1.82
140
1.65
1.79
139
1.65
1.79
UK (GBP)
Sweden (SEK)
Switzerland (CHF)
Norway (NOK)
Poland (PLN)
Russia (RUB)
0.84 0.86 0.88 0.89 0.88 0.86 0.87 0.86 0.86 0.87 0.86 0.86
10.40 10.72 10.87 11.16 11.28 11.77 11.55 11.20 11.40 11.60 11.80 12.00
1.02 1.00 0.97 0.99 0.99 0.98 0.97 0.95 0.94 0.94 0.94 0.94
9.73 10.32 10.67 10.50 11.36 11.72 11.32 11.50 11.50 11.60 11.80 12.00
4.65 4.70 4.86 4.69 4.68 4.43 4.62 4.30 4.30 4.30 4.30 4.30
89.9 56.8 58.9 79.4 84.2 97.4 103.1 98.1 106.0 109.2 112.2 112.2
South Africa (ZAR)
16.17 17.07 17.73 18.24 19.29 20.56 20.01 20.17 20.67 20.80 20.91 20.91
US (USD)
Canada (CAD)
1.31
1.64
1.22
1.57
1.12
1.54
1.21
1.64
1.23
1.67
1.27
1.68
1.22
1.66
1.27
1.70
1.23
1.64
1.20
1.58
1.18
1.55
1.18
1.53
Japan (JPY)
Australia (AUD)
New Zealand (NZD)
160
1.76
1.89
165
1.76
1.95
162
1.75
1.99
158
1.77
1.90
164
1.85
1.97
183
1.91
2.07
182
1.90
2.03
183
1.92
2.08
172
1.92
2.08
166
1.94
2.11
162
1.90
2.07
160
1.90
2.07
Eurozone (EUR)
Sweden (SEK)
Norway (NOK)
Switzerland (CHF)
1.19 1.16 1.14 1.13 1.14 1.16 1.15 1.17 1.16 1.15 1.16 1.16
12.34 12.45 12.39 12.60 12.84 13.71 13.33 13.05 13.23 13.38 13.65 13.88
11.55 11.99 12.16 11.85 12.93 13.64 13.06 13.40 13.34 13.38 13.65 13.88
1.21 1.16 1.10 1.12 1.13 1.14 1.12 1.11 1.09 1.08 1.09 1.09
South Africa (ZAR)
19.20 19.82 20.20 20.59 21.96 23.94 23.08 23.50 23.99 24.00 24.19 24.19
vs EUR
Americas
Asia/Pacific
Europe
Africa
vs GBP
Americas
Asia/Pacific
Europe
Africa
Source: HSBC estimates, Bloomberg.
42
Economics ● Global
Q1 2024
Consumer spending
Consumer spending
% Year
World
Developed
Emerging
North America
US
Canada
Asia-Pacific
Asia Big Three
Mainland China
Japan
India*
Asia ex-Big Three
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Hong Kong
Philippines
New Zealand
Western Europe
Eurozone
Germany
France
Italy
Spain
Other Western Europe
UK
Switzerland
Sweden
Norway
CEEMEA
Poland
Russia
Türkiye
Saudi Arabia
South Africa
Latin America
Brazil
Mexico
Argentina
Colombia
Chile
2014
2.7
1.8
4.3
2.8
2.8
2.7
4.0
4.2
8.0
-0.9
6.4
3.3
2.6
2.0
5.1
3.7
0.5
7.0
3.6
3.3
5.8
3.3
1.3
0.9
1.1
0.9
0.1
1.7
2.4
2.7
1.0
2.9
2.1
2.7
3.4
2.0
3.0
7.4
0.7
1.5
2.3
2.0
-4.4
4.2
2.7
2015
2.7
2.4
3.1
3.3
3.4
2.3
4.4
4.8
7.4
-0.2
7.9
3.6
2.5
2.2
5.0
2.9
2.6
6.2
5.1
4.8
6.4
4.0
2.1
1.8
1.8
1.4
1.9
2.9
2.9
2.8
2.5
3.8
2.7
-1.4
3.8
-9.4
5.5
8.3
2.2
-0.1
-3.2
2.7
3.7
3.1
2.1
2016
2.9
2.1
4.5
2.4
2.5
1.9
5.2
5.9
8.9
-0.4
8.1
3.6
2.6
2.6
5.0
2.6
2.9
5.9
3.3
2.0
7.1
5.7
2.3
1.9
2.2
1.6
1.2
2.6
3.1
3.7
1.6
2.3
1.0
1.2
3.6
-1.9
3.6
2.6
0.7
-0.9
-3.8
1.9
-0.8
1.6
2.7
2017
3.3
2.3
5.2
2.7
2.6
3.8
4.7
5.0
7.1
1.1
6.2
3.8
2.5
2.8
4.9
2.7
3.1
6.9
3.1
5.5
6.0
5.5
1.9
1.9
1.7
1.6
1.5
3.0
1.9
1.8
1.2
2.6
2.6
4.5
6.3
3.3
6.0
4.6
1.7
2.3
2.0
1.7
4.2
2.1
3.4
2018
3.1
2.1
4.9
2.7
2.7
2.6
4.9
5.2
7.5
0.2
7.1
4.0
2.5
3.2
5.1
2.1
4.6
8.0
4.1
5.3
5.8
4.6
1.6
1.5
1.5
1.0
1.0
1.8
1.7
2.0
0.7
1.9
1.5
2.3
4.4
2.3
0.5
2.5
3.2
1.6
2.4
1.5
-2.2
3.2
3.8
2019
2.5
1.5
4.3
2.0
2.0
1.5
3.8
4.2
6.5
-0.6
5.2
2.9
0.9
2.1
5.0
2.3
4.0
7.7
2.8
-0.8
5.9
3.2
1.3
1.4
1.6
1.8
0.2
0.9
1.1
1.1
1.2
0.7
1.2
3.2
3.5
3.2
1.6
6.5
1.3
1.0
2.2
1.2
-6.1
4.1
1.0
2020
-4.6
-5.0
-4.0
-2.8
-2.5
-6.4
-3.6
-3.1
-1.7
-4.4
-5.2
-5.0
-6.1
-4.8
-2.6
-2.6
-0.8
-3.9
-13.1
-10.6
-8.0
-2.1
-8.6
-7.8
-6.1
-6.7
-10.4
-12.4
-10.5
-13.2
-3.4
-3.2
-6.6
-5.1
-3.6
-8.6
3.2
-8.1
-6.1
-7.4
-4.6
-10.6
-12.2
-4.9
-7.4
2021
7.1
6.2
8.7
8.2
8.4
5.2
7.2
8.6
11.7
0.8
11.2
3.5
5.3
3.6
2.0
-0.2
0.6
1.9
6.6
5.6
4.2
7.8
4.7
4.1
1.5
5.2
4.7
7.2
6.3
7.4
1.8
6.2
4.9
10.0
6.3
10.0
15.4
9.4
5.8
7.4
3.7
6.3
10.4
14.5
20.8
2022
3.5
3.4
3.8
2.7
2.5
5.1
3.0
2.1
0.5
2.2
7.5
5.4
6.6
4.1
4.9
3.7
6.3
11.2
9.7
-1.2
8.3
3.1
4.4
4.3
3.9
2.2
4.6
4.8
4.8
5.2
4.2
1.9
6.3
4.8
3.0
-1.4
19.0
4.8
2.5
6.4
4.1
8.0
9.7
9.5
2.9
2023f
3.3
1.5
6.3
2.2
2.2
2.0
6.4
7.2
10.0
1.0
4.7
4.2
1.2
1.9
5.0
8.3
7.6
5.0
4.7
8.5
5.4
0.9
0.5
0.5
-1.0
0.6
1.6
2.2
0.3
0.6
2.1
-2.3
-0.9
4.6
0.0
5.6
11.3
3.5
0.7
2.4
3.1
3.9
1.1
1.1
-4.4
2024f
2.6
1.2
4.9
1.4
1.5
0.4
4.9
5.6
7.0
0.8
6.1
3.1
0.7
1.7
5.6
2.7
4.6
5.2
3.2
3.4
4.9
1.4
0.9
1.0
0.7
1.0
0.9
1.2
0.8
0.6
1.1
0.6
1.6
3.1
5.1
3.8
1.3
3.5
1.1
1.2
2.0
2.4
-4.0
0.9
1.3
2025f
2.9
1.3
5.2
1.4
1.4
1.7
5.2
5.9
7.2
0.8
6.6
3.4
1.5
2.3
5.6
2.2
4.6
4.7
2.3
4.2
5.7
2.9
1.3
1.5
1.4
1.2
0.9
1.4
0.9
0.8
1.3
1.4
1.1
2.2
4.0
0.8
2.8
3.0
1.7
2.5
2.5
2.8
3.2
1.7
1.5
Source: HSBC estimates. Note: *India data in fiscal year (2012= April 2012 to March 2013). Calendar year number used for aggregates. We calculate the weighting system using chain nominal GDP (USD) weights
43
Economics ● Global
Q1 2024
Investment spending
Investment spending
% Year
World
Developed
Emerging
North America
US
Canada
Asia-Pacific
Asia Big Three
Mainland China
Japan
India*
Asia ex-Big Three
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Hong Kong
Philippines
New Zealand
Western Europe
Eurozone
Germany
France
Italy
Spain
Other Western Europe
UK
Switzerland
Sweden
Norway**
CEEMEA
Poland
Russia
Türkiye
Saudi Arabia
South Africa
Latin America
Brazil
Mexico
Argentina
Colombia
Chile
2014
3.8
3.1
4.8
6.8
7.4
2.3
5.0
5.8
7.2
2.2
2.6
2.0
-2.6
3.1
4.4
3.5
-2.2
4.8
4.2
-0.1
8.0
9.3
1.8
1.4
3.2
0.1
-2.1
4.1
5.1
7.0
2.5
6.2
0.4
2.7
11.7
-1.8
5.5
7.7
-1.3
-1.7
-4.2
2.4
-6.8
9.2
-4.8
2015
3.6
3.8
3.4
3.5
4.6
-5.2
4.3
4.7
5.1
2.3
6.5
2.5
-4.3
5.4
5.0
2.7
4.4
3.8
2.0
-3.2
13.8
3.8
4.5
4.4
1.2
0.8
1.5
4.9
5.2
7.1
2.1
6.6
-0.2
-0.6
6.9
-10.7
9.1
4.0
1.3
-5.0
-13.9
4.4
3.5
2.8
-0.3
2016
3.4
3.0
4.1
2.2
2.9
-4.7
5.1
5.5
6.0
1.2
8.5
3.6
-2.4
6.6
4.5
3.4
2.9
2.6
0.7
-0.1
20.9
2.6
3.9
3.8
3.6
2.5
4.2
2.4
4.9
5.1
2.6
3.9
9.0
-2.9
-7.6
1.0
2.4
-13.5
-1.9
-5.7
-12.1
0.6
-5.8
-2.9
-1.3
2017
5.1
4.0
6.7
4.4
4.5
3.3
6.7
6.9
8.1
1.6
7.8
5.8
3.5
9.8
6.2
-0.3
1.8
6.1
5.2
3.1
10.6
5.0
4.2
4.2
3.3
5.0
3.4
6.8
4.2
3.5
3.5
5.9
6.8
4.1
1.6
5.2
7.2
1.0
-2.0
0.2
-2.6
-0.5
13.4
1.9
-3.1
2018
4.8
3.3
6.8
4.9
5.1
2.4
6.9
8.1
9.3
0.6
11.2
2.3
3.0
-2.2
6.7
3.2
3.9
1.4
-5.0
1.7
12.9
7.5
2.9
3.2
3.4
3.2
2.8
6.3
0.3
-0.5
0.8
1.4
1.5
2.6
12.6
2.9
-0.3
2.4
-1.2
2.0
5.2
0.6
-5.7
1.0
5.1
2019
3.7
4.3
3.0
2.5
2.7
0.8
3.4
4.0
5.0
0.5
1.1
0.8
-1.9
-2.1
4.5
11.1
2.0
-2.1
2.3
-14.9
3.9
4.2
6.0
6.5
1.8
4.1
1.2
4.5
2.0
2.2
0.9
-0.3
6.4
-1.0
6.2
1.5
-12.4
4.8
-1.7
-1.2
3.4
-4.4
-16.0
2.2
4.4
2020
-3.5
-4.8
-1.8
-2.3
-2.1
-3.8
-1.3
-0.8
0.7
-3.6
-7.3
-3.7
-3.1
3.5
-5.0
6.1
-4.8
-14.4
-14.8
-11.1
-27.3
-4.8
-6.5
-6.5
-3.2
-7.0
-8.0
-9.0
-6.2
-10.8
-1.4
1.5
-3.1
-3.2
-2.3
-4.3
7.3
-10.4
-14.6
-11.6
-1.7
-17.3
-13.1
-24.0
-17.8
2021
6.6
4.8
9.0
7.3
7.1
9.3
7.8
8.0
8.7
-0.1
14.6
6.8
8.8
3.2
3.8
14.3
3.1
-0.8
18.0
8.3
9.8
12.8
3.8
3.6
-0.3
10.2
18.6
2.8
5.8
7.4
2.8
6.8
1.6
7.3
2.1
9.1
7.2
10.1
0.6
16.5
16.5
9.3
33.8
17.3
29.9
2022
3.1
2.2
4.2
1.0
1.3
-2.4
3.3
3.4
3.1
-1.4
11.4
2.8
3.0
-0.5
3.9
7.8
2.3
6.8
1.6
-7.7
9.7
4.5
3.3
2.9
0.2
2.3
9.7
2.4
6.3
7.9
1.2
6.1
7.6
6.8
4.5
3.3
1.3
24.1
4.8
5.7
1.1
8.6
11.1
11.4
-0.3
2023f
2.2
0.8
3.9
0.2
0.5
-2.2
3.4
3.5
3.2
1.8
8.4
2.8
7.9
1.7
4.6
-7.9
2.0
5.2
0.8
9.1
8.1
-0.8
0.7
0.8
0.8
1.4
0.5
1.4
0.8
2.2
-1.3
-1.2
-1.7
9.0
6.4
7.8
8.5
12.0
4.9
3.4
-2.7
15.6
-0.8
-6.4
-7.3
2024f
2.2
0.8
3.9
1.6
1.7
1.2
3.5
3.6
3.5
1.2
6.6
3.4
4.1
1.4
5.7
1.4
1.8
5.4
3.4
3.7
8.0
0.7
0.1
0.2
-0.8
1.2
0.4
1.6
-0.4
-1.1
0.5
0.7
-1.0
4.9
5.8
2.6
2.1
10.0
6.1
3.2
2.3
7.5
-8.3
-0.2
2.3
2025f
2.7
1.8
3.6
2.0
1.9
2.9
3.2
3.0
2.7
1.6
6.5
4.0
3.2
2.2
5.8
3.7
3.6
4.7
3.5
3.5
11.2
2.8
1.7
1.6
0.7
2.1
2.0
2.9
2.0
1.6
2.5
4.0
0.9
5.0
7.0
1.2
4.8
10.0
5.8
4.1
2.0
5.5
7.6
2.5
3.0
Source: HSBC estimates. Note: *India data in fiscal year (2012= April 2012 to March 2013). GDP data from 2012 onwards is as per the new series (2011-12 prices); ** Eurozone investment heavily distorted by Ireland in 2019.
***Mainland. We calculate the weighting system using chain nominal GDP (USD) weights
44
Economics ● Global
Q1 2024
Exports
Export volume growth (GDP basis)
% Year
World
Developed
Emerging
North America
US
Canada
Asia-Pacific
Asia Big Three
Mainland China
Japan
India*
Asia ex-Big Three
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Hong Kong
Philippines
New Zealand
Western Europe
Eurozone
Germany
France
Italy
Spain
Other Western Europe
UK
Switzerland
Sweden
Norway**
CEEMEA
Poland
Russia
Türkiye
Saudi Arabia
South Africa
Latin America
Brazil
Mexico
Argentina
Colombia***
Chile
2014
4.1
4.6
3.4
4.4
3.9
6.3
4.8
6.2
6.0
9.3
1.8
3.2
7.0
2.1
1.1
6.0
0.3
5.0
3.6
1.0
12.1
3.4
4.2
4.5
4.7
3.3
2.3
4.5
2.9
1.0
4.5
4.5
4.6
2.0
5.5
0.5
8.3
-1.9
3.6
1.2
-1.6
7.6
-10.0
-5.6
-2.3
2015
2.8
4.6
0.4
0.9
0.3
3.4
-0.2
-1.9
-2.9
3.2
-5.6
1.7
6.3
0.2
-2.1
0.4
1.3
0.5
5.0
-1.3
10.0
8.1
5.9
6.4
4.9
4.5
4.1
4.3
3.9
3.8
2.4
5.4
6.2
3.5
6.6
3.7
4.3
0.7
3.1
-0.1
6.8
7.0
-17.0
-32.2
-17.5
2016
1.3
2.4
-0.3
0.7
0.5
1.5
-1.5
-4.2
-7.7
1.6
5.0
1.6
6.6
2.4
-1.7
-0.9
2.7
1.3
0.0
0.6
9.2
2.7
3.0
3.0
2.3
1.6
2.0
5.4
2.8
2.8
5.5
2.1
-4.2
4.2
9.0
3.2
-1.7
8.0
0.4
1.1
0.9
3.1
2.0
-11.7
-2.2
2017
5.7
5.3
6.2
3.7
4.1
1.5
6.5
7.2
7.9
6.6
4.6
5.7
3.4
2.5
8.9
4.5
5.2
8.7
7.5
5.8
17.4
2.6
5.8
6.0
5.6
4.6
6.0
5.5
4.9
6.8
3.5
4.5
-0.2
5.2
9.0
5.0
12.1
-3.1
-0.3
5.1
4.9
3.2
1.3
16.8
13.4
2018
5.1
3.5
7.2
3.0
2.9
3.6
6.8
8.7
9.9
3.8
11.9
4.6
5.1
4.0
6.5
0.2
3.4
1.9
7.8
3.7
11.8
3.1
3.6
3.6
2.4
4.5
1.6
1.7
3.7
3.1
5.2
4.4
1.5
6.4
6.8
5.5
9.0
7.2
2.7
6.0
4.1
6.5
5.3
8.1
8.6
2019
1.3
2.3
0.0
0.8
0.5
2.3
-0.7
-0.4
0.5
-1.5
-3.4
-1.0
3.2
0.2
-0.5
0.7
-3.0
-1.0
0.2
-6.2
2.6
2.6
3.2
3.2
2.3
1.6
1.8
2.2
3.0
2.0
2.3
6.1
6.0
0.8
5.3
0.7
4.9
-5.0
-3.3
1.5
-2.4
1.2
34.0
-5.4
-8.1
2020
-7.2
-10.2
-3.4
-12.4
-13.1
-9.0
-3.5
-1.3
3.6
-11.6
-9.1
-6.1
-9.9
-1.7
-8.4
1.2
-19.7
-8.6
0.4
-7.1
-16.1
-13.5
-9.2
-9.2
-10.0
-17.1
-14.3
-20.1
-9.3
-11.5
-7.0
-5.9
-9.4
-7.0
-1.1
-4.3
-14.6
-10.6
-12.0
-7.0
-2.3
-7.0
-33.7
-20.5
7.6
2021
13.0
9.1
18.0
5.7
6.3
2.7
19.7
25.9
29.6
11.9
29.3
12.1
-2.2
11.1
18.0
15.2
11.1
18.5
11.7
16.9
8.0
-2.4
10.4
10.9
9.5
10.7
14.1
13.5
8.2
4.9
12.8
10.8
6.8
8.8
12.5
3.3
25.1
1.0
9.1
12.4
5.9
7.2
42.0
32.3
28.0
2022
6.1
6.7
5.4
6.3
7.0
3.2
4.8
7.5
7.0
5.3
13.6
1.3
2.5
3.4
16.3
1.8
6.8
14.5
-1.3
-12.6
10.9
0.2
7.2
7.1
3.4
7.4
10.2
15.2
7.5
8.6
5.1
7.4
9.5
2.2
4.5
-13.9
9.9
18.7
7.4
9.6
5.7
9.0
13.2
39.2
4.0
2023f
-0.7
0.9
-2.7
3.0
2.5
4.7
-1.9
-3.0
-5.3
2.3
3.5
-0.6
6.9
2.4
-1.8
-4.1
1.9
-8.5
0.7
-7.0
2.4
7.4
-0.2
-0.7
-1.4
1.4
-0.2
1.2
1.4
-0.2
2.8
2.7
5.3
-3.9
-4.8
-4.2
-1.3
-9.0
3.1
-0.9
8.7
-1.3
-22.0
-10.3
-2.5
2024f
1.8
1.2
2.5
1.1
1.0
1.4
3.1
2.8
1.9
3.0
6.6
3.6
3.8
4.0
6.4
5.5
1.9
2.0
2.2
3.1
9.6
3.3
1.0
0.8
-0.3
2.6
1.8
0.8
1.8
0.9
3.0
1.2
1.8
-0.7
-2.8
-1.7
4.9
-1.0
2.2
1.4
3.9
-0.5
4.7
4.1
0.6
2025f
3.4
2.5
4.3
1.3
1.1
2.3
4.3
4.1
3.8
2.8
6.6
4.6
3.3
4.1
6.8
3.4
4.1
4.6
5.7
3.8
8.9
4.0
2.9
3.1
1.6
4.8
2.9
3.6
2.4
1.6
3.9
2.0
2.4
2.9
3.9
1.6
3.5
4.0
1.9
4.5
5.7
3.5
8.6
1.3
4.8
Source: HSBC Estimates. Note: Real Exports of Goods & Services. * India data in fiscal year (2012= April 2012 to March 2013). GDP data from 2012 onwards is as per the new series (2011-12 prices); **Mainland, ***Colombian
exports are in nominal USD, as provided by The Statistics Institute (DANE). We calculate the weighting system using chain nominal GDP (USD) weights.
45
Economics ● Global
Q1 2024
Industrial production
Industrial production
% Year
World
Developed
Emerging
North America
US
Canada
Asia-Pacific
Asia Big Three
Mainland China
Japan
India*
Asia ex-Big Three
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Hong Kong
Philippines
New Zealand
Western Europe
Eurozone
Germany
France
Italy
Spain
Other Western Europe
UK**
Switzerland
Sweden
Norway**
CEEMEA
Poland
Russia
Türkiye
Saudi Arabia
South Africa
Latin America
Brazil
Mexico
Argentina***
Colombia
Chile
2014
3.6
2.4
4.5
3.2
3.0
5.1
5.5
6.2
8.3
1.9
4.0
3.6
6.3
0.6
4.8
7.5
-2.5
5.2
2.8
-0.4
7.6
3.1
1.3
1.1
1.5
-1.1
-0.6
1.3
2.2
2.9
1.3
-2.0
3.2
3.2
3.2
2.5
5.9
3.3
0.3
-0.7
-3.0
2.8
-1.8
0.0
0.4
2015
1.8
0.2
3.1
-1.3
-1.4
-0.5
3.6
4.2
6.1
-1.1
3.3
1.8
3.3
-0.4
4.8
-1.1
0.2
4.5
-5.1
-1.6
5.2
1.5
2.0
2.7
0.9
1.4
1.0
3.3
0.0
0.0
0.4
2.3
-3.5
2.3
4.4
-0.8
5.7
5.3
-0.2
-2.9
-8.2
1.6
1.9
0.0
0.5
2016
1.9
-0.3
3.6
-2.0
-2.2
0.1
4.2
4.6
6.0
0.0
4.6
3.1
2.9
1.9
4.0
2.8
1.8
4.1
3.7
-0.4
6.8
1.6
1.4
1.6
1.5
0.4
2.1
1.9
0.7
0.4
4.0
2.6
-4.8
2.6
3.2
2.2
3.6
2.7
0.7
-3.1
-6.4
0.6
-4.4
0.0
-0.8
2017
3.5
2.3
4.6
1.5
1.3
3.7
5.1
5.5
6.6
3.1
4.4
3.9
1.5
3.1
4.3
5.0
1.7
4.4
10.4
0.4
8.0
1.4
2.9
2.8
3.1
2.2
3.7
3.1
3.0
2.5
5.2
4.7
0.4
3.3
6.9
2.1
8.9
-2.1
-0.7
1.2
2.5
-0.3
2.5
0.8
-1.1
2018
3.2
2.0
4.1
3.2
3.2
3.5
4.4
4.7
6.2
0.6
3.8
3.6
4.4
1.5
4.5
3.4
3.0
3.2
7.1
1.3
5.1
2.1
0.9
0.9
0.9
0.7
0.8
0.4
1.2
0.0
5.4
3.1
1.7
2.4
5.8
2.9
1.8
0.4
1.0
0.3
1.1
0.5
-5.0
2.0
3.6
2019
1.0
-0.6
2.3
-0.6
-0.7
0.1
2.4
2.8
5.7
-2.7
-0.8
1.3
2.6
-0.1
4.0
1.0
-4.4
2.4
-1.5
0.4
3.8
1.0
-0.3
-0.8
-2.3
0.6
-1.2
0.6
1.2
0.5
3.1
2.2
2.6
1.3
4.3
3.4
-0.6
-1.9
-1.1
-1.9
-1.0
-2.3
-6.3
1.7
-0.6
2020
-4.5
-7.5
-2.2
-7.2
-7.2
-7.5
-2.4
-1.9
2.8
-10.4
-8.5
-3.8
-1.0
-0.1
-10.1
8.8
-8.7
-4.1
7.5
-5.9
-9.8
-4.1
-7.4
-7.4
-7.6
-10.6
-11.0
-9.5
-7.4
-8.9
-3.8
-5.2
-3.0
-2.7
-2.1
-2.1
1.5
-5.9
-12.5
-6.3
-4.4
-9.0
-7.5
-6.9
-1.0
2021
7.9
6.2
9.1
4.4
4.4
5.0
9.0
9.4
9.6
5.4
11.4
7.8
-0.2
8.2
7.5
14.7
7.7
7.4
13.3
5.5
8.9
4.0
8.7
8.8
3.6
5.7
11.7
7.3
8.5
7.2
18.8
7.3
3.2
9.9
14.8
6.3
19.5
1.8
6.2
7.2
3.9
7.8
15.7
11.1
2.3
2022
3.3
2.1
4.1
3.4
3.4
3.9
3.1
3.5
3.6
-0.2
5.3
1.7
-0.6
1.3
4.0
-1.7
-1.6
6.7
2.4
0.2
4.9
-5.2
1.4
2.1
-0.6
-0.2
0.4
2.8
-1.0
-3.3
6.8
2.3
-0.3
5.1
11.0
0.8
5.8
12.8
-0.3
2.6
-0.7
7.2
4.2
2.1
-2.3
2023f
1.1
-0.8
2.4
0.3
0.3
0.0
2.5
3.8
4.2
-1.4
5.5
-1.8
0.5
-4.2
1.5
-10.9
-3.9
0.5
-4.8
3.1
1.7
-5.3
-1.8
-2.7
-1.4
0.5
-2.4
-1.0
0.7
1.2
-2.3
2.1
-0.2
1.4
-1.8
3.2
1.5
0.8
-0.5
1.5
1.0
3.9
-0.3
0.4
-1.4
2024f
2.1
0.1
3.5
0.4
0.4
0.7
3.7
4.0
4.4
1.1
4.4
2.6
1.3
1.8
3.8
3.1
2.2
1.5
2.8
2.3
3.3
-0.6
-0.7
-1.0
-1.9
0.4
0.1
0.0
0.5
0.1
0.4
1.7
2.2
1.9
3.8
1.7
1.8
1.5
1.7
1.4
2.7
2.8
-2.9
-2.0
-0.9
2025f
2.9
1.4
4.0
1.2
1.2
1.9
3.9
4.2
4.5
1.2
4.9
3.0
2.0
1.9
3.2
2.6
2.9
2.8
5.2
2.2
5.6
2.1
1.5
1.4
1.5
0.6
1.9
1.8
1.7
1.3
2.4
2.0
3.5
2.2
5.9
1.8
2.8
0.0
1.3
1.8
2.0
3.4
3.1
-3.7
-1.1
Source: HSBC estimates. Note: *Based on Indian fiscal year (April – March). We calculate the weighting system using GDP PPP (USD) weights. **Manufacturing production. ***Argentina did not publish industrial production data in
part of 2015 and 2016.
46
Economics ● Global
Q1 2024
Wage growth
Wage growth
% Year
World
Developed
Emerging
North America
US
Canada
Asia-Pacific
Asia Big Three
Mainland China
Japan
Asia ex-Big Three
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Hong Kong
Philippines
New Zealand
Western Europe
Eurozone
Germany
France
Italy
Spain
Other Western Europe
UK
Switzerland
Sweden
Norway
CEEMEA
Poland
Russia
Türkiye
South Africa
Latin America
Brazil
Mexico
Argentina
Colombia
Chile
2014
4.8
1.7
7.8
2.1
2.1
2.7
6.3
7.5
9.5
1.0
3.7
2.6
3.0
4.0
1.8
9.0
4.2
2.3
4.2
1.6
1.6
1.3
1.3
2.8
1.4
0.1
0.1
1.4
1.1
0.8
2.6
2.6
9.7
3.6
9.1
15.7
6.6
10.1
8.3
4.4
35.5
5.4
7.2
2015
4.6
1.5
7.4
2.1
2.1
1.8
6.3
7.5
10.1
-1.0
3.6
2.2
3.0
6.5
1.3
1.5
3.9
3.5
4.3
2.4
1.6
1.6
1.4
2.3
1.2
1.0
1.0
2.1
2.4
0.6
1.8
2.6
8.2
3.3
4.7
18.3
7.0
8.1
7.6
4.2
27.4
0.0
5.2
2016
5.3
1.6
8.7
2.1
2.2
0.5
7.2
7.1
8.9
0.6
7.7
2.0
3.4
22.9
1.3
1.3
3.1
3.7
3.7
2.4
1.6
1.4
1.2
2.2
1.2
0.4
-0.1
2.1
2.4
0.6
2.3
1.8
10.6
3.8
7.9
20.7
5.8
10.5
9.7
4.5
35.0
5.3
4.7
2017
4.8
1.9
7.4
2.4
2.4
2.0
6.6
7.9
10.0
0.5
3.6
2.0
3.6
6.9
1.8
0.2
4.2
3.1
3.7
1.6
1.7
1.8
1.8
2.3
1.3
0.4
0.7
2.0
2.3
0.3
1.6
2.2
8.3
5.3
6.7
13.4
6.4
7.1
5.3
4.9
26.6
-1.7
5.1
2018
5.7
2.4
8.7
2.8
2.8
2.6
7.2
8.9
10.9
1.3
3.6
2.2
4.6
4.3
2.6
2.2
4.4
3.5
4.0
4.4
1.9
2.2
2.1
2.9
1.5
2.0
1.7
2.5
2.9
0.7
2.4
2.7
11.3
7.2
11.1
15.8
4.8
8.6
5.0
5.7
32.5
1.7
3.8
2019
5.3
2.2
8.1
2.7
2.7
2.7
6.4
7.8
9.8
-0.3
3.2
2.3
4.1
3.4
2.3
3.1
2.4
2.6
3.5
3.7
2.3
2.4
2.2
3.0
1.7
1.3
3.1
2.9
3.4
0.6
2.2
3.6
10.1
7.2
7.3
18.2
4.1
10.2
4.5
6.7
43.5
3.4
4.6
2020
3.4
1.3
5.3
3.0
2.6
6.7
3.9
5.9
7.6
-1.2
-0.7
1.7
2.2
-6.9
1.2
2.7
-0.5
1.4
1.4
0.0
2.0
0.1
-0.4
2.1
1.5
-4.1
1.2
1.7
1.7
0.5
1.7
3.3
5.6
5.3
5.8
6.9
0.9
9.3
3.2
7.3
39.8
3.6
4.0
2021
6.3
3.2
9.0
3.3
3.3
3.0
6.0
8.0
9.7
0.3
1.3
1.9
3.4
-0.4
1.9
0.3
1.2
3.7
1.3
0.0
2.2
4.0
3.9
1.5
1.5
5.8
4.5
4.4
5.9
-0.1
2.2
3.3
18.2
8.8
9.6
40.3
7.4
10.7
3.9
7.2
45.5
8.8
6.8
2022
8.6
4.3
12.2
4.8
4.9
3.1
6.1
5.9
6.7
2.0
6.5
2.9
4.3
13.5
2.8
5.7
3.4
6.8
2.2
4.6
3.5
4.4
4.3
2.6
3.3
4.8
4.1
4.8
6.0
1.5
2.0
3.8
34.1
12.1
12.5
86.6
4.0
17.9
9.7
10.8
72.1
8.7
10.9
2023f
9.1
4.5
12.9
4.4
4.5
3.4
4.5
4.6
5.3
1.4
4.1
3.8
3.8
5.8
2.6
2.2
1.8
5.6
3.0
5.0
4.3
5.4
5.2
4.3
4.3
2.8
5.0
5.9
7.2
1.8
3.4
5.4
43.2
12.9
13.5
110.4
5.3
24.9
10.7
10.8
123.0
11.0
5.7
2024f
8.1
3.6
11.7
3.8
3.9
2.0
4.4
4.3
4.9
1.4
4.6
3.7
3.2
6.9
2.3
6.4
2.3
3.1
3.2
5.6
3.9
4.1
4.0
3.9
3.0
3.6
3.8
3.8
4.2
2.1
3.2
4.0
24.2
11.1
11.0
55.3
5.3
34.8
6.0
8.1
257.3
6.7
3.7
2025f
5.9
3.1
8.1
3.5
3.6
2.1
4.6
4.7
5.4
1.0
4.5
3.4
3.3
6.8
2.3
7.1
2.6
2.6
3.5
4.0
3.4
3.3
3.1
2.4
2.3
3.1
3.1
3.4
3.8
1.8
2.8
4.0
17.2
9.2
8.8
35.3
5.5
16.0
5.6
6.5
92.9
5.3
3.4
Source: HSBC estimates. Note: *Wage data is minimum daily wage rate. Global and regional aggregates are calculated using GDP PPP (USD) weights
47
Economics ● Global
Q1 2024
Budget balance
Budget balance
% GDP
North America
US
Canada
Asia-Pacific
Asia Big Three
Mainland China
Japan
India
Asia ex-Big Three
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Hong Kong
Philippines
New Zealand
Western Europe
Eurozone
Germany
France
Italy
Spain
Other Western Europe
UK
Switzerland
Sweden
Norway
CEEMEA
Poland
Russia
Türkiye
Saudi Arabia
South Africa
Latin America
Brazil
Mexico
Argentina
Colombia
Chile
2014
2015
2016
2017
2018
2019
2020
2021
2022 2023f 2024f 2025f
-2.6
-2.8
0.0
-2.5
-3.2
-2.1
-5.5
-4.1
-1.7
-3.0
-1.9
-2.1
-0.8
-2.7
-3.3
1.0
3.2
-0.6
-1.2
-2.6
-2.5
0.6
-3.9
-3.0
-6.1
-2.9
-5.2
0.0
-1.5
8.6
-1.8
-3.7
-0.4
-1.1
-3.5
-4.2
-4.7
-6.5
-3.1
-5.0
-2.5
-1.6
-2.2
-2.4
-0.1
-2.5
-3.1
-2.4
-4.5
-3.9
-1.9
-2.3
-2.3
-2.6
-0.1
-2.4
-3.2
-0.6
0.6
-0.9
0.2
-2.1
-2.0
1.0
-3.6
-2.6
-5.3
-2.3
-4.3
0.4
0.0
6.0
-4.7
-2.6
-2.4
-1.0
-15.5
-3.8
-6.8
-10.2
-3.5
-7.1
-2.9
-2.2
-2.9
-3.1
-0.9
-2.8
-3.3
-2.9
-4.6
-3.5
-1.6
-2.4
-1.3
-2.5
-0.3
-2.6
-3.1
-0.5
4.5
-2.3
0.7
-1.5
-1.5
1.2
-3.6
-2.4
-4.3
-1.4
-2.8
0.3
1.0
4.0
-5.1
-2.4
-3.4
-1.1
-16.7
-3.5
-5.8
-9.0
-2.5
-5.8
-3.8
-2.7
-3.3
-3.5
-0.9
-2.5
-3.1
-2.9
-3.7
-3.5
-1.4
-1.9
-1.0
-2.5
0.0
-3.1
-2.9
0.5
5.6
-2.1
1.5
-1.0
-0.9
1.3
-3.0
-2.4
-3.1
-1.3
-2.8
0.6
1.4
5.0
-2.9
-1.5
-1.4
-1.5
-8.9
-4.1
-4.7
-7.8
-1.1
-5.9
-3.3
-2.8
-3.5
-3.8
-0.6
-2.2
-2.9
-2.6
-3.2
-3.4
-1.2
-0.5
-0.6
-1.8
0.6
-2.4
-3.7
-0.8
2.4
-3.1
1.9
-0.5
-0.4
1.9
-2.3
-2.2
-2.6
-0.6
-2.0
0.7
0.9
7.8
-0.7
-0.2
2.6
-1.9
-5.5
-4.3
-4.5
-7.1
-2.1
-4.9
-3.1
-1.7
-4.4
-4.7
-1.7
-2.6
-3.4
-2.8
-3.8
-4.6
-1.8
0.0
-2.8
-2.2
0.6
-2.8
-3.4
-0.2
-0.4
-3.4
2.4
-0.8
-0.6
1.5
-3.1
-1.5
-3.1
-1.2
-2.7
0.7
0.8
6.5
-1.3
-0.7
1.7
-2.9
-4.2
-6.1
-3.7
-5.9
-1.6
-3.8
-2.2
-2.9
-14.9
-14.9
-14.8
-5.0
-6.0
-3.7
-10.4
-9.2
-5.2
-4.3
-5.8
-6.1
0.7
-4.6
-6.2
-3.9
-8.7
-7.6
-7.2
-8.0
-7.1
-4.3
-9.0
-9.7
-10.1
-10.9
-15.0
-2.2
-2.6
-2.6
-6.0
-6.9
-4.6
-3.4
-10.7
-9.8
-8.4
-13.3
-2.7
-8.4
-8.1
-7.3
-11.6
-12.3
-3.6
-3.9
-4.4
-3.1
-6.6
-6.8
-4.2
-6.4
-4.4
-4.6
1.4
-4.5
-6.4
-2.1
1.0
-8.6
-1.3
-4.8
-5.3
-3.6
-6.5
-9.0
-6.7
-3.0
-5.2
-1.5
-0.2
9.1
-1.5
-1.8
0.4
-2.7
-2.3
-5.1
-4.3
-4.3
-2.9
-4.5
-6.9
-7.7
-5.2
-5.5
-1.3
-3.3
-4.1
-2.8
-6.0
-6.4
-3.1
-1.4
-5.4
-2.4
2.2
-3.8
-5.5
-2.5
-4.3
-7.3
-2.7
-3.4
-3.6
-2.5
-4.7
-8.0
-4.7
-2.6
-5.0
-0.4
0.0
10.6
-1.5
-3.7
-2.2
-0.9
2.5
-4.6
-3.7
-4.6
-3.2
-3.8
-4.2
1.1
Source: HSBC estimates. Note: Global and regional aggregates are calculated using GDP PPP (USD) weights
48
-5.9
-6.3
-1.4
-3.7
-4.6
-3.8
-5.9
-5.9
-2.5
0.9
-4.3
-2.0
1.0
-4.0
-5.0
-1.1
-3.4
-6.1
-2.6
-3.1
-3.2
-1.9
-4.9
-5.3
-4.0
-2.6
-5.1
-0.2
-0.1
10.9
-3.6
-5.8
-2.9
-4.1
-2.4
-4.9
-5.4
-8.0
-3.3
-4.7
-4.1
-2.3
-6.1
-6.5
-1.3
-3.6
-4.3
-4.0
-4.2
-5.3
-2.7
-0.7
-4.3
-2.5
0.8
-4.6
-4.3
0.1
-1.5
-5.0
-3.0
-2.8
-3.0
-0.8
-4.6
-4.4
-3.5
-2.0
-4.1
-0.1
-0.1
10.0
-4.8
-4.7
-3.4
-7.1
-3.9
-5.1
-5.0
-6.6
-4.9
-1.9
-4.6
-1.9
-5.7
-6.1
-1.2
-3.3
-4.0
-4.0
-2.6
-4.8
-2.2
-1.3
-2.9
-2.5
0.9
-4.3
-3.5
0.2
-0.6
-4.0
-1.7
-2.5
-2.6
-0.5
-4.3
-4.1
-3.0
-1.9
-4.0
-0.2
-0.1
10.0
-3.2
-4.4
-2.4
-2.9
-3.6
-5.2
-4.4
-6.3
-3.7
-1.5
-4.0
-1.6
Economics ● Global
Q1 2024
Current account
Current account
% GDP
North America
US
Canada
Asia-Pacific
Asia Big Three
Mainland China
Japan
India
Asia ex-Big Three
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Hong Kong
Philippines
New Zealand
Western Europe
Eurozone
Germany
France
Italy
Spain
Other Western Europe
UK
Switzerland
Sweden
Norway
CEEMEA
Poland
Russia
Türkiye
Saudi Arabia
South Africa
Latin America
Brazil
Mexico
Argentina
Colombia
Chile
2014
-2.1
-2.1
-2.3
2.2
1.2
2.3
0.8
-1.3
2.7
-3.0
5.6
-3.1
11.3
2.9
4.3
18.0
1.4
3.6
-3.1
1.5
2.3
7.2
-1.0
1.9
1.7
-1.0
-5.0
6.9
4.2
10.2
1.4
-2.9
2.8
-5.0
9.6
-4.8
-3.0
-4.1
-1.9
-1.6
-5.2
1.0
2015
-2.3
-2.2
-3.5
3.1
1.9
2.6
3.1
-1.1
3.7
-4.6
7.2
-2.0
13.6
6.9
3.0
18.7
3.3
2.4
-2.7
1.6
2.7
8.6
-0.4
1.4
2.0
-1.9
-6.1
8.9
3.2
7.7
-0.8
-1.3
5.0
-3.7
-8.5
-4.3
-3.0
-3.0
-2.7
-2.7
-6.3
0.8
2016
-2.2
-2.1
-3.1
2.7
1.5
1.7
3.8
-0.6
4.0
-3.3
6.5
-1.8
13.1
10.5
2.4
17.8
4.0
-0.4
-2.0
2.1
3.1
8.6
-0.6
2.6
3.2
-1.0
-3.8
7.3
2.2
4.0
-1.1
-1.0
1.8
-3.8
-3.6
-2.7
-2.3
-1.4
-2.3
-2.7
-4.4
-4.9
2017
-2.0
-1.9
-2.8
2.6
1.1
1.5
4.2
-1.8
3.7
-2.6
4.6
-1.6
14.0
9.6
2.8
18.1
4.6
-0.7
-2.8
2.2
3.2
7.8
-0.8
2.7
2.8
-1.0
-3.5
5.3
2.8
5.6
-0.6
-1.1
2.1
-5.5
1.5
-2.4
-2.2
-1.1
-1.9
-4.8
-3.2
-5.1
2018
-2.2
-2.1
-2.4
1.3
0.1
0.2
3.5
-2.1
2.4
-2.2
4.5
-2.9
11.6
5.6
2.2
15.7
3.7
-2.6
-4.2
2.0
2.9
7.9
-0.8
2.6
1.9
-1.0
-3.9
5.6
2.5
8.9
2.9
-1.9
7.1
-3.5
8.5
-2.9
-3.0
-2.7
-2.1
-5.0
-4.2
-4.5
2019
-2.0
-2.1
-2.0
1.8
0.7
0.7
3.4
-0.9
2.9
0.4
3.6
-2.7
10.7
7.0
3.5
16.2
5.9
-0.8
-2.8
1.9
2.5
8.2
0.6
3.3
2.2
-0.4
-2.7
3.9
5.3
3.8
2.2
-0.2
3.8
0.7
4.6
-2.6
-2.2
-3.5
-0.4
-0.9
-4.6
-3.2
2020
-2.7
-2.8
-2.0
2.7
1.7
1.7
2.9
0.9
4.4
2.2
4.6
-0.4
14.4
4.2
4.2
16.5
7.0
3.2
-1.2
1.2
1.9
7.1
-1.7
3.9
0.6
-1.1
-2.9
0.5
5.9
1.1
-0.2
2.4
2.4
-4.9
-3.1
1.9
-0.5
-1.9
2.0
0.7
-3.4
-2.6
2021
-3.2
-3.5
0.0
2.8
1.5
2.0
3.9
-1.2
3.9
2.9
4.7
0.3
15.2
-2.0
3.9
18.0
11.8
-1.5
-5.7
3.0
3.1
7.7
0.4
3.1
0.8
2.8
-0.5
8.9
6.8
13.4
3.3
-1.3
6.5
-0.9
5.1
3.6
-1.8
-2.8
-0.6
1.4
-5.6
-2.1
2022
-3.5
-3.8
-0.4
2.4
1.1
2.2
1.8
-2.0
2.8
1.1
1.8
1.0
13.3
-3.2
3.1
19.3
10.5
-4.5
-8.5
-0.2
-0.9
4.4
-2.0
-1.2
0.6
1.9
-3.1
9.9
5.5
27.0
4.4
-2.4
10.4
-5.5
13.6
-0.5
-2.4
-2.8
-1.2
-0.7
-6.2
-2.5
2023f
-2.9
-3.1
-0.7
2.1
1.0
1.7
3.4
-1.8
2.5
0.7
1.7
-0.1
11.9
1.3
1.8
17.7
5.3
-3.3
-7.2
2.1
2.1
6.6
-1.0
0.7
2.5
2.1
-2.6
9.1
5.3
27.0
0.9
1.0
3.0
-4.5
5.8
-1.7
-1.9
-1.7
-0.6
-3.8
-3.2
-3.3
2024f
-2.8
-3.0
-0.4
2.3
1.2
1.9
3.5
-2.0
2.6
0.2
2.6
-0.6
12.4
2.0
2.8
15.0
4.9
-2.8
-5.4
2.0
2.0
6.2
-0.5
1.7
2.3
2.2
-2.1
9.2
5.0
26.0
0.7
0.5
2.7
-2.7
4.0
-2.8
-1.8
-1.6
-0.7
-2.8
-4.0
-3.4
2025f
-2.8
-3.0
-0.3
2.4
1.2
2.0
3.5
-2.1
2.8
-0.4
3.3
-0.9
12.9
2.9
3.0
15.5
6.5
-2.5
-4.6
2.0
1.9
6.0
-0.6
1.4
2.4
2.2
-2.2
9.0
5.0
26.0
0.6
-0.5
2.0
-2.1
4.2
-3.0
-1.8
-1.9
-0.6
-2.5
-3.8
-3.6
Source: HSBC estimates. Note: *Based on Indian fiscal year (April – March). Global and regional aggregates are calculated using GDP PPP (USD) weights
49
Economics ● Global
Q1 2024
Current Account
USDbn
North America
US
Canada
Asia-Pacific
Asia Big Three
Mainland China
Japan
India
Asia ex-Big Three
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Hong Kong
Philippines
New Zealand
Western Europe
Eurozone
Germany
France
Italy
Spain
Other Western Europe
UK
Switzerland
Sweden
Norway
CEEMEA
Poland
Russia
Türkiye
Saudi Arabia
South Africa
Latin America
Brazil
Mexico
Argentina
Colombia
Chile
2014
-411.8
-370.1
-41.8
409.4
245.7
236.0
36.5
-26.9
163.7
-44.1
83.0
-27.5
60.6
11.6
14.8
56.5
4.1
10.8
-6.1
288.1
314.4
211.5
-27.5
37.6
21.2
-26.3
-156.7
50.5
26.2
53.7
53.0
-15.6
57.5
-45.9
73.8
-16.9
-154.1
-101.7
-25.9
-9.2
-19.8
2.5
2015
-463.0
-408.5
-54.5
618.1
407.6
293.0
136.7
-22.2
210.6
-57.0
105.1
-17.5
72.8
27.8
9.0
57.5
10.3
7.3
-4.7
239.1
317.0
259.8
-10.3
26.2
23.8
-77.9
-187.8
61.3
17.4
31.1
-42.3
-6.1
67.7
-32.1
-56.7
-15.0
-121.5
-54.8
-32.3
-17.6
-18.7
1.9
Source: HSBC estimates. Note: *Based on Indian fiscal year (April – March).
50
2016
-443.5
-396.2
-47.3
595.5
369.5
191.3
192.6
-14.4
226.0
-41.5
97.9
-17.0
71.3
43.4
7.2
56.9
12.7
-1.2
-3.8
323.0
360.1
270.2
-14.0
48.4
38.2
-37.1
-114.5
50.8
11.7
14.9
-45.4
-4.7
24.4
-32.5
-23.8
-8.7
-90.6
-24.5
-26.1
-15.1
-12.6
-12.4
2017
-414.0
-367.6
-46.4
574.8
345.5
188.7
205.6
-48.7
229.2
-35.8
75.2
-16.2
83.1
44.0
8.9
62.3
15.6
-2.1
-5.8
378.7
394.9
256.0
-20.8
54.4
37.9
-16.2
-89.5
37.2
14.0
22.1
-18.3
-6.0
33.3
-47.1
10.5
-9.0
-99.6
-22.0
-22.2
-31.2
-9.9
-14.2
2018
-480.9
-439.8
-41.0
322.0
144.2
24.1
177.3
-57.3
177.8
-31.6
77.5
-30.6
70.9
28.5
8.0
59.1
13.5
-8.9
-8.6
363.3
382.1
267.6
-23.2
52.7
25.8
-18.8
-114.2
41.2
14.6
39.5
136.7
-11.4
114.9
-27.1
72.0
-11.7
-131.8
-51.5
-26.0
-27.1
-14.0
-13.3
2019
-475.8
-441.8
-34.1
475.4
251.0
102.9
172.7
-24.7
224.4
4.8
59.7
-30.3
65.7
38.3
12.8
61.0
21.3
-3.0
-5.7
318.5
323.8
283.8
15.5
65.9
29.2
-5.3
-79.9
28.4
30.4
15.7
97.1
-1.4
65.0
5.3
38.2
-10.0
-98.1
-65.0
-5.7
-3.5
-14.8
-9.0
2020
-630.6
-597.1
-33.4
745.3
421.3
248.8
148.6
23.9
324.0
30.1
75.9
-4.4
97.3
20.9
14.1
57.2
24.1
11.6
-2.8
187.4
230.0
240.2
-42.9
74.5
8.2
-42.6
-82.7
2.5
33.5
4.2
-0.9
14.6
36.0
-35.5
-22.8
6.9
-18.9
-28.2
22.5
2.7
-9.3
-6.6
2021
-831.2
-831.4
0.3
869.1
509.5
352.9
195.4
-38.8
359.6
48.6
85.2
3.5
118.0
-10.3
14.5
76.1
43.7
-5.9
-13.8
562.8
401.0
278.7
11.3
65.3
10.9
161.9
-14.6
71.6
42.0
62.8
163.8
-8.8
120.3
-7.2
44.3
15.1
-72.5
-46.4
-8.3
6.6
-18.0
-6.5
2022
-979.1
-971.6
-7.5
662.1
413.9
401.9
79.1
-67.1
248.2
18.4
29.8
12.9
100.8
-15.7
12.5
90.1
37.9
-18.1
-20.5
62.5
-107.7
170.9
-54.4
-24.3
8.3
170.1
-92.6
81.8
33.0
148.0
321.2
-16.6
237.8
-48.8
150.8
-2.0
-104.9
-53.6
-18.0
-4.3
-21.3
-7.6
2023f
-857.1
-841.8
-15.4
595.1
376.4
298.8
142.0
-64.4
218.7
13.1
28.3
-1.8
89.3
6.8
7.3
86.3
20.2
-14.3
-17.8
447.1
273.0
294.3
-30.9
16.4
39.4
174.1
-88.4
79.8
33.5
149.0
77.5
7.9
60.5
-47.2
62.7
-6.4
-92.8
-37.3
-10.0
-22.6
-12.0
-11.0
2024f
-873.2
-863.6
-9.6
650.5
421.4
353.3
145.8
-77.7
229.1
3.5
45.7
-8.3
96.0
10.5
11.3
76.0
19.6
-12.9
-13.1
428.1
247.0
266.7
-16.1
34.6
34.9
181.1
-75.8
82.0
34.0
140.0
58.1
4.7
47.6
-29.7
46.0
-10.6
-90.7
-38.8
-11.6
-13.5
-15.3
-11.5
2025f
-912.8
-905.5
-7.3
728.0
466.6
393.3
161.1
-87.7
261.4
-6.7
61.3
-13.9
106.2
15.7
12.7
82.3
27.1
-12.5
-11.5
418.5
243.1
267.2
-18.5
31.0
35.1
175.4
-80.9
82.3
34.0
140.0
48.8
-4.5
37.6
-24.1
51.4
-11.7
-108.3
-52.3
-10.7
-13.9
-17.6
-13.9
Economics ● Global
Q1 2024
North America
US
Ryan Wang
US Economist
HSBC Securities (USA) Inc.
Ryan.Wang@us.hsbc.com
+1 212 525 3181
Cuts under consideration
At the December FOMC press conference, Fed Chair Jerome Powell said that recent indicators
point to a slowdown in growth from the “outsized pace seen in the third quarter.” Real GDP
increased by over 5% annualised in Q3 2023, but we expect a slowdown to around 1%
annualised GDP growth over the subsequent three quarters. In Q4/Q4 terms, we expect real
GDP growth of 2.6% in 2023, 1.2% in 2024 and 1.7% in 2025. In annual average terms, we
forecast GDP growth of 2.4% in 2023, 1.7% in 2024 and 1.5% in 2025.
Labour market data have continued to show signs of gradual cooling. In November, the 6-month
average increase in nonfarm payrolls was 186,000, down from 376,000 one year ago, and
680,000 two years ago. The “jobs-worker gap” peaked at over 6.1 million in March 2022 but fell
to 2.2 million in October 2023, as the number of job vacancies declined and the size of the
labour force expanded. We expect employment growth to decelerate further, and the
unemployment rate may increase somewhat in 2024. We forecast the unemployment rate at
3.8% in Q4 2023, 4.3% in Q4 2024, and 4.4% in Q4 2025.
Core PCE inflation has slowed noticeably in recent months, a key reason why Powell noted in
December that FOMC policymakers no longer consider additional policy rate hikes as “likely.”
Indeed, he indicated that the policymakers have commenced preliminary discussions about
possible rate cuts. According to Powell, all three categories of core inflation – goods, housing
services, and non-housing services – are contributing to disinflation, though to varying degrees.
Our own view is that inflation has become less broad-based, but that services inflation still
appears relatively sticky. We forecast y-o-y core PCE inflation at 3.3% in Q4 2023, 2.7% in Q4
2024, and 2.6% in Q4 2025. Core goods inflation has fallen sharply, reflecting not only an
improvement in auto supply chains over the past year, but also the restraining impact of high
interest rates on housing-related purchases such as furniture and appliances. The effect of
interest rates on housing transactions will be important to watch, with the 30-year fixed
mortgage rate falling below 7% in late 2023 from a peak of nearly 8% back in October.
Employment growth has decelerated over
the past year
%
6
US: Nonfarm payrolls
Core PCE inflation has slowed in recent
months
%
6
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
2018 2019 2020 2021 2022 2023 2024
% 6-month annualized
Source: Bureau of Labour Statistics
% year-on-year
% 6m ann
10
8
6
4
2
0
-2
-4
US: Components of
core PCE inflation
% 6m ann
10
8
6
4
2
0
-2
-4
2018 2019 2020 2021 2022 2023 2024
Total core PCE price index
Core goods
Housing services
Core services ex-housing
Source: Bureau of Economic Analysis
Source: HSBC with data from INEGI
51
Economics ● Global
Q1 2024
Policy issues
The FOMC voted unanimously to leave the federal funds target range unchanged at 5.25-5.50%
at the conclusion of its 12-13 December policy meeting. Significantly, Fed Chair Powell replied to a
question about possible rate cuts by saying that the Committee had commenced a discussion
about when it will become appropriate to begin dialing back the amount of policy restraint that is in
place.” We see a cumulative 75bp in policy rate cuts in 2024, with the first 25bp reduction cut
occurring in June. We expect an additional 75bp of rate cuts in 2025. The federal funds target
range would fall to 4.50-4.75% at end-2024 and 3.75-4.00% at end-2025 (see FOMC Multi-Asset
Reaction: Dialing back dialogue begins, 13 December 2023). Mr Powell was asked in early
December whether the FOMC was contemplating any change its balance sheet reduction policy,
which has been progressing at a pace of around USD80bn per month since the middle of 2022.
Mr Powell’s answer was that no imminent changes were being contemplated and that the
Committee intends to reduce the Fed’s securities holdings until “the quantity of reserves balance
has reached a level somewhat above that consistent with ample reserves.” We expect the Fed
balance reduction to continue at least into the second half of 2024.
Risks
For the past five to six quarters, the Federal Reserve’s Senior Loan Officer Survey has
consistently shown tightening lending standards and weakening loan demand, for commercial
and industrial loans as well as for commercial real estate loans. These developments should
weigh on economic activity over time and highlight a possible risk of financial contagion. Solid
growth in employment and household income has been an important tailwind for the economy
over the past year; any sharp deterioration in the labour market could change this picture and
would likely result in a negative shock to consumer demand.
Key forecasts
% Year
GDP
GDP (% quarter)
GDP (Q4/Q4, % year)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
Policy Rate (%)*
2023f
2.4
2.6
2.2
4.0
0.5
-0.4
1.6
2.5
-1.6
0.3
3.6
4.5
4.1
-841.8
-3.1
-6.3
92.9
114.9
5.375
Note: *Period end.
Source: Refintiv Datastream, Bloomberg, HSBC estimates
52
2024f
1.7
1.2
1.5
2.6
1.7
-0.1
1.9
1.0
0.8
0.4
4.1
3.9
3.1
-863.6
-3.0
-6.5
94.6
118.0
4.625
2025f
1.5
1.7
1.4
1.8
1.9
-0.1
2.0
1.1
1.2
1.2
4.4
3.6
2.9
-905.5
-3.0
-6.1
95.5
118.4
3.875
Q3 23f
2.9
4.9
3.1
5.8
2.6
1.3
4.7
5.4
4.2
0.0
3.7
4.4
3.5
-200.3
-2.8
5.375
Q4 23f
2.6
1.4
2.3
2.8
1.7
-0.6
1.6
2.8
3.2
0.3
3.8
4.3
3.2
-219.3
-3.1
5.375
Q1 24f
2.4
1.1
1.2
2.0
1.2
-0.3
1.1
0.5
0.2
0.5
3.9
4.1
3.0
-216.4
-3.1
5.375
Q2 24f
2.1
0.9
0.7
1.9
1.0
-0.1
0.9
0.6
0.3
0.4
4.1
4.0
3.2
-215.5
-3.0
5.125
Q3 24f
1.2
1.3
1.0
1.8
1.5
0.0
1.3
0.9
0.5
0.1
4.2
3.9
3.0
-215.3
-3.0
4.875
Q4 24f
1.2
1.5
1.4
1.8
1.8
0.0
1.5
1.2
1.1
0.7
4.3
3.8
3.3
-216.5
-3.0
4.625
Economics ● Global
Q1 2024
North America
Canada
David Watt
Chief Economist
HSBC Securities (Canada) Inc.
+1 416 868 8130
david.g.watt@hsbc.ca
Economic momentum is decelerating, but inflation still too high
Economic momentum has slowed following a surprisingly strong start to 2023. The slowdown is
highlighted by a GDP contraction of 1.1% q-o-q annualised in Q3, amid mounting evidence that
past interest rate increases are weighing on economic activity. For example, consumption
spending was essentially flat in both Q2 and Q3, while the labour market is easing, most notably
via an ongoing decline in the number of job vacancies, and an increase in unemployment via a
high level of immigration.
Despite the headwind of higher interest rates, we do not foresee either a technical or a real
recession. In part, this is because the decline in GDP in Q3 was largely attributable to a sharp
drop in refined petroleum product export, while final domestic demand was up 1.3% annualized
in Q3. For Q4, we look for a small expansion featuring a modest rebound in exports while final
domestic demand growth should cool to 0.5%.
For 2023, we look for GDP growth to slow to 1.1%, from 3.8% in 2022. In 2024, after a sluggish
start as the adjustment to higher interest rates continues, we look for momentum to improve
during the second half of the year as the Bank of Canada shifts towards rate cuts around mid-year.
For all of 2024, we look for GDP growth of 0.5%. The improved performance through H2 2024
will help boost GDP growth to 1.8% in 2025. Key elements behind slower economic growth in
2023 and 2024 are a moderation in household consumption growth — reflecting a weaker
labour market, and weaker business fixed investment — reflecting a corporate profit squeeze.
The high level of household debt amid higher interest rates and increased job market
uncertainty presents a downside risk to the outlook for 2024 and 2025. These concerns are
reflected in weak consumer confidence which is near pandemic-era lows, and mounting signs of
financial strain with consumer insolvency proposals at record high.
Though we expect the economy to avoid a recession, growth in key economic statistics is not
keeping up with immigration-led population growth. For example, GDP-per-capita, consumptionper-capita, and real disposable income-per-capita are all in decline. In our view, these are signs
of an underperforming economy.
A weaker economic backdrop is consistent with underlying inflation pressures continuing to
ease, helping reduce inflation toward the 2% target rate in the second half of 2024.
GDP growth slowing in 2023 and 2024
before a modest rebound in 2025
ppt
7
6
5
4
3
2
1
0
-1
-2
Contribution to annual GDP grow th)
2022
2023
Inventories
Business GFCF
Consumption and housing
2024
2025
Net Exports
Government
GDP (% y-o-y)
Source: Statistics Canada * Job vacancies plus payroll employment
No recession, but key indicators are
turning lower in per capita terms
ppt
7
6
5
4
3
2
1
0
-1
-2
Index ,
Index ,
GDP and consumption per capita
Q1 14 = 100
Q1 14 = 100
120
120
110
110
100
100
90
90
80
80
70
50
1975
70
Grey bars:
recessions
60
60
50
1985
1995
GDP
2005
2015
Consumption
Source: Statistics Canada
53
Economics ● Global
Q1 2024
Policy issues
Our most likely scenario is that the Bank of Canada’s policy rate remains at 5.0% through the first
half of 2024 before falling toward 4.25% by the end of the year. In our view, progress on getting
inflation back to 2% on a sustainable basis will be a challenging endeavour, and progress will be far
from smooth. We think that during H1 2024, the Bank will be wary about prematurely declaring its
mission accomplished. The Bank has said it needs to see more progress on reducing underlying
inflation pressures via core inflation trends, and ongoing concerns about elevated inflation
expectations, wage growth that remains too high to be consistent with 2% inflation, and corporate
pricing behaviour, which has not yet to return to normal. We think that the Bank will be sufficiently
satisfied with progress made on these factors to initiate rate cuts during Q2 2024. Regarding fiscal
policy, we look for the federal government to provide modest stimulus over the next three years, with
a focus on housing and its goal of achieving net zero emissions in 2050. On housing, there remains
a need for better balance between plans to bring in over 1 million immigrants over the next few years,
and housing policy. The immigration-led surge in population has exacerbated housing supply
concerns putting upward pressure on rents. The sharp increase in population amid moderating
economic growth highlights the lack of upward momentum in key indicators in per capita terms,
including GDP, real consumption, and real disposable income. There is a growing need to focus on
measures to boost productivity.
Risks
As growth slows and downside risks to employment mount, an increasing number of consumers
could face economic and financial hardship. A particular area of concern is mortgage delinquencies,
which might increase sharply from near record lows. The steady rise in consumer insolvencies
highlights mounting financial stresses, which have previously not materialised in the housing market.
Rising joblessness could tip the balance of risks and push mortgage delinquencies upward.
Consumer spending could potentially face greater headwinds from as more mortgages are renewed
at higher interest rates. At present, this is seen as a greater risk for the second half of 2025 and
2026. The lack of adequate housing supply, while immigration levels remain elevated, looms as a
lingering structural challenge that will likely continue to put upward pressure on rents and exacerbate
housing affordability difficulties. We also see a risk that inflation could get stuck above 2% prompting
the Bank to consider delaying a rate cutting cycle, or stopping an easing cycle even if other
conditions call for additional easing.
Key forecasts
% q-o-q annualised
GDP (% year)
GDP
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth (% year)
Consumer prices (% year)
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
CAD/USD*
Policy rate (%)*
Note: *Period end.
Source: HSBC estimates
54
2023f
1.1
2.0
1.8
-2.2
1.2
1.0
4.7
1.1
0.0
5.4
3.4
3.8
-15.4
-0.7
-1.4
133.9
98.5
1.34
5.00
2024f
0.5
0.4
2.6
1.2
0.9
1.0
1.4
1.9
0.7
6.4
2.0
2.5
-9.6
-0.4
-1.3
131.8
96.2
1.30
4.00
2025f
1.8
1.7
1.7
2.9
0.8
2.0
2.3
2.4
1.9
6.1
2.1
2.0
-7.3
-0.3
-1.2
125.8
93.4
3.00
Q3 23
0.5
-1.1
0.1
7.3
-1.2
1.1
1.3
-5.1
-0.6
-2.7
5.5
4.0
3.6
-2.4
-0.4
1.36
5.00
Q4 23f
0.8
0.3
-0.0
2.0
0.5
1.1
0.5
2.1
2.0
-0.3
5.8
4.0
3.0
-2.5
-0.5
1.34
5.00
Q1 24f
0.2
0.0
-0.4
2.0
1.2
1.0
0.5
1.6
1.9
1.2
6.2
3.5
2.9
-2.6
-0.5
1.33
5.00
Q2 24f
0.1
1.1
1.0
2.0
1.6
0.9
1.3
2.3
2.3
1.7
6.4
2.2
2.7
-2.6
-0.5
1.32
4.75
Q3 24f
0.8
1.7
1.5
1.8
2.4
0.9
1.7
2.7
2.4
2.0
6.5
1.2
2.0
-2.3
-0.4
1.31
4.25
Q4 24f
1.2
1.8
1.7
1.8
2.7
0.8
2.0
2.5
2.4
2.1
6.4
1.3
2.1
-2.1
-0.4
1.30
4.00
Economics ● Global
Q1 2024
Asia Pacific
Mainland China
Jing Liu
Chief Economist, Greater China
The Hongkong and Shanghai
Banking Corporation
jing.econ.liu@hsbc.com.hk
+852 3941 0063
Erin Xin
Economist, Greater China
The Hongkong and Shanghai
Banking Corporation Limited
erin.y.xin@hsbc.com.hk
+852 2996 6975
Lulu Jiang
Economist, Greater China
HSBC Qianhai Securities Limited
lulu.l.l.jiang@hsbcqh.com.cn
+86 755 8898 3404
Taylor Wang
Economist, Greater China
The Hongkong and Shanghai
Banking Corporation Limited
taylor.t.l.wang@hsbc.com.hk
+852 2288 8650
Heidi Li
Associate
Guangzhou
Firmer footing
We recently revised up our China growth forecasts, accounting for more solid activity and a more
proactive policy stance (see China GDP upgrade, 20 November). We expect growth to be 4.9%
in 2024, followed by 4.5% in 2025 as the recovery continues to broaden out and further policy
support to stabilise the property sector, as well as to help resolve the local government debt
overhang, gains traction. While the new dual-track housing development model is promising,
more concerted action by policymakers and timely implementation will be critical to avoid an
even larger stabilisation cost. Meanwhile, longer term growth will also remain the focus as the
government aims to balance addressing structural concerns, such as elevated local government
debt, with growth opportunities in innovation-led sectors and green development.
Consumption has continued to be a key driver for growth throughout the year and is likely to
underpin sustained momentum in the coming quarters. Services-related retail sales grew 19% in
the first ten months of 2023, far outpacing still healthy overall retail sales growth of c7%. The
robust performance of the service sector has boosted spending power and consumption among
lower income groups in particular. But, for a more holistic economic recovery, it’s essential for this
momentum to broaden out, enhancing business confidence, and stimulating more spending by those
in higher income brackets. That way, the cascading effect can strengthen the overall economic
recovery, especially given weak external demand. There are some green shoots as industrial
production has stayed buoyant, but policy support is needed for steadier growth.
The most pressing issue is to stabilise the property market. The recent improvement in secondhand home sales in large cities may be an early indication of hope after a period of property
market stress. New primary home sales have fallen by double digits y-o-y since June, which has
weighed down the entire property sector value chain and, hence, the economy (see China
activity, 15 November). The government is transitioning towards a new dual-track housing
model, with a larger government-led social housing sector complemented by a commercial real
estate sector largely driven by market forces. A myriad of property policy measures, if
implemented in a timely fashion and on a meaningful scale, should lead to stabilisation:
increased government support through directing funding for local governments to absorb excess
capacity such as through pledged supplemental lending facilities (PSLs), the greenlighting of
funding support for healthy private and public developers and easing of home purchase
restrictions to unleash demand in large cities.
Activity is firming up and still led by
consumption
Mainland China activity
% Yr
10
8
6
4
2
0
-2
Property sector continues to remain a drag
% Yr
10
8
6
4
2
0
-2
Industrial
Service Fixed asset Retail sales
production production investment (in value
(in volume index (in
(in value
terms)
terms)
volume
terms)
terms)
2019 FY
2yr CAGR 2023 Q1
2yr CAGR 2023 Q3
Source: Wind, HSBC
2022 FY
2yr CAGR 2023 Q2
2yr CAGR 2023 Oct
Th sq m
Th sq m
Mainland China 30 major cities
housing sales (7dma)
1000
1000
800
800
600
600
400
400
200
6 Dec
0
Jan
Mar
2023
2020
May
Jul
Sep
2022
2019
Nov
200
0
Jan
2021
Source: CEIC, HSBC
55
Economics ● Global
Q1 2024
Policy issues
Fiscal policy is growing and likely to stay in a high gear in the coming years. In October, the NPC
Standing Committee approved the issuance of RMB1trn of sovereign bonds to be used for disaster
prevention and mitigation, alongside an increase in the fiscal deficit to 3.8% of GDP (from 3.0%). We
see a more holistic approach to fiscal budgeting moving forward to optimise the debt structure
between the central and local governments. The broad-based fiscal deficit is likely to stay at c8% of
GDP in the following years (compared with under 6% prior to the pandemic). In line with the goal of
further expanding domestic consumption, fiscal policies will likely do the heavy lifting, including the
enhancement of social welfare to foster inclusive growth, including the expansion of social housing
supply, either by building new housing or converting existing commercial housing into affordable
housing. The central government may also provide additional funding for important infrastructure
projects laid out in the 14th Five Year Plan, many of which have been delayed due to COVID-19 in
the past three years. Support for new growth engines, such as the green transition and
manufacturing modernisation, is likely to remain a priority.
On the monetary side, the PBoC will stay accommodative, as Governor Pan pledged to enhance
coordination with fiscal, regulatory and other policies. We anticipate the necessity of substantial
liquidity injections near term, potentially through a 50bp RRR cut or via pledged supplementary
lending. This is essential to alleviate the tightening liquidity conditions towards year-end. The
issuance of cRMB3trn in government bonds in Q4, coupled with additional measures to assist in
resolving local government debt, provides a strong rationale for this injection. We expect another
50bp in 2024. On the interest rate front, we see scope for cuts beginning in Q3 given reduced
outflow pressure as the US Fed is likely to start cutting rates by then. We expect 10bp of cuts each
in Q3 and Q4, and then for rates to stay on hold through to end-2025. Meanwhile, inflation may
remain muted due to the property sector, though we expect a modest pickup in CPI inflation to
0.5% in 2024 due to low base effects, easing of downward pressure on food prices, and still
resilient domestic consumption.
Risks
We see the risks as balanced. The property sector remains a key downside risk, while a global
demand slowdown could also weigh on growth. Geopolitical tensions appear to have lessened after
recent high-level meetings (eg, the President Xi/Biden meeting on the side-lines of the APEC
summit), though the upcoming Taiwan elections and US elections in January are likely to be key
touchpoints. Meanwhile, upside risks are likely to stem from a faster-than-expected improvement in
confidence, likely led by more policy support or swifter stimulus implementation than expected.
Key forecasts
% Year
GDP
GDP (% quarter)
Primary industry
Secondary industry
Tertiary industry
Consumer spending
Government consumption
Investment
Exports
Imports
Industrial production
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
CNY/USD*
Policy rate*
2023f
5.2
4.1
4.6
5.8
10.0
5.2
3.2
-5.3
-5.7
4.2
5.3
0.2
298.8
1.7
-3.8
14.9
7.15
3.45
2024f
4.9
4.3
4.8
5.1
7.0
5.9
3.5
1.9
3.9
4.4
4.9
0.5
353.3
1.9
-4.0
15.5
7.30
3.25
2025f
4.5
3.9
4.5
4.5
7.2
4.4
2.7
3.8
2.2
4.5
5.4
1.3
393.3
2.0
-4.0
15.1
3.25
Q3 23
4.9
1.3
4.2
4.6
5.2
-9.9
-8.6
4.2
-0.1
62.6
1.4
-5.2
7.30
3.45
Q4 23f
5.2
1.1
4.5
5.1
5.4
-0.5
0.5
5.5
-0.4
89.9
1.9
-4.4
7.15
3.45
Q1 24f
3.8
1.4
3.0
3.6
4.0
-1.4
2.0
3.4
-0.4
66.8
1.7
-1.0
7.20
3.45
Q2 24f
6.4
1.2
6.1
6.2
6.6
1.2
5.4
6.2
0.5
77.3
1.7
-3.2
7.25
3.45
Q3 24f
4.7
1.0
4.0
4.7
4.8
3.7
5.7
5.0
0.6
101.8
2.2
-4.6
7.30
3.35
Q4 24f
4.7
1.1
3.9
4.7
4.9
3.8
2.4
4.9
1.3
107.5
2.1
-6.6
7.30
3.25
Note: *Period end. Annual budget balance refers to balance of general public budget after adding withdrawals from central fiscal stabilisation fund, central government managed fund, SoE fund,
and use of carry-forward funds. Quarterly budget balance refers to balance of general public budget before the adjustment.
Source: CEIC, HSBC estimates
56
Economics ● Global
Q1 2024
Asia Pacific
Japan
Frederic Neumann
Chief Asia Economist, Co-head
Global Research Asia
The Hongkong and Shanghai
Banking Corporation Limited
fredericneumann@hsbc.com.hk
+852 2822 4556
Jun Takazawa
Economist, Asia
The Hongkong and Shanghai
Banking Corporation Limited
jun.takazawa@hsbc.com.hk
+852 3941 6530
All about that wage
After widening the yield curve control (YCC) band in the July meeting, the Bank of Japan (BoJ) made
yet another adjustment in October, removing the hard ceiling of 1.00% set by fixed-rate operations and
instead keeping the 1.00% as a reference point. With adjustments to enhance YCC sustainability made,
the next BoJ policy move is therefore contingent on the BoJ determining that inflation has sustainably
moved towards its target. In our view, the all-important Shunto spring wage negotiations for 2024 look
set to be comparable to the 2023 results, while spending is expected to be buttressed to a limited
degree thanks to solid winter bonuses in level terms, energy subsidies until at least April 2024, as well
as one-off income tax cuts in the middle of 2024. We therefore expect the BoJ to officially remove YCC
in Q1 24 and then exit a negative interest rate policy (NIRP) in Q2 24, raising the rate on the policy-rate
balance to 0.00% from -0.10%.
The ‘cautious and gradual’ reaction function of the BoJ is because the Japanese economy is not
necessarily in overheating mode. Indeed, revised estimates of 3Q23 GDP surprised on the
downside, with the economy contracting 0.7% q-o-q sa on the back of weak private demand.
Having learned from its premature exits from easy monetary policy in the past, the BoJ will be
looking for more definitive signs that the domestic economy is on more solid footing.
Encouragingly, corporates are recording high profits overall, which in turn should provide some
ammunition for spending on both wages and capex to increase modestly through 2024. While
cyclical headwinds from an uncertain global outlook are present, structural demand for investment
by firms, such as in digitalisation, is expected to continue as businesses adapt to fundamental
demographic challenges. We continue to expect the Japanese economy to grow above potential
at 0.8% in 2024 and 1.1% in 2025.
Meanwhile, underlying price pressures look to be more persistent than expected. Although goods
inflation is on a steady disinflation path, services inflation has been holding steady at elevated levels.
And although the pace and quantity of price hike announcements across goods look to have peaked
(Nikkei, 30 November), firms are continuing to pass on costs to consumers in an environment where
inflation expectations are structurally higher than before the pandemic. We consequently revise up
our inflation forecasts to 3.3% in 2023 (3.2% previously) and to 2.6% in 2024 (2.2% previously),
meaning that inflation is expected to be sustained well above 2% for three consecutive years.
Services inflation is holding up, reflecting
pent-up demand
ppt cont
5
Japan inflation
Some differences within size and industry,
but firms overall are on healthy footing
% Yr
5
4
4
3
3
2
Index
200
Japan industry profits
Index
200
175
175
2
150
150
1
1
125
125
0
0
100
100
-1
-1
75
75
-2
Oct-22
Jan-23
Other goods
Processed food
Services
Source: CEIC, HSBC
Apr-23
-2
Jul-23
Oct-23
Electricity, Gas, Water
Fresh food
CPI (RHS)
50
2013
50
2015
2017
2019
2021
2023
Ordinary profit
Plant & equipment investment excl software (RHS)
Source: CEIC, HSBC
57
Economics ● Global
Q1 2024
Policy issues
Prime Minister Kishida’s current term as the President of the ruling Liberal Democratic Party (LDP) is
set to end in September 2024. Despite the announcement of the supplementary budget, Prime
Minister Kishida’s approval ratings are at record lows (29% as polled by NHK in November), making
it hard to call for a snap election anytime soon. In this sense, Shunto spring wage negotiations for
2024 are an important event for the Cabinet. How the next year’s wage growth trends develop will
also be important for fiscal authorities in terms of formulating the regular budget. With the BoJ
expected to normalise policy over the course of 2024, there will be more scrutiny on government
expenditures going forward given Japan’s large government debt.
In addition to managing the path of future policy, central bank authorities will also need to deliberate
on managing their existing balance sheet. Having been the largest buyer of JGBs in addition to
having presence in other asset markets (such as ETFs and corporate bonds), any communication
and/or adjustments will have to be conveyed carefully to market participants. With the monetary
policy review and its related workshops in mind (held in December 2023 and May 2024), balance
sheet management is expected to be one discussion theme for the BoJ in 2024.
Risks
All eyes are on wage growth for 2024 and whether it comes in strong. Rengo, the largest labour
union, has set a total pay hike target of ‘5% or more’ for the 2024 Shunto spring wage
negotiations (bearing in mind the target for 2023 was ‘around 5%’). Therefore, to what extent
the results – with the first round of results expected in mid-to-late March – meet expectations
will determine the course of both fiscal and monetary policy. While a slowdown in global growth
does not mean that the BoJ cannot normalise policy, it may lead to Japanese firms keeping
spending intentions more modest, which could contribute to a more prudent BoJ stance. In this
sense, it is also important to observe whether small and medium-sized enterprises can cope
and adapt to the changing environment, given that they employ a majority of the workforce,
roughly 70% according to METI.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)**
Gross external debt (% GDP)**
Gross government debt (% GDP)**
JPY/USD*
Policy rate (%)*
Source: CEIC, Cabinet Office, MoF, BoJ, HSBC
Note: *Period end **Data on fiscal year basis
58
2023f
1.9
1.0
1.0
1.8
0.4
1.1
2.3
-1.4
-1.4
2.6
1.4
3.3
142.0
3.4
-5.9
105.4
208.2
144
-0.10
2024f
0.8
0.8
1.1
1.2
0.0
0.6
3.0
1.6
1.1
2.6
1.4
2.6
145.8
3.5
-4.2
105.0
200.6
136
0.00
2025f
1.1
0.8
1.2
1.6
0.0
1.1
2.8
2.7
1.2
2.6
1.0
2.0
161.1
3.5
-2.6
104.4
192.5
0.00
Q3 23
1.5
-0.7
0.0
1.0
0.2
0.2
-0.1
2.3
-4.7
-3.7
2.7
0.9
3.1
42.6
4.1
149
-0.10
Q4 23f
1.4
0.1
0.5
0.8
1.1
0.0
0.4
1.0
-3.5
-1.4
2.6
1.6
3.0
38.4
3.8
144
-0.10
Q1 24f
0.5
0.3
-0.1
0.9
0.1
0.0
-0.7
5.3
-1.4
0.9
2.6
1.6
2.9
37.1
3.7
140
-0.10
Q2 24f
0.0
0.3
0.9
1.2
0.9
0.0
0.3
2.0
2.6
0.0
2.6
1.4
2.7
36.4
3.6
138
0.00
Q3 24f
1.1
0.3
1.3
1.2
1.9
0.0
1.3
2.3
2.5
1.6
2.6
1.5
2.5
34.8
3.3
137
0.00
Q4 24f
1.4
0.3
1.2
1.2
2.0
0.0
1.4
2.5
2.7
1.7
2.6
1.4
2.2
37.5
3.4
136
0.00
Economics ● Global
Q1 2024
Asia Pacific
India
Pranjul Bhandari
Chief India and Indonesia
Economist
HSBC Securities and Capital
Markets Private Limited
pranjul.bhandari@hsbc.co.in
+91 22 2268 1841
Aayushi Chaudhary
Economist
HSBC Securities and Capital
Markets (India) Private Limited
aayushi.chaudhary@hsbc.co.in
+91 22 2268 5543
Glorious growth
September quarter GDP growth came in at a higher-than-expected 7.6%, signifying the strong
momentum in the economy. There were some sectoral divergences. For instance, urban demand
zipped ahead while rural areas slowed. Industry and manufacturing outpaced services. And
investment outpaced consumption. There was also a case of some statistical exaggeration of
numbers because of the practice of single deflation instead of double deflation, which tends to
exaggerate growth in times of falling commodity prices. Additionally, there were low base effects,
coming from the pandemic period, which led to high GDP numbers in 1H, but will dissipate in 2H.
Finally, falling FDI (even if temporarily), a weakening agricultural sector due to the El Niño and some
possible softness in credit growth could, over time, lower growth.
But because the momentum is so strong, we do not expect growth to slow sharply. Government
capex could fall, but some of it may help create space for current expenditure. Credit growth could
ease, but may not fall sharply given structural improvements in access. FDI has fallen, but this could
get compensated, to some extent, by other flows. We believe that even though growth could fall by
160bp from 1H to 2H, about two-thirds of that would be due to statistical reasons. As such, actual
growth on the ground may not soften much. We expect GDP to grow 6.9% in FY24 and 6% in FY25.
Of the four state election results that were announced on 3 December, the BJP won three, with a
showing that was stronger than expected. While state elections do not give a perfect indication of
what can happen in national elections in May 2024, markets may interpret the results as an indication
that the BJP has a good chance of winning the national election as well, paving the way for Prime
Minister Modi to return as India’s Prime Minister for a third term. More perceived certainty on the
results may lower the risk premium on asset prices going into the national election year.
The medium-term growth outlook is bright as well. We find that “new India” – a small but fast-growing
part of the economy, made up of high-tech sectors (high-tech services and goods exports, and the
tech start-up ecosystem) – is growing rapidly. Services exports, in particular, have diversified from
computer services to professional services. Many MNCs are setting up their Global Capability
Centres in India to produce a host of services, ranging from HR, audit, legal to business
development, design and R&D. The rise in “new India” could raise potential growth to 6.5% over the
next decade, compared to 6% at the eve of the pandemic.
GDP rose impressively in the September
2023 quarter
India: Trends in real growth
% Yr
10
% Yr
10
Core inflation has softened, but high food
prices keeps the outlook uncertain
% Yr
12
India: Trends in CPI inflation
% Yr
12
9
8
9
8
6
6
6
4
4
Sep-22
Dec-22
GVA
Source: CEIC, HSBC
Mar-23
GDP
Jun-23
6
RBI's upper
tolerance limit
3
0
Oct-21
3
0
Apr-22
Oct-22
Apr-23
Oct-23
Headline
Core (excl. food, fuel, petrol, diesel, housing)
Food
Sep-23
Core GVA
Source: CEIC, HSBC
59
Economics ● Global
Q1 2024
Policy issues
India is at a crossroads on various fronts. Portfolio inflows are rising, but FDI inflows have fallen
sharply. Pandemic-led FDI flows in sectors like computer services and drugs and
pharmaceuticals have slowed, but investment intentions reveal meaningful interest in futuristic
sectors like renewables, semiconductors and AI. But until these flows come to fruition, the RBI
may be sensitive to a falling balance-of-payment surplus and its impact on the currency, thereby
keeping monetary policy tight.
In good news, core inflation has finally started falling after a long wait, but food inflation remains
uncertain in an El Niño year. Reservoir levels are low, as are cereal stocks at the granaries.
Where inflation ultimately rests will depend a lot on the winter wheat crop, and that may not be
clear until March. Until then, the RBI may want to err on the side of caution.
We expect the repo rate to remain unchanged at 6.5% for the next several months. We believe
that some space to cut rates may open up in mid-2024, but it will be limited to 1-2 rate cuts of
25bp each. The RBI has kept liquidity tight in recent months, and that is likely to continue into
early 2024. On November 16, the RBI announced higher risk weights for unsecured consumer
credit, and bank lending to NBFCs, to temper the unfettered growth in this sector. We believe
the RBI will be tracking the data to determine if further action is needed.
We do not forecast a major fiscal slippage, but there could be some repurposing of expenditure,
from capex to current outlays in the run up to the national elections (due in May 2024).
Risks
Adverse weather events such as heatwaves and uneven rains could stoke inflation further and
hurt growth. Further slowing of exports and FDI inflows could weigh on external balances,
particularly with a ‘higher for longer’ global rates backdrop. A lack of reforms in the next few years
could hurt potential growth.
Key forecasts
% Year
GDP (calendar year)
GDP (% quarter)
GDP (fiscal year)**
Consumer spending**
Government consumption**
Investment**
Stockbuilding (% GDP)**
Domestic demand**
Exports**
Imports**
Industrial production**
Consumer prices**
Current account (USDbn)**
Current account (% GDP)**
Budget balance (% GDP)**
Gross external debt (% GDP)**
Gross government debt (% GDP)**
INR/USD*
Policy rate (%)*
2023f
7.0
6.9
4.7
5.6
8.4
0.8
5.9
3.5
9.8
5.5
5.4
-64.4
-1.8
-5.9
17.8
84.0
83.3
6.50
2024f
6.0
6.0
6.1
5.1
6.6
0.8
6.2
6.6
7.3
4.4
5.0
-77.7
-2.0
-5.3
17.1
83.3
84.0
6.00
2025f
6.3
6.5
6.6
4.8
6.5
0.8
6.4
6.6
6.5
4.9
5.0
-87.7
-2.1
-4.8
16.2
82.0
6.00
Q3 23
7.6
-0.2
7.6
3.1
12.4
11.0
0.8
6.3
4.3
16.7
7.4
6.4
-7.6
-0.9
83.0
6.50
Note: *Period end ** Data on fiscal year basis, e.g. 2023 refers to fiscal year ending March 2024.
Source: Reserve Bank of India, CEIC, HSBC forecasts
60
Q4 23f
6.5
-1.8
6.5
5.0
6.0
8.0
0.7
6.0
9.0
4.0
5.9
5.5
-22.7
-2.5
83.3
6.50
Q1 24f
5.8
3.0
5.8
4.8
6.0
7.0
0.8
5.7
8.0
8.0
4.2
5.0
-24.9
-2.6
83.3
6.50
Q2 24f
6.3
5.3
6.3
6.0
6.5
6.5
0.8
6.2
5.5
6.0
4.9
5.2
-16.8
-1.8
83.5
6.25
Q3 24f
5.9
-0.6
5.9
6.4
5.5
6.5
0.8
6.4
6.0
8.0
3.9
3.9
-18.9
-2.0
83.8
6.00
Q4 24f
6.0
-1.8
6.0
6.0
4.0
6.5
0.8
6.0
7.0
7.0
4.6
5.4
-20.7
-2.1
84.0
6.00
Economics ● Global
Q1 2024
Asia Pacific
Australia
Propelled by population growth
Paul Bloxham
Chief Economist, Australia, New
Zealand & Global Commodities
HSBC Bank Australia Limited
paulbloxham@hsbc.com.au
+61 2 9255 2635
Jamie Culling
Economist, Australia, New
Zealand & Global Commodities
HSBC Bank Australia Limited
jamie.culling@hsbc.com.au
+61 2 9006 5042
Growth and inflation have recently been supported by an unexpectedly large surge in net inward
migration. In late 2022, policymakers had forecast that 235k migrants would arrive in the
2022/23 financial year – in the end, over 500k migrants actually arrived. This upside surprise is
itself a boost to Australia’s population of over 1 percentage point. This largely reflected the
return of international students, as well as a boost to the temporary migrant intake. Population
growth is expected to have been the fastest since the early 1970s over 2023. This has
supported growth in the economy overall, although GDP has been falling on a per capita basis.
Strong inward migration has boosted labour supply and helped to loosen the jobs market,
thereby containing upward pressure on wages growth. Wages growth has risen to 4.0% y-o-y
recently, but forward-looking surveys suggest it is near its peak.
Strong inward migration has also added to demand for goods, services and housing. In
particular, demand for housing has picked up, despite rising interest rates, and housing prices
have risen through 2023, recently reaching a new all-time high for the nation as a whole. Weak
housing supply has also meant sharply lower rental vacancy rates and a substantial rise in
rents, which has added to inflation. On balance, we see the surge in inward migration as having
boosted aggregate demand more than aggregate supply in the short run and supported inflation
at rates that are still well above the RBA’s 2-3% target band.
We recently revised up our growth and inflation forecasts, on the back of stronger than expected
population growth. Our central case is for GDP growth to slow from 2.0% in 2023 to 1.5% in 2024,
before lifting to 1.9% in 2025. Per capita GDP is expected to fall in both 2023 and 2024.
The slowdown in growth and inflation in 2024 is expected to be due to the lagged effect of
monetary tightening and our forecast that population growth slows.
On inflation, most of the pandemic and Ukraine-war related supply-side effects have unwound,
which has seen goods inflation falling. However, inflation remains well above the RBA’s target
band and is expected to fall slowly from here, as it is supported by ‘stickier’ services inflation.
We see inflation falling from 5.7% in 2023, to 3.5% in 2024 and 2.8% in 2025.
GDP per-capita is falling …
% Yr
12
Australia GDP and GDP per capita
… as inflation declines, but only slowly
% Yr
12
9
9
6
6
3
3
0
0
-3
-3
-6
-6
-9
-9
2000 2004 2008 2012 2016 2020 2024
GDP
GDP per capita
GDP (forecast)
GDP per capita (forecast)
Source: ABS; HSBC estimates
%
8
Australia CPI Inflation
%
8
6
6
4
4
2
2
0
0
-2
2000
2004 2008
CPI ( % q-o-q)
CPI (% y-o-y)
2012
2016
-2
2020 2024
CPI (% q-o-q forecast)
CPI (% y-o-y forecast)
Source: ABS; HSBC estimates
61
Economics ● Global
Q1 2024
Policy issues
A key challenge for policymakers is that, despite a slowdown in growth, inflation is still too high.
At the same time, despite rising, the unemployment rate remains historically low and is at levels
that imply that the economy is still beyond full employment. Fiscal and monetary policymakers in
Australia have been prioritising keeping the jobs market as close to full employment as possible,
while still getting inflation to fall back to the RBA’s 2-3% target band.
For the RBA, we expect this to mean that the cash rate will be held steady at its current aboveneutral rate of 4.35% throughout 2024, with some risk that it is lifted again in H1 2024. We do
not expect the RBA to begin cutting its cash rate until Q1 2025.
For fiscal policymakers, we expect a continued focus on spending restraint. However, already
legislated personal income tax cuts are due to arrive on 1 July 2024, and are likely to support
consumer demand and inflation. Continued above-target inflation is also likely to put pressure
on fiscal policymakers to deliver further cost of living support, but unless this is offset by other
spending cuts or tax rises, it too could support elevated inflation. A focus on reform to lift
productivity -- which has been very weak in recent years -- would help to contain inflation
pressures. However, key areas such as industrial relations, tax reform and competition policy
show few signs of being adjusted in the direction that would lift productivity.
Risks
We see the risks to growth as balanced. On the upside, growth could be more supported by a
boost to trade and further strong support from inward migration, as the post-pandemic process
of re-opening and re-connecting to the global economy continues. On the downside, if elevated
inflation persists, interest rates may have to be lifted further and the unemployment could have
to rise by more than our central case, to get inflation to head back to target.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Net government debt (% GDP)
AUD/USD*
Policy rate (%)*
Source: HSBC estimates
Note: *Period end
62
2023f
2.0
1.2
1.4
7.9
0.0
1.4
6.9
4.4
0.5
3.7
3.8
5.7
13.1
0.7
0.9
19.4
0.66
4.35
2024f
1.5
0.7
1.6
4.1
-0.1
1.4
3.8
4.0
1.3
4.3
3.7
3.5
3.5
0.2
-0.7
22.3
0.62
4.35
2025f
1.9
1.5
1.9
3.2
-0.1
2.0
3.3
4.0
2.0
4.9
3.4
2.8
-6.7
-0.4
-1.3
23.5
3.75
Q3 23
2.1
0.2
0.4
2.6
8.8
-0.1
1.0
6.8
2.2
-0.2
3.7
4.1
5.4
-0.1
-0.0
0.64
4.10
Q4 23f
1.5
0.3
0.3
1.9
9.9
-0.1
1.9
5.2
8.2
-0.1
3.8
3.9
4.4
0.4
0.1
0.66
4.35
Q1 24f
1.1
0.1
0.3
2.2
6.8
-0.1
1.0
5.5
6.1
0.5
4.0
4.0
3.9
1.0
0.2
0.64
4.35
Q2 24f
1.3
0.6
0.5
1.7
4.7
-0.1
1.8
2.0
4.2
0.5
4.2
4.1
3.6
1.3
0.3
0.62
4.35
Q3 24f
1.7
0.6
0.9
1.1
2.5
-0.1
1.3
3.6
2.6
2.0
4.4
3.3
3.3
1.2
0.3
0.62
4.35
Q4 24f
1.9
0.6
1.2
1.4
2.7
-0.1
1.6
4.1
3.3
2.0
4.6
3.4
3.1
0.1
0.0
0.62
4.35
Economics ● Global
Q1 2024
Asia Pacific
South Korea
Jin Choi
Economist
The Hongkong and Shanghai
Banking Corporation Limited
jin.h.j.choi@hsbc.com.hk
+852 2996 6597
A balancing act
Korea’s growth recovery continued in Q3 23. Specifically, GDP expanded by another 0.6% q-o-q sa,
sustaining the healthy pace seen from Q2. Details showed exports picked up strongly on the back of
the ongoing memory upcycle. The improving memory chip cycle, reflected by the continued rise in
spot memory prices, is surely a boon for Korea’s exports (recall semiconductors account for c20% of
overall exports). Furthermore, we think this export recovery could also benefit from mainland China’s
growth recovery. Specifically, our mainland China economists expect to see the services-driven
recovery to broaden across domestic demand in the coming quarters, as Beijing is increasing its progrowth support both on the fiscal and monetary fronts. This view of a continued exports recovery,
albeit at a gradual pace given still-subdued global demand, is the main reason why we expect
Korea’s economy to expand at respectable pace of 1.4% for 2023 and 1.9% in 2024.
Meanwhile on the domestic demand front, we continue to see the Bank of Korea (BoK)’s restrictive
monetary policy weighing on consumers. Specifically, sequential momentum for private consumption
was limited at 0.3% q-o-q sa in Q3, despite the fact that it had dipped in Q2 and remains one of the
more lagged GDP components in the recovery since the pandemic. Looking ahead, we expect stillhealthy labour market conditions and improving real wages to buttress consumption’s overall
momentum. However, we expect consumer sentiment to remain weak and households’ discretionary
spending to continue to be constrained by the higher interest rate burden.
Weakening private consumption, along with the recent stabilisation in housing prices, is increasingly
leading market participants to question the timing of the BoK’s easing. However painful as this is for
Korea’s households, recent inflation prints make us think it is still too early to ask that question.
Specifically, headline CPI inflation reaccelerated over August-October. Granted, signs of easing price
pressures seen in November bring some reprieve to the BoK in its balancing act, but the slowerthan-expected pace of disinflation in core inflation suggests that the BoK’s policy focus is yet to shift
towards downside growth concerns. This is especially so given the respectable pace of growth we
expect for Korea in the coming quarters (compared to Korea’s potential growth likely at 1.8-2.0%).
Ongoing memory upcycle will support
exports and overall growth at a
respectable pace…
…allowing the BoK to be patient until
inflation converges towards the target rate
% Yr
% Yr
7
80
60
40
20
0
-20
-40
-60
-80
2018
% 3m/3m
saar
80
60
40
20
0
-20
-40
-60
-80
2019 2020 2021 2022 2023 2024
Daily exports: semiconducor
DRAM price
Daily exports: semiconductor (RHS)
Korea semiconductor
Source: CEIC, DRAMeXchange, HSBC. Note: DRAM spot price (DDR4 8Gb (1Gx8)
2666) for Dec-23 is based on data as of 7 December.
Korea inflation and policy rate
%
7
6
6
5
5
4
4
3
3
2
2
1
BoK's inflation target
0
1
0
2020
2021
2022
BoK policy rate (RHS)
Core CPI
2023
2024
2025
Headline CPI
Source: CEIC, HSBC estimates; Note: coloured squares denote HSBC forecasts
(quarterly averages for inflation and quarter-end values for policy rates
63
Economics ● Global
Q1 2024
Policy issues
In our view, the BoK is likely to start easing in Q3 24. This is when we expect headline inflation
to slow below 2.5% and core inflation to near 2% – the levels which we think give the BoK
ample amount of confidence that inflation is indeed converging towards its 2% target. We
expect the subsequent easing cycle to be gradual, with a 25bp cut in each of the following
quarters bringing the policy rate down to 2.25% by Q3 25. Over this trajectory, the BoK will
closely watch the impact of monetary easing on household leverage conditions. An excessive
pick-up in leverage, especially if tied to price gains in the housing market, could slow the BoK’s
policy easing process.
Meanwhile, Korea’s fiscal policy may shift somewhat following the scheduled legislative election
in April 2024. Since its inception, the current Yoon administration has generally sought fiscal
prudence, partly in order to help the BoK curb inflation. Indeed, its 2024 budget proposal
featured a 2.8% growth in total expenditure, which would be the slowest pace seen since 2005.
It is also seeking a formal adoption of a stringent fiscal rule, which if implemented will cap Korea’s
annual managed fiscal balance at 3% of GDP. Currently, passing this rule would require
cooperation from the main opposition Democratic Party of Korea, which holds the absolute
majority in the National Assembly. But the political landscape may change after the election,
either adding traction to the Yoon administration or making things more challenging.
Risks
We see balanced risks for the Korean economy. The extent of any US growth slowdown,
relative to the strength of mainland China’s growth recovery, could either strengthen or weaken
Korea’s exports recovery. Domestically, more resilient consumers could pose upside risks to our
growth forecasts, while easing concerns around the property market, potentially as the BoK
starts to signal a shift in policy stance, could also lead to a better-than-expected recovery for the
subdued construction sector. In a similar vein, movements in global commodity (crude oil) prices
could pose growth risks for Korea, through their impact on import inflation and the BoK’s policy
trajectory.
Key forecasts
% Year
GDP
GDP sa (% q-o-q)
Consumer spending
Government consumption
Investment
Stockbuilding (% of GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USD bn)
Current account (% of GDP)
Budget balance (% of GDP)
Gross external debt (% of GDP)
Gross government debt (% of GDP)
KRW/USD*
Policy rate (%)*
Source: HSBC estimates
Note: * Period end
64
2023f
1.4
1.9
1.4
1.7
0.8
1.8
2.4
2.9
-4.2
2.6
3.8
3.6
28.3
1.7
-4.3
40.2
52.2
1320
3.50
2024f
1.9
1.7
1.4
1.4
0.7
1.5
4.0
2.6
1.8
2.8
3.2
2.6
45.7
2.6
-4.3
40.1
52.9
1300
3.00
2025f
2.2
2.3
1.9
2.2
0.8
2.3
4.1
4.7
1.9
3.0
3.3
1.9
61.3
3.3
-2.9
38.9
53.4
2.25
Q3 23
1.4
0.6
0.2
1.1
0.4
1.4
0.0
3.1
-0.3
-2.1
2.6
3.6
3.1
14.1
3.3
1349
3.50
Q4 23f
2.2
0.6
1.2
-0.6
0.3
1.0
0.4
8.2
3.2
4.6
2.6
3.5
3.5
11.7
2.7
1320
3.50
Q1 24f
2.2
0.3
1.0
-0.5
1.2
1.1
0.8
4.1
-0.3
1.9
2.6
3.4
3.3
5.0
1.2
1320
3.50
Q2 24f
1.9
0.4
1.6
2.1
1.6
-0.5
1.7
5.7
4.3
3.0
2.7
3.2
2.5
7.2
1.7
1310
3.50
Q3 24f
1.8
0.4
1.9
2.3
1.5
1.4
1.8
3.1
3.0
1.2
2.9
3.2
2.5
17.4
3.8
1300
3.25
Q4 24f
1.6
0.5
2.0
1.9
1.4
1.0
1.7
3.0
3.3
1.1
3.0
3.1
2.2
16.1
3.5
1300
3.00
Economics ● Global
Q1 2024
Asia Pacific
Indonesia
Pranjul Bhandari
Chief Economist India and
Indonesia
HSBC Securities and Capital
Markets Private Limited
pranjul.bhandari@hsbc.co.in
+91 22 2268 1841
Aayushi Chaudhary
Economist
HSBC Securities and Capital
Markets (India) Private Limited
aayushi.chaudhary@hsbc.co.in
+91 22 2268 5543
The tide is turning
Indonesia will have a new president in 2024, given President Jokowi cannot stand again due to a
two-term limit. The leading presidential candidate must secure 50% of the votes in the 14 February
elections; otherwise there will be a run-off on 26 June. Prabowo Subianto is leading in the polls
currently, and while under 50%, his share of the vote looks to be rising (source: Lembaga Survei
Indonesia, November 2023).
Even the state of the economy could change in 2024. Recall that Indonesia was an oasis of stability
in the last few years, with inflation, the current account and fiscal deficit, all under control. What gave
instead, was the growth recovery. As evidenced by tepid credit growth, GDP growth was soft (e.g.
4.9% in the September quarter versus 5.3% potential growth), led by tight fiscal and monetary policy,
and exacerbated by China’s soft recovery, which is an important trade partner.
In fact, weak credit growth was a key reason for the macro stability Indonesia enjoyed. One,
slow credit growth means that much of the banking sector’s excess liquidity remained captive, and
did not spill out into the real economy, stoking inflation. Two, slow credit growth reflected higher
‘net’ household saving, keeping the current account balance (CAB) strong (recall CAB = Saving
- Investment). Three, low credit growth meant that banks didn’t have to scramble for liquidity,
thereby keeping deposit rates low; in fact, keeping deposit rates lower than bond yields incentivised
domestic investors to move towards buying government bonds, helping fund the fiscal deficit.
But all of that could gradually change. Bank credit growth seems to be picking up across the board,
steadily getting back to long-term averages, and could rise further if Bank Indonesia cuts rates in
2024. There is also substantial FDI waiting on the side-lines, which could manifest once elections are
over. USD30bn of foreign investment has already happened in the processed metals space over the
last few years, with an equal amount waiting on the side-lines, as per our analysis of FDI intentions.
Meanwhile USD45bn of investment intentions have been announced in the EV space (ie, batteries
and autos). We forecast GDP growth to average 5.2% in 2024 versus 5.0% in 2023.
In fact, Indonesia is one of the economies where the next decade’s growth will likely be higher than
the previous decade’s growth, as the economy climbs up the manufacturing value chain - from ores
to processed metals and EVs. In fact, we forecast that growth will accelerate by 0.5ppt over the
medium-term; a keen focus on macro stability will be central to that.
GDP is c12% above pre-pandemic levels
but 8% below the pre-pandemic trend
Index
130
Indonesia: Trends in growth
Index Dec-19 SA = 100
Index
130
‘Volatile CPI’ inflation has been rising
since July
% 3m/3m
saar
30
Indonesia CPI
% 3m/3m
saar
30
120
120
20
20
110
110
10
10
100
100
0
0
90
2020
90
-10
Nov-21
2021
2022
2023
Actual level
Pre-pandemic potential level
Source: CEIC, HSBC estimates
-10
May-22
Nov-22
May-23
Nov-23
Core
Volatile (includes food)
Administered (includes fuel)
Source: CEIC, HSBC
65
Economics ● Global
Q1 2024
Policy issues
We believe that BI will start cutting the policy rate once there is a clear sense that Fed rates
have peaked. We believe BI will start cutting policy rates in Q2 2024. We expect a total of
100bp in rate cuts, evolving gradually – 25bp in Q2 2024, 25bp in Q3 2024, and 50bp in Q4
2024 – taking the benchmark policy rate to 5.00% by end-2024.
The reason we think BI will cut gradually, and leave policy rates no lower than pre-pandemic
levels, is because better growth prospects could have implications for other macro indicators.
Core inflation has been extremely well behaved. But ‘volatile’ CPI inflation has been rising since
July. Rice and sugar prices have been elevated for a few months and the prices of red chili and
pepper have shot up recently. Bank Indonesia recently raised its 2024 inflation forecast to 3.2%
y-o-y (from 2.8% earlier). This becomes particularly important at a time when BI's inflation target
for 2024 is set to fall to 2.5%+/-1, from 3%+/-1 in 2023.
With falling coal prices, the current account has swung into a small deficit (of 0.2% of GDP in
the September quarter). Better domestic growth prospects could pressure it further. We forecast
that the current account deficit will average 0.6% of GDP in 2024 versus 0.1% in 2023.
Encouragingly, on the fiscal front, buoyant tax revenues and controlled expenditure are keeping
a lid on the deficit, at least for now. We forecast the fiscal deficit to inch up post elections.
Tepid growth was the story of 2023. As that normalises, we will get a better sense of where the
other macro indicators will land in the post-pandemic world. 2024 could indeed be a year of
change on several fronts.
Risks
If the USD remains strong, BI may be forced to keep monetary policy tighter for longer, hurting
growth. If global coal prices fall further, near-term macro stability could come into question. Adverse
weather events could raise inflation. A slow transition to greener processes could dampen the EVsled growth prospects. The markets are also eyeing upcoming national elections. The results matter
for policy continuity.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
IDR/USD*
Policy rate (%)*
Source: HSBC estimates Note: *Period end
66
2023f
5.0
5.0
4.8
4.6
1.7
6.1
-1.8
2.9
1.5
5.6
5.8
3.7
-1.8
-0.1
-2.0
27.9
37.6
15600
6.00
2024f
5.2
5.6
6.1
5.7
1.7
5.7
6.4
8.0
3.8
5.4
6.9
3.2
-8.3
-0.6
-2.5
27.9
38.5
15900
5.00
2025f
5.3
5.6
5.6
5.8
1.6
5.6
6.8
8.0
3.2
5.4
6.8
3.0
-13.9
-0.9
-2.5
27.8
38.7
5.00
Q3 23
4.9
0.9
5.1
-3.7
5.8
0.7
4.8
-4.3
-6.2
0.5
2.9
-0.9
-0.2
15455
5.75
Q4 23f
4.7
0.7
5.1
8.0
5.8
2.1
10.1
-10.0
17.0
3.8
2.8
-1.7
-0.5
15600
6.00
Q1 24f
5.0
1.8
5.5
10.0
5.6
2.0
5.6
-2.0
7.0
4.2
3.0
-2.1
-0.6
15800
6.00
Q2 24f
5.1
1.6
5.6
8.0
5.5
2.0
5.9
8.0
15.0
4.1
3.2
-1.9
-0.5
15900
5.75
Q3 24f
5.2
1.0
5.6
6.0
6.0
0.9
6.0
6.0
11.0
3.8
3.4
-1.9
-0.5
15900
5.50
Q4 24f
5.4
0.8
5.6
3.0
5.8
2.0
5.3
14.0
1.0
3.3
3.3
-2.4
-0.6
15900
5.00
Economics ● Global
Q1 2024
Asia Pacific
Taiwan
Managing expectations
Taiwan’s economy posted robust GDP growth of 1.9% q-o-q sa in Q3 23. This followed Q2’s healthy
growth of 1.8%, coming out of an earlier technical recession. While private consumption largely
retained its strength thanks to healthy demand across various services segments including eating
out, accommodation and tourism, Taiwan’s exports also recovered further, helped by electronics
demand for AI and higher-end tech products.
Indeed, we are seeing signs that demand for new technological applications is providing a fillip for
the electronics-driven economy. Taiwan’s industrial production picked up sequentially for the fourth
straight month in October, mainly driven by the electronic parts and components industry, which
accounts for half of total industrial production. Inventory and shipment data for the industry also
suggest the cycle is likely turning to an expansionary phase. Such developments have led us to
revise upwards Taiwan’s growth forecasts recently, to 1.0% in 2023 and 3.2% for 2024.
However, we also see the need to manage our expectations regarding the pace of Taiwan’s
economic expansion ahead. This is mainly because global demand conditions remain subdued,
including for both consumer and industrial electronics (see Green shoots in trade: Asia Chart of the
Week, 1 December, 2023). With the US economy expected to slow below its potential and the
eurozone’s growth expected to remain weak in 2024, we do not think the recent pace of strong
growth is sustainable for Taiwan’s economy. As it is, Taiwan’s customs exports value
rebounded a lukewarm 3.8% y-o-y in November, with sequential exports volume growth
estimated to have remained muted from October. The forward-looking new orders PMIs for
Taiwan’s electronics sectors have also largely remained in contraction territory in the recent
months as well.
Meanwhile on the domestic demand front, monthly proxies for goods and services consumption
have been softening lately, suggesting that Taiwan consumers’ catch-up phase is likely behind
us now. Given the backdrop of still-subdued global demand conditions, we do not think
Taiwan’s capex could provide a strong offset either. Taiwan’s business sentiment could also be
affected in the near term by the upcoming elections.
Taiwan’s electronics cycle is showing
signs of a turnaround…
Taiwan information & technology industry
…while the pace of private consumption
growth is expected to normalise
30
0
Q3 23
Index
110
60
Inventory (% Yr)
Jin Choi
Economist
The Hongkong and Shanghai
Banking Corporation Limited
jin.h.j.choi@hsbc.com.hk
+852 2996 6597
-30
-60
-30
-15
0
Shipment (% Yr)
15
30
Source: CEIC, HSBC; Note: information and electronic industry accounts for c57%
of Taiwan’ manufacturing activities; values are seasonally adjusted by HSBC
Taiwan private consumption (Q4 19 = 100)
Index
110
105
105
100
100
95
95
90
90
85
85
2013 2015 2016 2017 2018 2020 2021 2022
Private consumption: actual
"Private consumption: based on trend growth*
Source: CEIC, HSBC; Note: based on real GDP data; *trend growth calculated from
2015-2019
67
Economics ● Global
Q1 2024
Policy issues
Taiwan will head to the polls to elect a new president and legislature for the next four years on
13 January. Recent polls suggest the three-horse race between Mr Lai Ching-te of the ruling
Democratic Progressive Party (DPP), Mr Hou You-yi of the main opposition Kuomintang (KMT)
and Mr Ko, Wen-je of the new Taiwan People’s Party (TPP) could be a tight one. The ruling
DPP under President Tsai over the past eight years has made efforts to reduce the extent to
which the economy is reliant on mainland China. This has led to material changes in Taiwan’s
outward investment into mainland China, while changing cross-strait relations have affected
tourist arrivals over the past eight years. Other domestic issues including wages, housing, and
energy (nuclear power) policies could also be affected by the election results (see Taiwan
election preview: Too close to call, 5 December 2023, for more discussion and also discussion
of rates/FX implications from our strategists).
On monetary policy, we do not expect much action from the Central Bank of the Republic of
China (CBC) in this cycle. The recent reacceleration in inflation over July to October, before
November’s reprieve, was largely due to adverse weather conditions. However, underlying core
inflation has also been sticky on its way down, likely reflecting the robust private consumption
recovery over the past quarters. We think this will lead the CBC to keep its policy rate on hold
for much of 2024 until inflation enters the CBC’s comfort zone of 0-2%. We expect the CBC to
deliver two 12.5bp cuts over 4Q24-1Q25. After all, more benign inflation compared to other
economies allowed the CBC’s rate hiking cycle to be a shallow one, meaning it need not go
down much either.
Risks
We see balanced risks around Taiwan’s growth trajectory. If global demand remains weaker for
longer, or is deeper than expected, especially in end-demand for electronics products, that
could pose a downside risk for Taiwan’s exports. Meanwhile, more resilient consumer activity
amidst still-healthy employment conditions, or stronger demand for electronics for AI and new
technologies, could pose upside risks to our numbers. Lastly, we also watch out for potential
spill-over from the January elections with regards to Taiwan’s cross-strait relations with
mainland China, which remains Taiwan’s dominant trading partner.
Key forecasts
% Year
GDP
GDP sa (% q-o-q)
Consumer spending
Government consumption
Investment
Stockbuilding (% of GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USD bn)
Current account (% of GDP)
Budget balance (% of GDP)*
Gross external debt (% of GDP)*
Gross government debt (% of GDP)*
TWD/USD*
Policy rate (%)*
Source: HSBC estimates
Note: * Period end
68
2023f
1.0
8.3
1.1
-7.9
-0.4
1.6
-4.1
-4.6
-10.9
3.5
2.6
2.5
89.3
11.9
1.0
27.6
29.8
32.0
1.875
2024f
3.2
2.7
0.6
1.4
-0.3
2.1
5.5
4.2
3.1
3.4
2.3
2.1
96.0
12.4
0.8
27.2
29.4
31.6
1.750
2025f
2.7
2.2
1.5
3.7
-0.2
2.6
3.4
3.4
2.6
3.3
2.3
1.8
106.2
12.9
0.9
26.1
29.2
1.625
Q3 23
2.3
1.9
9.2
0.0
-11.1
-0.8
1.0
-1.3
-4.5
-11.1
3.4
2.6
2.4
27.2
14.2
32.3
1.875
Q4 23f
3.7
1.0
5.0
0.8
-9.8
-0.2
1.0
4.6
-0.2
3.7
3.4
2.8
2.9
20.5
10.8
32.0
1.875
Q1 24f
5.1
0.3
3.9
1.6
-2.6
-0.2
1.5
7.5
1.9
5.0
3.4
2.4
2.4
19.5
10.6
31.8
1.875
Q2 24f
3.7
0.4
2.7
0.7
1.3
-0.3
2.5
6.5
5.0
3.6
3.4
2.4
2.3
24.3
12.9
31.6
1.875
Q3 24f
2.3
0.5
2.1
1.0
2.5
-0.4
2.5
4.1
4.8
2.2
3.4
2.3
2.1
29.9
15.0
31.6
1.875
Q4 24f
2.0
0.7
2.0
-0.5
4.4
-0.3
2.1
4.3
5.1
1.9
3.4
2.2
1.7
22.3
11.0
31.6
1.750
Economics ● Global
Q1 2024
Asia Pacific
Thailand
In search of fuel
Many expected 2023 to be the year that the Land of Smiles would stage a strong recovery. The
return of Chinese tourists, the economy’s biggest source of visitors, would have supported the
economy amidst Thailand’s election cycle. But the recovery of Chinese tourists wasn’t just slow - it
even reversed mid-year, leading to growth surprising to the downside for three consecutive quarters.
Thailand also didn’t see its trade cycle turn as positively as its ASEAN peers. As a result, GDP is still
below pre-pandemic levels, which is also reflected in the underperformance of its financial markets.
Will the Thai economy shake off its economic woes in 2024? Forward looking indicators don’t look
promising. PMI new orders have plunged, the recovery of tourism has hit a brick wall, and exports to
the US, Thailand’s top export destination, are expected to soften. The manufacturing production
index (in terms of value) has fallen for 13 consecutive months due to competition from mainland
China and demand for hard disk drives falling – a structural issue the Thai economy has recently
been grappling with. Travel sentiment from prospective Chinese tourists also remains weak as
concerns over safety continue to linger. We don’t think the economy’s recovery is stuck in the ditch,
but it’s pretty clear that Thailand’s export engine is sputtering.
To get moving again, authorities are looking to the economy’s domestic drivers for help. In the first
four months in office, the new government has been generous in its provision of subsidies: diesel and
gasoline prices were cut, electricity tariffs were lowered, sugar prices were controlled, and train fares
were capped. This has resulted in headline CPI falling to negative territory, which, in turn, boosted
consumption. In fact, the Bank of Thailand’s (BoT) private consumption index is growing near its
fastest pace, barring the COVID-19 pandemic. And as its main policy for 2024, the government is
determined to stimulate the economy and empower consumers through a 10K digital cash hand-out
scheme worth 2.6% of GDP. This should bolster consumption in the Year of the Dragon and we
expect growth to accelerate from 2.5% in 2023 to 3.8% in 2024. Other policies should also provide
some fuel to growth such as Thailand’s visa-free schemes to lure in tourists as well as subsidies for
electric vehicle production to spur investment.
Nonetheless, a fiscal stimulus of this size can stoke concerns over inflation. Mindful of this risk, we
expect the BoT to stay pat and let fiscal policy do the work in supporting growth.
The tourism recovery has hit a brick wall
due to the reversal of Chinese visitors
The 10K digital cash hand-out will likely
widen the fiscal deficit in 2024 and 2025
%
100
THB bn
-1000
%
100
Thailand tourist arrivals
(% of pre-pandemic levels)
80
80
60
60
40
40
20
20
0
0
Overall ex CH
May-23
Jun-23
Overall
Jul-23
Mainland China
1-Aug
Source: CEIC, HSBC. CH refers to mainland China
Sep-23
Oct-23
Thailand fiscal
% of GDP
-5.0
-800
-4.0
-600
-3.0
-400
-2.0
-200
-1.0
0
0.0
200
1.0
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
Aris Dacanay
Economist, ASEAN
The Hongkong and Shanghai
Banking Corporation Limited
aris.dacanay@hsbc.com.hk
+852 3945 1247
Fiscal Cash Balance, before financing
Budget Deficit (w/ HSBC forecast) - RHS
Source: CEIC, HSBC. 2024 and 2025 deficits are HSBC forecasts
69
Economics ● Global
Q1 2024
Policy issues
The government aims to implement the 10K digital cash hand-out scheme by May 2024 wherein
consumers have 6 months to spend the money provided. And to smoothen government
disbursements, retailers will be given until 2027 to exchange the digital money they get for hard cash
to avoid the risk of vendors cashing out in one go (Bangkok Post, 15 November 2023).
Nonetheless, at 2.6% of GDP, the hand-out scheme isn’t cheap, and it will likely be on top of the
fiscal year (FY) budget being proposed. The plan is to fund the handout scheme via a separate
borrowing plan, and it is unclear whether other projects will be cut to mitigate the fiscal impact of the
stimulus. As of the time of writing, the FY2024 budget being proposed has a deficit of THB693 billion
or 3.7% of GDP (Reuters, 13 September 2023). We expect fiscal policy to be expansionary in FY
2024 and 2025 at 4.6% and 4.3% of GDP, respectively, under the assumption that the government
will be able to smoothen the disbursements needed to pay for the hand-out.
Matching the deficits accrued during the pandemic, we expect public debt to rise to 66.1% of GDP by
the end of 2025, which is still below the government’s 70% debt limit. Although less transparent,
contingent liabilities may also rise as the government continues to subsidize fuel and electricity. As of
3 October 2023, the debt of the Oil Fuel Fund Office stood at THB62 billion or 0.3% of GDP
(Bangkok Post, 4 October 2023).
Furthermore, the fully appointed Senate will lose its power to vote for the Premier on 11 May 2024.
Since the largest political party is in the opposition, there is a risk of the political landscape changing
in just 8 months after the government was formed. This may lead to renewed uncertainty over policy.
That said, we expect FDI and portfolio flows to continue being subdued as investors continue to
‘wait-and-see’ with regard to what policies will be in place come 2025.
Risks
Given the tight fiscal space, the biggest risk to the outlook is if nominal growth becomes softer than
expected, thus raising debt as a percent of GDP. Apart from weak external demand, this can also be
the case if high household debt limits the hand-outs’ ability to boost growth. Funds are fungible and,
although a welcome development, there is a risk that households will use their existing savings to
pay for their debts while the digital money they get will be used to buy what they usually buy.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
THB/USD*
Policy rate (%)*
*Period end. Source: HSBC estimates
70
2023f
2.5
7.6
-5.1
2.0
-0.7
4.1
1.9
-2.5
-3.9
1.0
2.2
1.3
6.8
1.3
-4.0
39.1
62.4
35.2
2.50
2024f
3.8
4.6
0.5
1.8
0.9
3.3
1.9
4.1
2.2
1.2
6.4
1.6
10.5
2.0
-4.6
39.5
64.9
36.4
2.50
20255f
3.2
4.6
2.3
3.6
0.8
4.0
4.1
5.4
2.9
1.1
7.1
2.1
15.7
2.9
-4.3
37.4
66.1
2.50
Q3 23
1.5
0.8
8.1
-4.9
1.5
-3.8
4.2
0.2
-10.2
-5.0
1.0
1.0
0.5
3.3
2.6
36.4
2.50
Q4 23f
4.0
1.3
8.5
-5.0
3.0
0.8
4.9
4.7
4.5
-1.7
1.0
7.0
-0.3
4.0
3.0
35.2
2.50
Q1 24f
3.0
0.7
6.1
-2.9
0.7
0.9
3.3
1.5
1.5
1.5
1.2
7.0
-0.0
0.7
0.5
35.6
2.50
Q2 24f
3.2
0.4
2.8
-0.7
3.8
0.7
2.5
0.8
1.0
2.5
1.3
4.5
1.5
-1.4
-1.1
36.0
2.50
Q3 24f
4.5
2.1
4.2
1.8
1.0
1.4
3.1
2.3
7.8
2.0
1.2
6.0
2.0
4.2
3.2
36.4
2.50
Q4 24f
4.4
1.1
5.2
3.5
2.0
0.7
4.2
3.0
6.1
2.7
1.1
8.0
2.8
7.1
5.1
36.4
2.50
Economics ● Global
Q1 2024
Asia Pacific
Malaysia
Yun Liu
ASEAN Economist
The Hongkong and Shanghai
Banking Corporation Limited
yun.liu@hsbc.com.hk
+852 2822 4297
Madhurima Nag
Associate
Bangalore
The emergence of green shoots
Due to a delayed hit to its export performance, Malaysia’s growth slowed notably in Q2 23, a
reminder that no export-oriented economies could escape the global trade downturn unscathed.
However, positive signs of recovery have emerged in H2 23, with higher-than-expected growth of
3.3% y-o-y in Q3 23 – an impressive performance, as Malaysia saw a significantly high base of
14.1% y-o-y in Q3 22.
Granted, Malaysia is still grappling with a downturn in global trade. The manufacturing sector only
contracted by 0.1% y-o-y in Q3, a small downturn after a positive 0.1% growth in Q2. Trade also
showed a similar trend, with the magnitude of export decline shrinking to single-digits in October. The
weakness was mostly led by a sharp correction in global commodity markets, particularly oil, LNG
and palm oil. But the nascent recovery in the global electronics cycle, as seen in peers like Korea
and Singapore, provides some hopes that Malaysia’s exports are seeing the light at the end of the
tunnel. After all, consistent FDI continues to pour into Malaysia, making it still one of the top recipients
in ASEAN. The added capacity should enable Malaysia’s manufacturing sector to rebound strongly
when the trade cycle turns.
In addition to the green shoots in trade, Malaysia’s tourism-related sectors continue to provide muchneeded support. In particular, Malaysia is among the frontrunners in ASEAN in attracting Chinese
visitors. The tourism outlook has brightened further, after the recent announcement of China and
Malaysia’s mutual visa exemption program, making it more competitive among regional peers, not
only in attracting tourists, but also potential investors.
All in all, we raise our growth forecast to 4.1% (prev: 3.8%) for 2023 but maintain our forecast at
4.5% for 2024, accounting for the better outturn in Q3 23 and a gradual turnaround in the trade cycle.
Meanwhile, inflation has been well contained. Headline inflation continued to cool down to below 2%
y-o-y, the second lowest rate in ASEAN, after Thailand. Quite positively, the impact from a recent
rally in global rice prices has been partially blunted, thanks to the government’s efforts to ramp up
domestic supply. That said, upside risks to inflation remain, particularly from the changes in the 2024
budget, including a 2ppt hike in the services tax and some cuts to fuel subsidies. We slightly trim our
headline inflation forecast to 2.5% for 2023 and maintain our forecast at 2.4% for 2024.
Core inflation continues to cool, allowing
BNM to remain on hold
%
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
Malaysia policy rate vs. inflation
% Yr
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
2016 2017 2018 2019 2020 2021 2022 2023
Policy Rate
Source: CEIC, HSBC
Core CPI (RHS)
Malaysia expects a smaller fiscal deficit of
4.3% of GDP in 2024 budget
% of GDP
Malaysia fiscal
30
% of GDP
-2
24
-3
18
-4
12
-5
6
-6
0
-7
11 12 13 14 15 16 17 18 19 20 21 22 23f 24f
Revenue
Deficit (RHS)
Expenditure
Original trajectory (RHS)
Source: CEIC, HSBC
71
Economics ● Global
Q1 2024
Policy issues
Malaysia’s long-anticipated 2024 budget is at the centre of attention. On 13 October, Prime Minister
Anwar Ibrahim, who also doubles as Finance Minister, tabled the second budget by the unity
government. Although much of the focus pre-budget was on fiscal consolidation, the 2024 budget
shows a rather balanced approach. While the government aims to deliver its commitments towards
some form of fiscal consolidation, paving the way to a return to its pre-pandemic fiscal trajectory, the
sheer magnitude of the spending is the largest ever tabled, excluding a one-off bond payment in
2023 (see: A smaller deficit, 16 October).
Starting with the maths, the government aims to reduce its 2024 fiscal deficit to 4.3% of GDP, from a
budgeted 5.0% in 2023. However, there are nuances in the fall in the fiscal deficit. In fact, current
spending is budgeted at still-elevated levels. Indeed, on the expenditure side, spending will be
reprioritised, rather than undergo a fiscal consolidation per se.
The government aims to implement subsidy rationalisation from 2024 but in a phased manner. This
will include the removal of some food subsidies, an ongoing targeted electricity subsidies and
rationalisation of diesel prices, in stages. However, the savings generated from targeted subsidies
will be shifted elsewhere to, for example, cash aid programmes. It is positive to see Malaysia moving
towards a path of lower fiscal deficits, but the 2024 budget shows that this will be achieved through
beefing up the revenue side of the equation, not outright expenditure reduction.
On the monetary front, BNM has kept the policy rate steady at 3% since May, despite regional peers’
recent resumptions of rate hikes. A clear distinction is that Malaysia’s inflation that has been well in
check, though partly thanks to continued subsidies. Our base case is for BNM to pause for a
prolonged period until end 2024 before a possible 25bp rate cut in Q1 25. That said, there may be
more tightening bias if inflation shoots up after the shift to targeted subsidies in 2024.
Risks
While any trade recovery is likely to prove gradual, an upside risk to Malaysia’s growth is a sharperthan-expected turnaround in the global electronics cycle, which Malaysia will no doubt be one of the
main beneficiaries of. Meanwhile, upside risks to inflation need to be watched closely – we wait for
details of the implementation of targeted subsidies to be announced. This will influence whether BNM
will have to resume rate hikes as a precautionary measure, though this is not our central case.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
MYR/USD*
Policy rate (%)*
Source: HSBC estimates
Note: *Period end
72
2023f
4.1
5.0
3.6
5.2
1.3
4.8
-8.5
-8.7
0.5
3.4
1.8
2.5
7.3
1.8
-5.0
65.5
68.3
4.70
3.00
2024f
4.5
5.2
3.8
5.4
0.8
4.5
2.0
1.8
1.5
3.3
2.3
2.4
11.3
2.8
-4.3
65.0
66.8
4.60
3.00
2025f
4.6
4.7
3.4
4.7
0.6
4.3
4.6
4.0
2.8
3.2
2.6
2.3
12.7
3.0
-3.5
64.7
63.4
2.75
Q3 23
3.3
2.6
4.6
5.8
5.1
1.0
5.0
-12.0
-11.1
-0.0
1.4
2.0
2.0
2.0
4.70
3.00
Q4 23f
4.8
0.8
5.3
6.3
5.5
1.5
7.1
-8.9
-7.2
-0.7
2.2
1.7
2.3
2.2
4.70
3.00
Q1 24f
5.0
1.0
5.4
5.4
5.7
1.0
5.7
-3.7
-3.4
1.7
2.2
2.2
2.4
2.4
4.70
3.00
Q2 24f
4.9
0.9
5.2
4.2
5.7
1.7
4.7
1.2
0.8
2.1
2.3
2.3
2.5
2.6
4.70
3.00
Q3 24f
4.1
1.0
5.1
3.2
5.4
-0.1
3.7
4.7
4.1
0.8
2.4
2.3
2.9
2.9
4.65
3.00
Q4 24f
4.2
1.4
5.2
3.0
5.0
0.7
3.9
5.7
5.4
1.3
2.4
2.6
3.5
3.2
4.60
3.00
Economics ● Global
Q1 2024
Asia Pacific
Singapore
Yun Liu
ASEAN Economist
The Hongkong and Shanghai
Banking Corporation Limited
yun.liu@hsbc.com.hk
+852 2822 4297
Waiting for the tech boom
After narrowly avoiding a technical recession in Q2 23, the worst seems to have passed for
Singapore’s economy, with a sequential expansion of 1.4% q-o-q sa in Q3 23. But what is more
encouraging beyond headline numbers is that the distribution of growth is more broad-based.
This is mostly evident in its key manufacturing sector, which has been in the doldrums for over a
year. While external demand remains sluggish, the manufacturing sector saw its first sequential
growth in 2023, though the magnitude is still marginal. In particular, electronics production has shown
surprising green shoots, growing by double-digits on a y-o-y basis in October and November on
average. While the recovery in the global electronics cycle is still at a nascent stage, this provides
hopes for tech-heavy economies, including Singapore, that a main driver will be steaming again in
2024. That said, we caution on the magnitude of the rebound, given global economic uncertainty.
Despite external weakness, domestic demand continues to provide much-needed support. After a
few quarters of strength, private consumption still carries positive momentum, thanks to its tight
labour market, though initial signs are pointing to some softness with rising retrenchments.
Meanwhile, travel-related services continue to drive growth, with potential to improve further, as the
transport and accommodation sectors have not yet returned to pre-pandemic levels. Given the arrival
of winter in the northern hemisphere, Singapore’s aviation industry is set to benefit handsomely.
All in all, we maintain our growth forecasts at 1.2% for 2023 and 2.4% for 2024, on the back of an
ongoing recovery in travel and a modest turn in the tech-led global trade cycle.
In addition, disinflation continues to be the dominant theme, with core inflation consistently cooling
from its peak of 5.5% y-o-y to 3.3% y-o-y lately. However, October’s higher-than-expected core
inflation reminds the market that this remains sticky, and it is still a long process for inflation to
decelerate to the Monetary Authority of Singapore’s (MAS) comfort zone. While we maintain our core
inflation forecast at 4.1% for 2023, we flag upside risks from energy shocks and planned
administrative hikes in 2024, leading to an upgrade of our 2024 core inflation forecast to 3.1%.
While the MAS will shift its focus from inflation to growth in 2024, imminent upside risks to inflation
will constrain the MAS to start reversing its tightening cycle. We only expect the MAS to reduce its
SGDNEER slope in April 2024, not in the January meeting, at the earliest.
IP has started to bottom out, led by
improving electronics production
% Yr,
3mma
100
Singapore industrial production
Core inflation has continued to decelerate,
but remains elevated
% Yr,
3mma
100
80
80
60
60
40
40
20
20
0
0
-20
-20
-40
-40
2014
2016
2018
Headline IP
Pharmaceutical
Source: CEIC, HSBC
2020
2022
Electronics
% Yr,
3mma
8
% Yr,
3mma
8
Singapore inflation
6
6
4
4
2
2
0
0
-2
2013
-2
2015
2017
Headline
2019
2021
2023
Core
Source: CEIC, HSBC
73
Economics ● Global
Q1 2024
Policy issues
The MAS maintained its monetary policy settings in the October meeting, as widely expected. But
to our surprise, the MAS’ tone sounded balanced, as opposed to slightly dovish as we had
expected (see: MAS Review: A surprisingly balanced tone, 13 October).
On growth, the MAS struck a rather cautiously optimistic tone about Singapore’s prospects in 2024.
We believe the relative optimism is largely driven by its expectation of a modest recovery in the
global economy, though it also cautioned on the timing and the magnitude of the recovery.
On inflation, the MAS has maintained its balanced tone. Despite flagging upside risks to inflation
from global energy and food markets, it also kept its view that weaker growth in the global economy
in the near-term could be a dampener. Crucially, the MAS’ stance on the cooling labour market led
to its assessment that “core inflation should be on a broad moderating trend in 2024”.
That said, we believe there may be more imminent upside risks to inflation, given recent geopolitical
tensions, a planned 1ppt GST hike to 9% and several administrative price hikes soon, including a 7%
hike in public transport fares in December 2023. In addition, the MAS will shift to a quarterly-based
meeting schedule from 2024, suggesting nimbler and more flexible decisions. While the January
meeting is approaching, we do not believe this is the timing for the MAS to loosen its monetary
policy. After all, the MAS will need to see more evidence that inflation will consistently decelerate to
its comfort zone before making the first easing move. Therefore, we only expect the MAS to loosen
its monetary policy in April 2024, possibly “slightly” reducing its SGDNEER policy band (i.e. by 50bp).
While keeping its monetary policy unchanged, fiscal policy has come to provide partial support (see:
A familiar playbook, 28 September). Singapore has introduced a package of targeted fiscal support,
worth SGD1.1bn (0.2% of GDP), aiming to cushion rising living costs without stoking more inflation.
Risks
Singapore is facing upside risks to both growth and inflation. If the global electronics cycle sees
a sharper-than-expected rebound in 2024, Singapore will no doubt be one of the main and early
beneficiaries. Meanwhile, it is still too early to call it a victory on the inflation front. If core
inflation becomes stickier-than-expected, this could delay the timing of the MAS to loosen its
monetary policy. Our base case is for that to occur in Q2 24, but if inflation becomes more
persistent, the timing could be pushed to Q3 24.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)**
Gross external debt (% GDP)
Gross government debt (% GDP)
SGD/USD*
2023f
2024f
2025f
Q3 23
Q4 23f
Q1 24f
Q2 24f
Q3 24f
Q4 24f
1.2
4.7
1.4
0.8
-0.8
-0.1
0.7
-0.1
-4.8
2.0
5.6
5.0
86.3
17.7
-1.1
384.2
183.0
1.34
2.4
3.2
1.0
3.4
0.8
5.2
2.2
4.6
2.8
2.1
3.1
3.5
76.0
15.0
0.1
362.5
180.4
1.38
2.6
2.3
2.1
3.5
0.6
2.5
5.7
6.2
5.2
2.2
2.6
2.4
82.3
15.5
0.2
348.6
177.1
-
1.1
1.4
4.4
3.4
-0.7
-0.6
1.6
-1.1
-1.3
-4.4
4.1
22.1
18.2
4.0
1.37
2.5
1.5
6.4
1.1
6.6
0.1
3.1
3.3
3.4
-1.8
4.5
17.1
13.5
-1.2
1.34
3.3
0.3
5.5
-3.3
3.2
1.3
7.5
1.4
4.6
2.7
4.3
14.9
11.9
-6.2
1.36
3.3
0.1
5.0
5.7
7.4
0.1
8.0
2.2
6.7
4.2
3.5
22.3
17.6
6.3
1.38
2.2
0.2
2.1
-0.0
2.0
0.8
3.9
1.7
2.8
3.9
3.3
22.1
17.6
4.2
1.38
1.0
0.3
0.3
1.9
1.3
0.7
1.8
3.7
4.5
0.4
2.9
16.7
12.9
-1.0
1.38
Source: HSBC estimates
*Period end, **Refers to primary balance, which excludes contributions from sovereign wealth
74
Economics ● Global
Q1 2024
Asia Pacific
Hong Kong
Erin Xin
Economist, Greater China
The Hongkong and Shanghai
Banking Corporation Limited
erin.y.xin@hsbc.com.hk
+852 2996 6975
Steady as she goes
Hong Kong’s growth is moving along at a softer pace. Ongoing headwinds from weak global demand
for goods and tightened monetary conditions have limited the full rebound following the reopening
(see GDP downgrade, 21 Nov). That said, the rate of growth is likely to run at a healthy pace of 2.8%
in the coming years, in line with pre-pandemic levels, supported by resilient consumption, eventual
easing of monetary pressures and increased activity in mainland China.
The key drags to the economy persist and may linger into 2024. For one, global goods demand may
stay weak amid elevated interest rates. Trade of goods accounts for c15% of GDP in value-added
terms and has fallen by 11% y-o-y in H1 2023. Meanwhile, a slower-than-expected economic
recovery in mainland China and weak sentiment have weighed on the financial sector. Additionally,
the ‘inherited’ tight monetary conditions due to the currency board arrangement, have held back a full
revival in investment and weighed on the property sector. The government recently announced
property easing measures at the Policy Address in October, which aims to hedge against downward
pressure from high interest rates. There are already some positive signs of a revival in sales (Midland
reported +22% m-o-m sales in November, SCMP, 1 December) though the recent aggressive
reduction in prices and seasonality may also be a contributing factor. We think we will need to wait
until H2 2024, after the US Fed begins to cut rates, to see a more substantial stabilisation in the
property sector.
Domestic consumption has remained a key driver for growth, rising 9% in the first three quarters of
the year. Sales of consumer discretionary goods have been the key beneficiary, with sales of clothing
and jewellery rising by 44% and 55% ytd y-o-y through October 2023, respectively. The strength
of domestic consumption is underpinned by a robust labour market. The unemployment rate of 2.9%
is below pre-pandemic levels, while wage growth has stayed positive in real terms since Q4 2022.
Meanwhile, mainland Chinese visitor arrivals should continue to rise, reaching 80% of pre-pandemic
levels (i.e. H1 2019) in 2024, up from 50%e in 2023, as outbound travel continues to normalise. The
combination of resilient domestic consumption and tourism demand should keep retail sales growth
elevated at 7% in 2024 and 9% in 2025.
Hong Kong remains financially stable with ample official reserve assets at USD416bn (end-Oct).
Interbank liquidity has declined over the last year (aggregate balance c45bn) helping to narrow
HIBOR-LIBOR spreads, as by design under the currency peg.
A steady pace of growth at 2.8% is likely in
the coming years
ppt cont
15
Hong Kong GDP
% Yr
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
2015
2017
2019
Net exports
Govt consumption
Private consumption
Source: CEIC, HSBC
-15
2021
2023
Change in inventories
Investment
GDP (RHS)
Consumption will continue to underpin
overall growth
ppt cont
30
Hong Kong retail sales
% Yr, 3mma
30
20
20
10
10
0
0
-10
Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23
Food & Drink
Supermarkets
Fuel
Clothing
Durable goods
Dept. stores
Jewellery & luxury
Other
Retail sales (RHS)
-10
Source: CEIC, HSBC.
75
Economics ● Global
Q1 2024
Policy issues
The Chief Executive delivered his Policy Address on 25 October (see Hong Kong Policy
Address, 25 October). Key measures aimed to provide some near-term relief, such as through
cuts in stamp duty for property purchases and stock transactions to lift transaction volumes, as
well as support for longer term growth, such as through expansion of talent programmes and
measures to boost birth rates. Hong Kong’s workforce has already recovered by 2.3% (vs -5.7%
during the pandemic). The Top Talent Scheme has approved 100k applications (c2.6% of the
labour force), with 60k already entering Hong Kong on the scheme.
Additionally, there was a focus on supporting Hong Kong’s competitiveness as an international
financial centre through deepening its linkages with mainland China as well as through regional
cooperation (eg, with ASEAN and the Middle East), as well as developing Hong Kong’s green
finance market and digital economy (eg, applications for digital government and smart city).
Hong Kong will continue to position itself as a leading green finance centre, with higher
standards for climate and sustainability reporting, further development of its green bond market,
and increased greening of its domestic economy (see Greater Bay Area Insight, 17 November).
The Financial Secretary noted that the fiscal deficit for 2023 is likely to be over HKD100bn, or
3.4% of GDP, up from the budgeted cHKD54bn. He also said that “a budget deficit in the next
financial year is inevitable” (RTHK, 4 Dec). We expect it to reach 1.5% in 2024. While cyclical
factors from weaker asset markets and a more subdued-than-expected recovery have contributed
to this, we expect the government will gradually move towards fiscal consolidation by 2025. We
think an ongoing recovery and reduced likelihood of large one-off fiscal expenditures will
provide some support.
Under the currency board system, Hong Kong's policy rate moves in tandem with the US
Federal Funds rate. Thus, Hong Kong's policy rate is set to stay on hold at 5.75% until Q2 2024.
We expect six consecutive quarters of cuts starting in Q2 2024, taking the policy rate to 5.00%
at end-2024 and 4.25% by end-2025.
Risks
Risks are balanced for Hong Kong, though downside risks may likely stem from a larger-thanexpected slowdown in global demand, spillover from escalation in geopolitical tensions, or more
muted-than-expected growth in mainland China. Upside risks could come from a faster
mainland China recovery or earlier US Fed Funds cuts.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)*
Gross government debt (% GDP)*
HKD/USD**
Policy rate (%)**,***
2023f
3.3
8.5
-4.1
9.1
-1.4
6.3
-7.0
-5.7
3.1
3.1
3.0
2.1
20.2
5.3
-3.4
4.3
7.80
5.75
2024f
2.8
3.4
1.8
3.7
-1.6
3.1
3.1
3.3
2.3
2.8
3.2
2.6
19.6
4.9
-1.5
4.7
7.80
5.00
2025f
2.8
4.2
2.8
3.5
-1.5
4.0
3.8
4.5
2.2
2.8
3.5
2.0
27.1
6.5
-0.6
4.8
4.25
Q3 23
4.1
0.1
6.3
-4.5
18.4
0.6
8.7
-4.8
-2.7
3.0
1.9
3.4
3.5
7.83
5.75
Q4 23f
4.8
0.6
7.5
-4.0
12.0
-2.0
7.5
3.0
4.5
3.1
2.7
5.0
4.9
7.80
5.75
Q1 24f
0.6
1.2
3.2
0.5
3.0
-3.0
1.5
3.4
4.0
2.6
2.5
2.1
2.2
7.80
5.75
Q2 24f
2.8
1.0
2.9
1.0
1.2
-0.5
4.6
2.5
3.6
2.0
2.9
5.7
6.0
7.80
5.50
Q3 24f
3.7
0.8
3.7
3.0
5.5
-0.1
3.1
3.2
2.9
2.1
2.9
6.6
6.3
7.80
5.25
Q4 24f
3.9
1.0
3.8
3.0
5.0
-2.6
3.2
3.4
3.0
2.4
2.2
5.2
4.8
7.80
5.00
Source: HSBC estimates
Note: *Fiscal year ending March, e.g. 2023 refers to fiscal year April 2023 – March 2024. **Period end. ***The policy rate is set at 50bp above the lower bound of the Federal
Funds target range or the average of the 5-day moving averages of the overnight and one-month HIBORs, whichever is higher.
76
Economics ● Global
Q1 2024
Asia Pacific
Philippines
Aris Dacanay
Economist, ASEAN
The Hongkong and Shanghai
Banking Corporation Limited
aris.dacanay@hsbc.com.hk
+852 3945 1247
Strength in numbers
The Philippine economy still found enough juice to run the engines in Q3 2023, growing at 5.9% y-oy, well above what the market had expected. After this impressive clip, the archipelago is now well
poised to become the fastest growing ASEAN economy in 2023 despite seeing the fastest inflation
rate and most aggressive monetary tightening. We raise our full-year GDP forecast for 2023 from
4.8% to 5.3% and lift our hats to the archipelago’s robust display of resilience.
It helped that the Philippines was more insulated from the global headwinds relative to others. But the
main engine that kept the economy going was its people. The country’s labour market is currently
booming, with the unemployment rate the lowest in history but with the labour force participation rate
high. In absolute terms, there are roughly 3 million more people working compared to what the
historical trend would suggest, with many using digitalisation as leverage to seek employment in the
informal sector. Yes, these jobs may not be the best in the world. But there is no doubt that what has
been supporting growth amidst the challenges in 2023 was ‘strength in numbers,’ or having more
hands-on-deck in the economy. And with a median age as young as 25 years old, this unique
characteristic of demographic resilience should help buoy the Philippine economy for years to come.
This isn’t to say that the Philippines is in the clear. We still expect growth to come in softer than
historical trends due to several domestic headwinds. For instance, headline CPI flared up in October
as global rice prices surged while monetary policy will likely remain tight to maintain balance in the
economy. True enough, consumption by households and credit by big banks have been growing at
their slowest pace since the Global Financial Crisis (barring the COVID-19 pandemic) and they have
yet to enter their troughs. Investment, however, should continue to support growth with the
government determined to continue its ambitious goal of spending 5% of GDP on infrastructure.
Although growth will likely be softer than usual, we don’t think the Bangko Sentral ng Pilipinas (BSP)
will cut its policy rate anytime soon from 6.50%. Inflation will likely remain problematic until 2H 2024
while it is unlikely that the BSP cuts ahead of the Fed to lend some support to the currency. We only
expect the BSP to cut by 25bp after the Fed begins its easing cycle in Q2 2024. We then expect the
BSP to follow a gradual pace, cutting by 25bp in each quarter until the policy rate normalises to
5.00% by Q4 2025.
Supporting growth is the resilient labour
market, with employment exceeding trend
Millions
55
Philippines labour market
We expect headline CPI to flare up in Q2
2024 and exceed the BSP 2-4% target band
Millions
55
% Yr
10
% Yr
10
Philippines inflation
50
50
8
8
45
45
6
6
40
40
4
4
35
35
2
2
30
30
0
2010 2011 2013 2015 2017 2018 2020 2022
Labor force
LF trend
Employment
Emp. trend
Source: CEIC, HSBC
0
18
19
20 21
BSP target
Food
22
23
24
25
Core
Headline
Source: CEIC, HSBC. Grey area represents HSBC forecasts
77
Economics ● Global
Q1 2024
Policy issues
The government intends to allow the importation of 21,000 metric tonnes of onions and 1 million
metric tonnes of rice by the end of December to bolster food supply (Bloomberg, 21 December
2023). Although this plan should widen the current account deficit, it will bring much needed relief to
inflation in Q1 2024. Nonetheless, we expect average headline CPI in 2024 to breach the BSP’s 24% target band for the 3rd consecutive year at 4.1%. Apart from elevated rice prices, the expiration of
Executive Order 10 (EO10) should reignite headline CPI inflation to rise above 4% from Q2 to Q3
2024. EO10 temporarily reduces the tariff rates for rice, corn, pork, and coal and is set to expire by
31 December 2023. We expect its expiration to stoke inflation directly by as much as 1.4ppt.
But with credit already slowing, monetary policy will be a tough balancing act and we expect the BSP
to stay pat and keep the policy rate restrictive at 6.50% until 3Q 2024, all while maintaining a hawkish
tone. With headline CPI already above the BSP’s target band for 20 straight months, the central bank
will likely keep the doors open for another rate hike if, say, another large upside risk to inflation
materializes. After all, the BSP Governor shared his view that he thinks the policy rate can go up to
as high as 6.80% before it significantly takes a toll on growth (Business Mirror, 16 August 2023). In
other words, the BSP thinks there’s room for another 25bp rate hike.
Due to the need to remain hawkish, we maintain our view that the BSP will only cut the RRR
(Reserve Requirement Ratio) by 100bps in 3Q 2024, which is roughly the same period when we
expect the BSP to begin its easing cycle (A long but hawkish pause, 10 November 2023).
Risks
The extension of EO10 is the biggest downside risk to the inflation outlook. The rollover of lower
tariffs would help keep inflation within the central bank’s target band and provide the BSP some
space to loosen policy earlier.
Nonetheless, upside risks to the inflation outlook persist. Rice prices continue to be problematic while
there is a risk that minimum wages are increased due to how much the purchasing power of minimum
wage earners have deteriorated since 2019. Electricity prices may also be hiked with global oil prices
sticky, not to mention the risk the El Niño season poses to both food and non-food inflation.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
PHP/USD*
Policy rate (%)*
*Period end
Source: HSBC estimates
78
2023f
5.3
5.4
1.3
8.1
-0.2
4.8
2.4
2.6
1.7
4.6
5.0
6.0
-14.3
-3.3
-6.1
27.2
62.1
55.8
6.50
2024f
5.3
4.9
4.5
8.0
-0.3
5.4
9.6
8.5
3.3
4.4
5.6
4.1
-12.9
-2.8
-5.0
26.9
61.2
57.0
6.00
2025f
5.8
5.7
4.6
11.2
-0.3
6.7
8.9
10.5
5.6
4.3
4.0
3.6
-12.5
-2.5
-4.0
25.7
59.0
5.00
Q3 23
5.9
3.3
5.0
6.7
7.9
-1.0
3.9
2.6
-1.3
1.7
4.6
7.0
5.4
-6.1
-5.9
-7.5
56.6
6.25
Q4 23f
4.6
0.5
4.8
2.2
10.5
0.1
5.7
1.7
7.3
2.1
4.6
7.0
4.4
-0.0
-0.0
-7.0
55.8
6.50
Q1 24f
5.4
1.5
4.6
2.1
5.5
-0.2
3.8
13.6
7.0
3.2
4.5
7.0
3.8
-3.8
-3.5
-3.9
56.2
6.50
Q2 24f
5.7
0.9
4.9
8.8
7.5
-0.6
6.0
10.9
8.3
3.2
4.4
5.5
4.6
-3.2
-2.8
-3.7
56.6
6.50
Q3 24f
4.6
1.6
4.9
2.1
9.0
-0.7
5.7
7.0
9.3
2.5
4.4
5.0
4.1
-6.4
-5.8
-6.3
57.0
6.25
Q4 24f
5.3
1.3
5.1
4.2
9.6
0.2
6.1
7.2
9.4
4.2
4.3
5.0
3.7
0.4
0.3
-6.0
57.0
6.00
Economics ● Global
Q1 2024
Asia Pacific
New Zealand
Dis-inflation meets surging migration
Paul Bloxham
Chief Economist, Australia, New
Zealand & Global Commodities
HSBC Bank Australia Limited
paulbloxham@hsbc.com.au
+61 2 9255 2635
Jamie Culling
Economist, Australia, NZ &
Global Commodities
HSBC Bank Australia Limited
jamie.culling@hsbc.com.au
+61 2 9006 5042
The RBNZ has delivered a hefty amount of monetary tightening, lifting its cash rate by 525bp,
and the effects are becoming clearer with signs of disinflation and a cooling labour market.
While growth has been volatile, reflecting some specific shocks, including a cyclone in 1Q23
and the reopened international border effects, capacity pressure does appear to be easing.
In response to slowing economic activity, labour demand has eased, with a fall in employment,
and a rise in the unemployment rate. Forward-looking indicators, including job vacancies, have
fallen sharply. Businesses report in key surveys that ‘sufficient demand’ is now the number one
constraint, rather than ‘finding suitable labour’, which had been the primary issue.
Falling labour demand has been occurring at the same time as ongoing improvements in labour
supply, primarily due to the re-opened border, which is driving a strong upswing in net migration.
However, this is also contributing to stronger aggregate demand, particularly for housing, with
housing prices having stabilised, after sharp falls, and the rental market tightening recently. As
we saw in Australia through 2023, strong inward migration may start to become a dominant
driver of economic outcomes, and there is a risk that it may be inflationary, on net, in the nearterm, which would slow the disinflation process underway in New Zealand.
GDP growth has weakened in response to hefty monetary tightening, with a sharper-thanexpected fall in Q3. Household consumption has felt the brunt of the slowdown, consistent with
the timelier pessimistic readings from consumer sentiment surveys. But, although demand has
weakened, supply has remained constrained, and this has kept inflation elevated.
Inflation is past its peak, but remains well above the RBNZ’s 1-3% target. Both goods and
services inflation have been slowing. However, continued domestic (non-tradables) disinflation
will partly depend on how quickly wages growth slows, which in turns depends on how quickly
the jobs market loosens.
We see below-trend growth and inflation continuing to slow in 2024. Our forecast is for GDP
growth of 0.8% in 2023 (previously 1.1%), 1.9% in 2024 (previously 1.7%) and 1.9% in 2025
(unchanged). We forecast inflation to slow from 5.9% in 2023, to 3.7% in 2024 (previously
3.4%) and 2.8% in 2025 (unchanged).
The economy is disinflating
% Yr
8
Population growth has recovered
% Yr
8
New Zealand inflation
6
6
4
4
2
2
0
0
-2
-2
1991
1996
2001
RBNZ target
2006
2011
2016
CPI
Source: Statistics New Zealand; RBNZ; HSBC estimates.
2021
Core CPI
% Yr
3.0
New Zealand population growth
% Yr
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
1997 2001 2005 2009 2013 2017 2021
Natural
Migration
Population growth
Source: Statistics New Zealand; HSBC.
79
Economics ● Global
Q1 2024
Policy issues
High inflation continues to be the key challenge facing policymakers. Although inflation has passed
its peak, it remains well above the RBNZ’s 1-3% target. Interest rates are in restrictive territory,
with the RBNZ having hiked to 5.50% by May 2023, and subsequently held steady. The outlook
for the cash rate will depend on the pace of disinflation. Our central case is that the RBNZ holds
steady through much of 2024, with cuts arriving in Q4 2024. We see a risk that the RBNZ needs to
lift its cash rate further in H1 2024, particularly given ongoing strong inward migration.
A key focus will also be on expected policy changes as a result of the change of government at
the 14 October 2023 general election. A new coalition government was formed on 27
November, between the National (centre-right), ACT (right), and New Zealand First (populist)
parties. The range of outlined policy changes include tax cuts, to be funded by expenditure
savings, and policies broadly supportive of the housing market. The government is expected to
provide more information in a ‘mini-budget’ in late-December, alongside the typical half-year
fiscal update.
For the RBNZ, the incoming government has announced that it intends to adjust the RBNZ’s
dual employment/inflation mandate, re-focusing it on a single inflation mandate (the central
bank formally adopted a dual mandate in 2019). We see the shift back to a single mandate as
likely to have limited implications for the central bank’s reaction function.
Risks
The risks to the growth outlook are balanced. Domestically, stronger-than-expected population
growth may add to demand more than supply, meaning higher growth and higher inflation,
which could result in higher interest rates. On the downside, the ongoing transmission of
monetary policy may weigh on consumption by more than expected, which may see a faster
cooling in the labour market than we have factored in.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Net government debt (% GDP)
NZD/USD*
Policy rate (%)*
Source: HSBC estimates
Note: *Period end
80
2023f
0.8
0.9
-1.2
-0.8
0.7
-0.2
7.4
1.9
-5.3
3.7
4.3
5.8
-17.8
-7.2
-2.6
18.3
0.61
5.50
2024f
1.9
1.4
-1.2
0.7
0.8
1.7
3.3
1.2
-0.6
4.3
3.9
3.6
-13.1
-5.4
-3.0
22.6
0.57
5.25
2025f
1.9
2.9
-1.8
2.8
0.8
2.0
4.0
3.9
2.1
4.7
3.4
2.8
-11.5
-4.6
-1.7
23.0
4.25
Q3 23
-0.6
-0.3
0.3
-2.0
-4.3
1.0
-0.3
-1.5
0.5
-5.5
3.9
4.3
5.6
-4.4
-7.1
0.60
5.50
Q4 23f
0.5
0.5
1.0
0.7
-2.5
1.0
0.5
1.0
-1.0
-3.4
3.9
4.2
5.0
-4.3
-7.1
0.61
5.50
Q1 24f
1.3
0.6
0.3
1.5
-2.2
1.0
1.2
3.9
-0.5
-2.0
4.1
4.1
4.5
-3.6
-6.0
0.59
5.50
Q2 24f
1.4
0.5
0.8
-2.1
-2.3
1.0
1.9
0.5
1.0
-2.6
4.2
4.1
4.1
-3.3
-5.6
0.57
5.50
Q3 24f
2.3
0.7
2.1
-1.3
3.1
1.0
1.7
4.3
1.9
1.0
4.4
3.8
2.9
-3.2
-5.4
0.57
5.50
Q4 24f
2.5
0.7
2.5
-2.8
4.4
1.0
1.9
4.6
2.2
1.4
4.6
3.5
2.8
-2.9
-4.8
0.57
5.25
Economics ● Global
Q1 2024
Eurozone
Eurozone
Simon Wells
Chief European Economist
HSBC Bank plc
simon.wells@hsbcib.com
+44 20 7991 6718
Falling inflation fuels cut speculation
The eurozone economy contracted in Q3 2023 with GDP falling 0.1% q-o-q. Although technical
recession has so far been avoided, the economy is stagnating and grew just 0.1% in the year to Q3.
In better news, leading indicators seem to have ticked up recently and seem to have turned a corner.
Although the widely-watched composite PMI still signalled contraction through Q4, it moved broadly
sideways over the last five months of 2023. Indicators of business expectations, the European
Commission’s Economic Sentiment Indicator and consumer confidence have fared a little better
recently.
Although surveys have improved, we expect another quarter of stagnation in Q4 and a gradual pickup in growth through 2024. With inflation falling fast and wage growth historically high, the worst of
the income squeeze should be over. As real-term income growth picks up, this should support
household spending. However, higher interest rates and, in turn, a likely rise in unemployment will
restrain overall spending. Fiscal policy is also likely to become less supportive, as EU fiscal rules are
re-applied and debt servicing costs rise. We see growth of 0.5% in 2024 (unchanged from three
months ago), building to 1.3% in 2025 (up from 1.0% previously). With employment holding up, and
household and corporate balance sheets seemingly coping with higher interest rates, the eurozone
should avoid a significant recession (even if a mild, technical recession remains a risk after the small
contraction in Q3).
In mid-December, despite the reduced risk of recession, markets were pricing in interest rate cuts
starting in late Q1 or early Q2 2024. This reflected a global pivot to a more dovish view as inflation fell
sharply. Eurozone inflation took a dive in November, falling from 2.9% y-o-y to 2.4%. The rapid
decline in headline inflation largely reflected energy prices and the recent drop in the oil price – as
well as a depreciation in the euro – means our forecast for inflation in 2024 is considerably lower than
it was three months ago. But core inflation remains higher and sticker. The path of wage growth
remains key to the outlook for core inflation. The ECB’s forward-looking wage tracker shows
negotiated pay rises hovering around 4.5% through H1 2024 and we think it might not reach 3-3.5%
until well into 2025. But with wage increases in new job postings already around 3.5%, pay growth is
likely to come down. Even so, we see inflation averaging 2.5% in 2024 and 2.2% in 2025, with core
inflation at 2.7% and 2.2% respectively.
Leading indicators suggest activity might
be passed the worst…
… while markets have taken a dovish turn,
with sharp drops in implied policy rates
% Market-implied interest rates and inflation (Dec '24) %
3.6
4.5
Source: Macrobond, HCOB/S&P Global PMIs
3.4
4.0
3.2
3.5
3.0
3.0
2.8
2.5
2.6
2.0
2.4
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
December 2024 Euribor (LHS)
1-year inflation swap (RHS)
1.5
Source: Bloomberg
81
Economics ● Global
Q1 2024
Policy issues
The ECB kept key policy rates unchanged through Q4, having hiked for ten consecutive
meetings (taking the deposit rate from -0.5% to 4.0%). Early December saw some abrupt market
moves, with the end-2024 implied policy rate falling almost 75bps in the space of three weeks,
implying around 150bps of cuts through 2024. Following its December decision, ECB President,
Christine Lagarde, pushed back against the idea of early rate cuts, arguing that the ECB “must
not drop its guard” and that a lot of key data would be revealed in H1 2024. However, the policy
statement no longer stated that inflation was projected “to be too high for too long”.
The faster fall in headline inflation potentially requires earlier rate cuts simply to maintain the
same path for real-terms policy rates. But higher real wage growth and looser effective monetary
conditions perhaps point to policy rates needing to remain high. On balance, we bring forward
our timing of the first 25bp ECB rate cut to June 2024 (from December) which is still later than
priced in by the market (which is pricing in 40bps of cuts by April). Even aside from the timing of
policy rate changes, 2024 could be eventful for the ECB. In December, it announced that the end
of PEPP reinvestment would be brought forward, with a taper starting in H2 2024 before a full
stop at the end of the year. In March, it is due to announce a review of its operational framework,
which could lead to (small) tweaks to reserves remuneration.
The fiscal stance could become mildly contractionary in 2024, partly due to the re-introduction of
fiscal rules. Although the exact form of the rules is still not known, a deal may be close. But with
many economies not fully compliant with European Commission recommendations, some
discretionary tightening is to be expected, albeit with risks that less is achieved in practice.
Risks
One risk is that inflation falls faster than we expect, driven by core goods prices. This could also
happen if there is a sharper labour market deterioration, which makes households and firms
reluctant to spend. There is also the risk of earlier cuts if the ECB’s hawks start worrying more
about a more protracted recession in Germany (the eurozone’s largest economy). On the
upside, continued strong wage growth alongside accumulated savings could mean the economy
continues to build on the recent turnaround in leading indicators.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross government debt (% GDP)
USD/EUR*
Policy rate - Refi (%)*
Policy rate - Deposit (%)*
Note: *Period end
Source: Refinitiv Datastream, HSBC estimates
82
2023f
0.5
0.5
0.1
0.8
0.7
0.3
-0.7
-1.2
-2.7
6.5
5.2
5.4
273.0
2.1
-3.2
90.6
1.09
4.50
4.00
2024f
0.5
1.0
0.2
0.2
0.7
0.6
0.8
1.1
-1.0
6.9
4.0
2.5
247.0
2.0
-3.0
90.7
1.02
3.75
3.25
2025f
1.3
1.5
-0.0
1.6
0.7
1.2
3.1
3.0
1.4
6.8
3.1
2.2
243.1
1.9
-2.6
90.6
3.00
2.50
Q3 23
0.0
-0.1
-0.4
0.5
-0.1
0.7
-0.4
-2.8
-3.8
-4.7
6.5
5.2
5.0
108.3
3.5
1.06
4.50
4.00
Q4 23f
0.1
0.0
0.5
0.0
0.2
0.7
0.2
-2.1
-2.3
-4.3
6.6
4.8
2.8
82.8
2.5
1.09
4.50
4.00
Q1 24f
0.2
0.1
0.7
0.5
-0.1
0.7
0.8
-1.4
-0.2
-2.9
6.8
4.1
2.6
46.3
1.4
1.06
4.50
4.00
Q2 24f
0.2
0.2
0.9
0.4
-0.0
0.7
0.2
0.2
0.2
-1.7
6.9
4.4
2.5
38.5
1.2
1.04
4.25
3.75
Q3 24f
0.7
0.3
1.0
0.1
0.2
0.7
0.6
2.0
2.0
-0.2
7.0
4.1
2.2
87.6
2.8
1.02
4.00
3.50
Q4 24f
1.0
0.3
1.2
0.0
0.7
0.7
0.8
2.4
2.2
0.8
7.0
3.6
2.5
77.1
2.4
1.02
3.75
3.25
Economics ● Global
Q1 2024
Eurozone
Germany
Stefan Schilbe
Chief Economist, Germany
HSBC Continental Europe S.A.,
Germany
stefan.schilbe@hsbc.de
+49 211 910 3137
An anaemic recovery
In Q3, the German economy fell back into contraction (-0.1% q-o-q), as private consumption shrank
and inventories subtracted from growth. On the back of a sustained recovery of real wages (0.6%
y-o-y in Q3) due to robust nominal wage increases and a deceleration in inflation, we expect
household spending to pick up over the coming quarters. The momentum, however, should be rather
modest given still subdued consumer sentiment and a gradual, but steady deterioration in the
German labour market. With employment indicators pointing to contraction and vacancy numbers
continuing to decline, we expect the unemployment rate to rise to a peak of 6.1% in Q2 2024 from
5.9% currently (see chart below), before starting a gradual downward trend as the economic
recovery builds.
Business fixed investment expanded strongly, reflecting lagged effects of easing supply
shortages. Past orders finally could be produced and delivered, and were captured in the GDP
data as a consequence. However, order books have started to deteriorate in the machinery and
equipment sector, as declining capacity utilisation rates in many regions of the world and
tightening financial conditions have already started to undermine demand for those goods. Put
together with the bleak outlook in the German capital goods industry, this points to shrinking
business fixed investment in y-o-y terms in 2024. While net exports added 0.2pptto growth in
Q3, it reflected imports shrinking much more rapidly than exports. Foreign orders continued to
decline into September, but at least companies became less downbeat with ifo export
expectations (Nov) rising and new export orders rising to the best level since April 2023 in
December. Meanwhile, the outlook for construction remains bleak: sentiment in the residential
building industry is close to the lowest levels since the reunification, with about half of all
companies are concerned about a lack of orders (the highest proportion since June 2004) and
more a fifth of companies are reporting cancellations of projects according to ifo (Nov). Building
permits are down 28.8% in y-o-y terms. Total construction is expected to shrink by 2.6% in 2024
and another 1.0% in 2025, after already having contracted in the previous three years.
Due to the upward revision of GDP in Q1 and Q2 plus a smaller contraction in Q3, we lift full
year 2023 GDP to -0.2% (-0.4% three months ago). A slightly better picture for exports is
expected to be offset by weaker investment and government spending, leaving us with an
unchanged GDP forecast of -0.1% for 2024 and +0.9% for 2025.
Unemployment rate to peak in Q2, before
gradually declining again
Export expectations have started to
bounce back
Source: Macrobond & HSBC
Source: Macrobond & HSBC
83
Economics ● Global
Q1 2024
Policy issues
On 15 November, the German constitutional court (GCC) ruled the second supplementary
budget 2021 unconstitutional, hence prohibiting the shift of unused funds for tackling the COVID19 pandemic (EUR60bn) into a special fund. As a consequence, the German government
announced a budget freeze, adopted a supplementary budget for 2023 and decided to suspend
again the constitutional debt brake for 2023 by declaring an emergency situation. This allows the
government to borrow beyond the upper limit (0.35% in cyclically adjusted terms). While this
won´t lead to new debt incurred for 2023 (it would allow a solid legal foundation to the money that
has already been spent), the fiscal challenges for the government for 2024 are considerable. As
claiming another extraordinary emergency situation would be built on a fragile legal foundation,
the government announced it would adhere to the constitutional debt brake in 2024 again after
four years of suspension. Hence, to close a funding gap of EUR17bn, the traffic-light coalition on
13 December broadly agreed a range of measures, including tax hikes (the CO2 tax will be
raised from EUR30 to EUR45 per ton from 1 January 2024, and a fuel tax for domestic flights
and a plastic levy will be implemented), cutting subsidies for electric cars, reducing the planned
increases for social security and cutting back the volume of the Climate and Transformation
Funds by EUR12bn for 2024. So, each of the governing parties had to make concessions to
reach a compromise. The parliament will decide upon the 2024 budget at the end of January
2024. To provide the fiscal room for manoeuvre for financing government investments, one
strategic option would be to adjust (or completely abolishing) the debt brake, a concept proposed
by the Greens. However, this requires a 2/3-majority in the lower and upper house, which could
only be achieved if apart from the FDP (which is strictly opposing it) the support of the
conservative CDU/CSU opposition is gained.
Risks
One potential, but probably rather small, risk relates to the stability of the German ‘traffic light’
coalition. The three governing parties are deeply divided on how to deal with the challenging
fiscal situation after the GCC ruling, but leaving the government would probably be too risky for
each party given that none of them are currently doing well in opinion polls. For the economy,
rising bankruptcy numbers could lead to more rapid lay-offs, hence undermining the
consumption recovery.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross government debt (% GDP)
EUR/USD*
Policy rate - Refi (%)*
Policy rate - Deposit (%)*
Note: *Period end
Source: Refinitiv Datastream, HSBC estimates
84
2023f
-0.2
-1.0
-2.3
0.8
7.7
-0.7
-1.4
-2.5
-1.4
5.7
4.3
6.1
294.3
6.6
-1.9
64.4
1.09
4.50
4.00
2024f
-0.1
0.7
-1.0
-0.8
7.6
-0.0
-0.3
-0.3
-1.9
6.0
3.9
2.4
266.7
6.2
-0.8
63.5
1.02
3.75
3.25
2025f
0.9
1.4
-0.7
0.7
7.6
0.8
1.6
1.4
1.5
5.8
2.4
2.4
267.2
6.0
-0.5
62.0
3.00
2.50
Q3 23
-0.4
-0.1
-2.0
-1.6
0.7
1.9
-1.4
-2.8
-5.1
-2.5
5.7
4.6
5.7
78.1
6.7
1.06
4.50
4.00
Q4 23f
-0.2
-0.2
-0.8
-1.8
1.6
1.9
-0.7
-2.1
-3.5
-3.0
5.9
4.6
3.1
84.9
7.0
1.09
4.50
4.00
Q1 24f
-0.2
-0.0
0.2
-0.9
-0.3
1.9
0.2
-1.6
-1.0
-4.2
6.0
4.1
2.7
78.7
6.8
1.06
4.50
4.00
Q2 24f
-0.3
-0.0
0.3
-0.8
-0.6
1.9
-0.5
-0.7
-1.1
-3.0
6.1
4.5
2.3
67.6
5.9
1.04
4.25
3.75
Q3 24f
-0.1
0.1
0.9
-1.2
-1.4
1.9
-0.1
0.3
0.3
-0.8
6.0
3.4
2.0
62.4
5.7
1.02
4.00
3.50
Q4 24f
0.3
0.2
1.2
-1.1
-0.9
1.9
0.2
0.7
0.6
0.7
6.0
3.7
2.5
71.8
6.5
1.02
3.75
3.25
Economics ● Global
Q1 2024
Eurozone
France
Chantana Sam
Economist
HSBC Continental Europe
chantana.sam@hsbc.fr
+331 4070 7795
A cloudier economic outlook
The latest economic data in France have painted a very mixed picture. In Q3 2023, French GDP
fell by 0.1% q-o-q according to the final estimate released on 30 November, instead of rising by
0.1% according to the flash estimate. This change was mainly caused by investment: business
spending was revised down to 0.5% q-o-q from 1.5% initially and household investment (mainly
linked to housing transactions and home renovation) was revised from 0.0% to -0.8% q-o-q. That
said, in the end, the picture painted by the flash estimate did not change much. The weak GDP
print masked a recovery in domestic demand (contribution of 0.5ppt to growth, after 0.1ppt in Q2),
on the back of consumer spending (0.6% q-o-q after -0.1%). This was probably fuelled by the
recent decline in inflation, as evidenced by the drop in the households’ savings rate (17.4% after
17.9% in Q2). Conversely, net trade and stockbuilding contributed negatively to growth. So, in a
sense, the Q3 GDP print was not so bad, in spite of the decline from Q2 (0.6% q-o-q).
Looking ahead, the outlook remains quite uncertain. Recent business surveys have been
lacklustre, suggesting that GDP growth should have remained tepid in Q4 2023. Indeed, INSEE
business confidence has been below its long-term average of 100 since October, while the French
PMI composite (43.7 in December) has not materially improved. In contrast, INSEE consumer
confidence has slightly picked up over the recent period, even if it remains quite weak (at 87 in
November). These trends back our central view: we expect consumer spending to gradually
improve, thanks to rising real incomes. It would therefore take the baton from investment, that
should continue to weaken due to the higher interest rates. That said, the evolution of the labour
market remains a key element to watch. Unemployment has started to edge up over the recent
months and a quicker deterioration would be an important downside risk to our forecasts.
For now, we still expect the unemployment rate to pick up gradually, to about 8% in 2024 from
7.4% in Q3 23 (a development that would be mitigated by a rise in productivity per worker). As a
result, our GDP growth forecasts are little changed, at 0.8% for 2023 and 0.9% for 2024 (instead
of 0.9% and 1.1%, with the downward revision being mainly due to the weak Q3 GDP print). Our
forecast for 2025 remains unchanged at 1.2%, close to our estimate of French potential growth.
The weak Q3 GDP outcome masked a
recovery in domestic demand
pts, contribution
to quarterly growth
1.0
France: GDP
Business confidence has softened but
consumer confidence has started to recover
% q-o-q
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
Q4 22
Q1 23
Stockbuilding
Investment
Consumer spending
Source: INSEE, HSBC.
Q2 23
Q3 23
Net trade
Public spending
GDP (RHS)
Index
France: confidence surveys
Index
120
120
110
110
100
100
90
90
80
80
70
70
60
60
50
50
40
40
2017 2018 2019 2020 2021 2022 2023
Business confidence
Consumer confidence
Source: INSEE, HSBC.
85
Economics ● Global
Q1 2024
Policy issues
The European Commission (EC) has recently expressed its doubts on the French budget plans
for 2024. Indeed, on 21 November, it published its updated fiscal guidance based on the 2024
draft national budget plans and France was one of the four countries (with Belgium, Finland and
Croatia) considered as having a high risk of non-compliance with its fiscal recommendations. The
EC advised in particular a faster winding down of emergency support measures related to the
energy crisis, given that the government is planning to maintain the cap on electricity prices in
2024 (with only a gradual phasing out by the end of the year). The gross fiscal cost of this
measure was estimated at about EUR12bn in the draft budget plan for 2024. In addition, the EC
also estimated that the budget was implying net primary expenditure (i.e. the expenditure which
is under government control) to rise by 2.8%, above the advised ceiling of 2.3%.
In spite of this negative assessment, the government has not said that it was planning to update
its budget plans. Therefore, we expect an Excessive Deficit Procedure (EDP) to be opened next
Spring, which could raise the risk of a negative reaction from bond markets and rating agencies.
So far, the latter have preferred to remain patient: on 1 December, S&P kept the French rating
unchanged at AA, with a negative outlook. This follows a similar decision from Moody’s at the
end of October to affirm the rating at Aa2 (with a stable outlook).
More generally, we also see a high chance of fiscal slippage in the next few years. The
government is aiming to reduce the public deficit to 4.4% of GDP in 2024 and 3.7% in 2025 (from
4.9% in 2023) but this adjustment relies on optimistic growth assumptions (1.4% for 2024 and
1.7% for 2025). We forecast the deficit to decline more slowly, to 4.6% in 2024 and 4.3% in 2025.
Risks
A faster deterioration in the labour market is the main downside risk to our central scenario.
There have been some signs of softening on that front recently, with a rise in the number of
jobseekers and in the ILO unemployment rate (7.4% in Q3 2023, from 7.1% in Q1). Employment
has also decelerated, even if it has not contracted so far (0.1% q-o-q in Q2 and Q3 2023, after
0.3% in Q1). Latest business surveys have signalled further weakening in hiring intentions,
suggesting that unemployment could continue to gradually pick up. We think that this could be
mitigated by a rise in productivity, as suggested by the recent improvement in hours worked by
job. However, a bleaker scenario on the labour market cannot be ruled out and would seriously
challenge our expectations of gradual recovery in consumer spending.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
EUR/USD*
Policy rate - Refi (%)*
Policy rate - Deposit (%)*
2023f
0.8
0.6
0.6
1.4
0.8
0.6
1.4
0.6
0.5
7.3
4.3
5.7
-30.9
-1.0
-4.9
233.8
110.3
1.09
4.50
4.00
2024f
0.9
1.0
1.3
1.2
0.8
1.1
2.6
3.2
0.4
8.0
3.0
2.3
-16.1
-0.5
-4.6
228.3
111.2
1.02
3.75
3.25
Note: *Period end. Source: Refinitiv Datastream, HSBC estimates
86
2025f
1.2
1.2
1.0
2.1
0.8
1.4
4.8
4.8
0.6
8.2
2.3
2.0
-18.5
-0.6
-4.3
221.9
112.3
3.00
2.50
Q3 23
0.6
-0.1
0.4
0.9
0.3
0.8
-0.1
0.4
-1.5
0.6
7.4
4.2
5.5
-7.1
-1.0
1.06
4.50
4.00
Q4 23f
0.7
0.1
0.9
0.6
0.4
0.8
0.6
0.1
-0.2
0.4
7.5
3.9
4.2
-5.5
-0.7
1.09
4.50
4.00
Q1 24f
0.8
0.2
0.8
1.2
1.2
0.8
1.3
2.5
3.7
0.7
7.8
3.2
3.1
-4.0
-0.5
1.06
4.50
4.00
Q2 24f
0.5
0.3
1.2
1.4
1.0
0.8
0.9
0.9
2.1
-0.1
8.0
3.1
2.2
-3.9
-0.5
1.04
4.25
3.75
Q3 24f
0.9
0.3
0.9
1.2
1.2
0.8
1.1
3.0
3.1
0.1
8.1
3.0
1.9
-4.0
-0.5
1.02
4.00
3.50
Q4 24f
1.2
0.3
1.1
1.2
1.5
0.8
1.2
3.9
3.8
0.8
8.1
2.8
2.0
-4.2
-0.6
1.02
3.75
3.25
Economics ● Global
Q1 2024
Eurozone
Italy
Fabio Balboni
Senior Economist
HSBC Bank plc
Fabio.balboni@hsbc.com
+44 20 7992 0374
Bottoming out?
After a disappointing Q2 (-0.4% q-o-q), modest growth returned in Q3 (+0.1%, upwardly revised
from an initial flat reading) and was marginally up on an annual basis (+0.1%). Private
consumption performed well (+0.7% q-o-q) on the back of real wage growth gradually improving.
Investment remained sluggish (-0.1% q-o-q after -2.0% in Q2) while growth was supported by
falling imports (-2.0%) – at least partly tied to the significant drawdown of inventories, which
subtracted 1.2ppt from quarterly growth. This chimes with anecdotal evidence from firms
perceiving their inventories as being too high relative to future expected demand (Italy trip notes:
Downbeat on growth, fiscal woes, 6 Oct 2023). If confirmed, a possible inventory rebuild in the
coming quarters should provide some support to growth.
The latest indicators continue to point to subdued growth, but with some signs of bottoming out.
In November, the PMIs improved a tad, with services inching closer to expansionary territory
(49.5) while manufacturing stayed at rather depressed levels (44.4). Otherwise, the economic
sentiment deteriorated a little in November while consumer confidence picked up markedly, likely
also due to falling inflation. HICP eased to 0.9% y-o-y in November while negotiated wages
continue to tick up (3.0% y-o-y in September). With nearly 60% of pay negotiations outstanding
(and an average delay of around 2 year) we expect more of a catching up from wages relative to
past inflation in the upcoming months (for instance, the 2024 budget allocates nearly EUR7bn to
increase public sector salaries). So as long as the labour market holds up, rising real wages
should provide some support to household consumption in the coming quarters. For now, the
0.2ppt rise in the unemployment rate in November (to 7.8%) seems mainly due to falling inactivity
rates – possibly also tied to the tightening of the conditions to access the minimum citizenship
income after the summer – rather than genuine labour market weakness.
Also on the positive side, the European Commission (EC) recently approved the proposed
amendments to Italy’s Recovery and Resilience Plan (RRP, see overleaf) which should help
speed up implementation. Otherwise we expect a significant drag from the housing sector, with
higher rates weighing on mortgage demand and the government scrapping the ‘Superbonus’
housing tax credit – which we estimate could knock about 1ppt off GDP across 2024 and 2025.
Overall, we have nudged 0.1ppt up our forecast for 2024 (to 0.5%) and left 2025 unchanged, at
0.8%, thanks to RRP implementation picking up and also as the ECB starts loosening policy.
The ‘Superbonus’ tax credit has boosted
housing investment to unsustainable levels
Italy needs further fiscal consolidation to
stabilise its debt to GDP ratio
Index
(Q4 19 = 100)
% GDP
160
Italy: Investment
Index
(Q4 19 = 100)
Italy: Debt-to-GDP ratio
% GDP
160
175
175
155
155
150
150
150
150
125
125
145
145
100
100
140
140
75
75
135
135
50
Dec-19
Dec-20
Dec-21
Residential constr.
Machinery and equip.
Source: ISTAT, HSBC
50
Dec-22
Dec-23
Non-resid. Constr.
Transport
130
130
18
20
22
24f
26f
28f
30f
HSBC baseline
Spread widens to 250bp
PB improves to 2% of GDP surplus
Source: HSBC calculations based on European Commission, ISTAT.
87
Economics ● Global
Q1 2024
Policy issues
The government has revised up the 2024 deficit target to 4.3% of GDP, giving itself EUR14bn
(0.7% of GDP) of margin for expansionary measures (Italy’s multi-annual budget plan, 27 Sep
2023). The European Commission (EC) found the budget “not fully in line” with EU fiscal rules
(Flocking EDPs, 21 Nov 2023). At least, the bulk of the expansionary measures was used to cut
labour taxes, which are relatively high. But the lack of fiscal consolidation means that, even
based on the official – and rather optimistic (1.2% for 2024) – growth assumption, the debt-toGDP ratio barely falls in the next few years, and only thanks to drawing down cash reserves and
1% of GDP of expected privatisation receipts by 2026 from selling stakes in state-owned firms.
After a slow start in 2023, Italy’s implementation of the RRP picked up. On 9 October, Italy
received the third tranche (EUR18.5bn), while on 28 November the EC approved the
disbursement of the fourth tranche (EUR16.5bn). The EC also approved Italy’s proposed
amendments to its RRP (taking the total to EUR194.5bn form EUR191.5bn, changing over 100
milestones and with some EUR22bn of new projects). Spending, however, continues to lag
behind, with only about EUR30bn spent to date (although evidence from the ground suggests the
actual figure could be closer to EUR50bn, see Italy trip notes, 6 Oct 2023). This leaves some
EUR140bn (7% of GDP) to spend by 2026 (or 2027 for the part allocated to the RePowerEU
fund), almost 2% of GDP per year. Clearly, Italy’s growth prospects rely hugely on its ability to
spend these funds, and the amendments to the RRP should help on this front.
Risks
High deficit and lower taxes (some EUR25bn per year) due to the ‘Superbonus’ should keep
cash borrowing needs high in 2024 – we estimate in the region of EUR100bn. Combined with the
ongoing QT by the ECB on the APP portfolio, the free float of Italian sovereign bonds (BTPs) in
the market should increase by over EUR140bn. In 2023, the domestic retail sector did the heavy
lifting in terms of picking up additional issuance, but in 2024, with pandemic excess deposits
exhausted and banks likely to face more pressure funding, it could be more challenging, raising
possible concerns among investors on the ability of the market to absorb it. Borrowing costs have
surged for Italian firms – to over 5% on average – faster than for their EU peers owing to a larger
share of variable loans and lower fixings. Rejection rates on firms’ loans requests have also
picked up markedly. This is likely to weigh on private sector investment and increase the risk of
firms going bust (which, turn, could push up banks non-performing loans).
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross government debt (% GDP)
EUR-USD*
Policy rate - Refi (%)*
Policy rate - Deposit (%)*
Note: *Period end
Source: Refinitiv Datastream, HSBC estimates
88
2023f
0.7
1.6
-0.3
0.5
-0.0
0.8
-0.2
0.1
-2.4
7.8
2.8
5.9
16.4
0.7
-5.3
141.0
1.09
4.50
4.00
2024f
0.5
0.9
0.1
0.4
-0.0
0.4
1.8
1.8
0.1
7.9
3.6
1.7
34.6
1.7
-4.4
141.2
1.02
3.75
3.25
2025f
0.8
0.9
0.0
2.0
0.0
1.0
2.9
3.6
1.9
7.5
3.1
2.0
31.0
1.4
-4.1
142.0
3.00
2.50
Q3 23
0.1
0.1
-0.2
-0.3
-0.2
-0.5
-0.2
-0.4
-3.2
-2.8
7.6
3.0
5.8
10.6
2.0
1.06
4.50
4.00
Q4 23f
0.4
0.1
1.6
-0.5
-0.8
-0.4
0.7
-1.5
-0.2
-1.4
7.9
3.5
1.1
17.3
3.0
1.09
4.50
4.00
Q1 24f
-0.0
0.1
1.1
-0.7
-1.7
-0.4
0.1
0.4
0.4
-1.1
8.0
3.8
1.1
0.2
0.0
1.06
4.50
4.00
Q2 24f
0.5
0.2
1.2
0.5
0.6
-0.3
0.9
2.2
0.4
0.3
7.9
3.6
1.7
5.8
1.1
1.04
4.25
3.75
Q3 24f
0.7
0.2
0.6
0.5
1.2
-0.2
0.7
2.1
3.2
0.4
7.8
3.5
1.9
13.4
2.6
1.02
4.00
3.50
Q4 24f
0.7
0.2
0.6
0.3
1.4
-0.2
0.7
2.4
3.1
1.0
7.7
3.4
2.2
15.3
2.9
1.02
3.75
3.25
Economics ● Global
Q1 2024
Eurozone
Spain
Cooling off
Spanish GDP rose by 0.3% q-o-q in Q3 2023, in line with our expectations, one notch down
from a downwardly revised 0.4% in Q2. Private consumption was the main contributor, posting a
solid rise (1.4%) as wage growth (2.2% q-o-q) significantly overtook inflation (0.8% q-o-q) even
on a sequential basis. Otherwise, exports fell sharply (-4.1% q-o-q) for the second quarter in a
row, while investment also fell a bit (-0.6% q-o-q), remaining 3% below pre-pandemic levels.
The growth momentum is slowing, but remains positive. Employment has continued to increase
through to November, albeit at a slower pace (around 0.1% q-o-q). A similar slowdown took place
in H2 2022, after which job creation picked up markedly again in H1 2023. A similar trend seems
unlikely in 2024, though, with the catching up process for tourism now mostly completed (through
to October, foreign tourist arrivals were 0.2% higher than in 2019). So while we expect the sector
to remain a positive contributor to growth, its impact might become more evident in terms of
nominal – rather than real – growth in the upcoming quarters (foreign tourism receipts are up
almost 10% so far in 2023 relative to 2019, and nearly 25% considering October alone).
Survey indicators have also softened a little of late. The composite PMIs ticked back into
negative territory (49.8) in November as the service sector softened a little, and despite the
slight recovery of manufacturing (which accounts for a relatively small share of the economy in
Spain, around 14%, and remains in contractionary territory). Spanish firms are likely starting to
feel the impact of the ECB monetary policy tightening, owing also to a larger share of variable
rate loans relative to their eurozone peers. Spain has now requested an extra EUR94bn in
NGEU grants and loans, largely to support private sector investment, which should provide firms
with an alternative – and cheaper – source of funding to tackle the environmental transition and
digital transformation challenge in particular. Furthermore, with negotiated pay rises at around
3.5% and the government putting forward another large increase of the minimum wage in
January (4%) while inflation continues to moderate, consumption should remain relatively well
supported. Households, though – and particularly those at the lower end of the income
distribution with variable loans – will likely feel more pressure from rising mortgage rates. As
long as the labour market holds up, though, the impact should be manageable.
So overall, we have nudged up growth by 0.1ppt for 2024, to 1.2%, and 0.2ppt in 2025, to 1.5%.
Job creation has cooled a little
The tourism catch-up is now completed
% m-o-m Spain: social security registrations % m-o-m
1.0
1.0
90
20
75
0
60
-20
45
-40
30
-60
15
-80
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0.0
0.0
-0.2
-0.2
Source: HSBC calculations based on Spanish Labour Ministry, Spanish
Statistical Institute. Note: * Short-time workers
So far, the government measures to reduce the
hit on consumers have been fairly limited, (a
reduction to 10% of the VAT on energy bills for
households consuming less than 10kW and a
EURbn
Thousands
0.8
Jan-22
Mar-22
May-22
Jul-22
Sep-22
Nov-22
Jan-23
Mar-23
May-23
Jul-23
Sep-23
Nov-23
Fabio Balboni
Senior Economist
HSBC Bank plc
Fabio.balboni@hsbc.com
+44 20 7992 0374
Spain: Foreign tourism
0
2019
2020
2021
2022
Receipts (Cumul, LHS)
% vs 2019
-100
2023
2024
Arrivals (RHS)
Source: HSBC calculations based on Spanish Statistical Institute, Eurostat.
89
Economics ● Global
Q1 2024
Policy issues
As we had anticipated since after the 23 July election, in the end – and after nearly four months
since the election – on 16 November PSOE leader Pedro Sánchez was re-elected Prime
Minister. He did so by narrowly winning a confidence vote in parliament (179 votes in favour in
the 350-seat house), with the backing of regional pro-independence parties, and after agreeing
to grant amnesty to Catalan separatists. This has sparked a significant degree of criticism by
right-wing parties and caused significant division within the country. Recent polls show the gap
between the main opposition party, right wing Partido Popular, and PSOE widening significantly
in favour of the former, which could increase pressure on the government. Furthermore, Carles
Puigdemont, the leader of pro-independence Catalan party Junts, has already stated he could
switch to voting against the government without progress in talks toward Catalan independence
(Politico, 29 November). Hence, the risk of political instability remains high, in our view.
Against this challenging backdrop, the first priority of the new government will be passing the
2024 budget law (even though it seems highly unlikely this will happen before year end,
meaning that the 2023 budget will be rolled over to start with). The electoral plan of PSOE was
focussed on creating jobs, modernise the economy, energy transition, and improve access to
housing – particularly for the youth. The resources, however, will be limited, with the inflationrelated boom to tax revenues fading and spending (including for borrowing) picking up fast. The
government expects the 2024 deficit to fall to 3% of GDP, but the European Commission sees a
risk it could be higher. In the past, relying on the support of many regional parties has also
tended to put extra pressure on spending. At least, having NGEU loans to support private sector
investment should reduce pressure on the government having to do it from its own pocket.
Risks
Rapidly rising interest rates could present a risk for firms and mortgage holders, which tend to
borrow mostly on variable rates. Bankruptcies have increased – although remain dwarfed by
new firms being created – which could also mean higher NPLs for the banks. Spain though has
some 8% of GDP of NGEU grants and loans to spend by 2026 (or in limited circumstances,
2027). While the weakness of investments suggests a limited amount of the money spent so far
has hit the ground, if implantation picks up it could provide a significant upside risk to growth.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross government debt (% GDP)
EUR-USD*
Policy rate - Refi (%)*
Policy rate - Deposit (%)*
Note: *Period end
Source: Refinitiv Datastream, HSBC estimates
90
2023f
2.3
2.2
3.4
1.4
0.6
2.1
1.2
0.0
-1.0
12.1
5.2
3.4
39.4
2.5
-4.0
107.4
1.09
4.50
4.00
2024f
1.2
1.2
1.7
1.6
0.4
1.1
0.8
0.9
0.1
11.5
3.8
2.7
34.9
2.3
-3.5
106.8
1.02
3.75
3.25
2025f
1.5
1.4
0.2
2.9
0.4
1.4
3.6
3.6
1.8
10.8
3.1
2.5
35.1
2.4
-3.0
105.8
3.00
2.50
Q3 23
1.8
0.3
1.1
4.3
0.2
0.4
1.5
-2.3
-2.4
-2.1
11.8
5.1
2.6
11.0
2.9
1.06
4.50
4.00
Q4 23f
1.5
0.1
2.5
3.0
4.2
0.3
2.6
-1.0
0.5
-1.3
11.8
4.3
3.4
8.4
2.2
1.09
4.50
4.00
Q1 24f
1.1
0.2
2.0
3.2
1.8
0.3
1.9
-4.4
-3.1
-1.7
11.8
4.2
2.6
4.1
1.1
1.06
4.50
4.00
Q2 24f
1.0
0.3
1.5
2.1
0.5
0.4
1.0
-0.5
-0.1
-0.1
11.6
4.0
2.9
6.1
1.6
1.04
4.25
3.75
Q3 24f
1.2
0.4
0.5
0.9
1.7
0.4
0.4
4.8
3.9
0.8
11.3
3.7
2.4
14.8
3.9
1.02
4.00
3.50
Q4 24f
1.3
0.3
1.0
0.6
2.3
0.4
1.1
3.5
3.3
1.3
11.2
3.5
2.9
9.9
2.7
1.02
3.75
3.25
Economics ● Global
Q1 2024
Other Western Europe
UK
Perking up?
We are feeling a little more optimistic about the UK economy. Of course, the political situation is
still noisy and uncertain, the cost of living is still heightened and the impact of monetary tightening
has further to run. But with inflation lower and rate cuts now expected to come earlier – we now
forecast the first BoE cut in August 2024 – the signs are a little more upbeat than they had been.
The PMIs have perked up – with the services print rising further into growth territory in December
2023 – and so have consumer confidence and the housing market.
Meanwhile, the Autumn Statement news was hardly a gamechanger, but the tax cuts and uplifts
to benefits and pensions add support to real incomes. We think the latter will rise by 0.5% in
2024 and then 1.6% in 2025, supporting some consumption growth even as more households
see their income hit by higher mortgage payments. Still, with a third of the mortgage book rolling
over every year, we think it’s fair to say that around half of all fixed rate mortgages have already
moved onto higher rates in the last eighteen months.
We are not claiming that the UK economy is going to shoot the lights out in 2024. But we think
recession risks have receded, and we recently revised up our growth forecasts slightly, from
0.5% to 0.6% in 2024, while we see growth of 0.9% in 2025. Downward revisions to the back
data published in late December mean that these forecasts are slightly lower than those
published in the first edition of this publication, though the sequential picture is unchanged. We
have also revised down our unemployment forecasts, though we do see a gradual climb from
the current rate of 4.2% to 5.0% at the end of 2024 and 5.4% at the end of 2025.
This loosening of the labour market will gradually reduce pay growth and services inflation, both
of which have already peaked in our view. True, another 10% rise in the National Living wage in
April will go some way to offsetting the slowdown. But we recently revised down our wage
growth and CPI inflation forecasts, with the latter also reflecting receding core pressures and
another anticipated drop in household energy bills in April.
Against this backdrop, we now expect CPI and core CPI to fall below 2% and 3% respectively next
spring – meaning that there are dovish risks to our forecast that the first rate cut will come in August
2024 and be followed by one 25bps reduction per quarter, taking Bank Rate to 3.75% by end-2025
(see BoE Rate Decision (Dec), 14 December 2023). While the BoE still sounded hawkish in
December, we doubt that hawkishness can withstand more inflation prints like the November one.
000s UK: Number of fix ed rate mortgages coming up 000s
for renew al by initial effective interest rate
500
Already completed
400
400
500
< 2%
Source: S&P Global, Macrobond
2-2.5%
Q3-2024
Q2-2024
Q1-2024
0
Q4-2023
0
Q3-2023
100
Q2-2023
100
Q1-2023
200
Q4-2022
200
Q3-2022
300
Q1-2022
300
Thousands
A lot of households have now moved onto
higher mortgages rates
Q2-2022
The surveys point to a slightly more
upbeat picture going into 2024
Thousands
Elizabeth Martins
Economist
HSBC Bank plc
liz.martins@hsbc.com
+44 20 7991 2170
Of which: >2.5% initial fixed rate
Source: BoE
91
Economics ● Global
Q1 2024
Policy issues
Chancellor Jeremy Hunt opted to use some of the increased fiscal headroom in the Autumn
Statement to reduce tax, to the tune of about GBP20bn a year. The ruling Conservatives will
likely be hoping that will trigger a boost their pre-election popularity, but there is no evidence so
far of any improvement in the polls. So there may be temptation to announce more giveaways in
the March Budget. At the moment, it doesn’t look like there will be an enormous amount of room
to do so, though it’s possible the government could be gifted another windfall through higher
growth and inflation, as was the case in November. Beyond the near term, though, the choices
facing any government will be tough: taxes are already projected to reach a post-war high and
public services are already strained, with further (unspecified) cuts pencilled in. There’s not
much capacity for any additional spending, or indeed a fiscal response to any future crisis.
On the monetary policy side, the market expects rate cuts to start a bit sooner than we do – in
May at the time or writing, if not March – and that of course is a possibility. While there are still
reasons to be cautious around inflation – recent Red Sea supply chain tensions, geopolitical
risk, wage growth and resilient demand – clearly the likelihood of inflation falling back without a
large demand shock has increased. This is a scenario which, if it materialises, would be
something to celebrate.
Risks
The UK has been through a lengthy period of political risk and uncertainty, and it’s not over yet.
The Conservative party changed its leader twice in 2022, but media reports suggest it might do
so again ahead of the election, which must be held by January 2025 at the latest (see for
example, the Telegraph, 15 November 2023). Whether a new PM would make a meaningful
difference to the election results or not is uncertain: while Rishi Sunak’s popularity has certainly
declined, yet another change might add to the perceptions of instability. At the moment, Labour
has a strong lead in the polls and looks set to win a majority in the election. At the moment,
Labour’s policies do not point to any big risks to our forecasts. However, more may be revealed
in a manifesto that might set the party apart.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Manufacturing output
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
PSND (% GDP)**
PSNB (% GDP)**
USD/GBP*
GBP/EUR*
Policy rate (%)*
Note: *Period end, **Fiscal years
Source: Refinitiv Datastream, HSBC estimates
92
2023f
0.3
0.6
0.4
2.2
-0.1
0.3
-0.2
-1.2
1.2
4.1
7.2
7.3
-88.4
-2.6
96.9
5.1
1.27
0.86
5.25
2024f
0.6
0.6
1.7
-1.1
-0.2
0.6
0.9
1.0
0.1
4.8
4.2
2.4
-75.8
-2.1
95.9
4.1
1.18
0.86
4.75
2025f
0.9
0.8
1.6
1.6
-0.2
0.9
1.6
1.7
1.3
5.3
3.8
2.3
-80.9
-2.2
96.7
4.0
3.75
Q3 23
0.3
-0.1
0.8
1.7
0.4
-0.2
2.9
-6.8
-0.1
3.3
4.2
8.0
6.7
-19.5
-2.3
1.22
0.87
5.25
Q4 23f
0.2
0.0
1.0
2.4
-0.5
-0.2
3.0
-6.6
-0.1
2.1
4.4
6.0
4.1
-19.3
-2.2
1.27
0.86
5.25
Q1 24f
0.2
0.2
0.5
3.7
-3.2
-0.2
0.8
-0.1
1.7
1.3
4.6
5.3
3.6
-18.9
-2.1
1.23
0.86
5.25
Q2 24f
0.4
0.2
0.2
1.4
-1.9
-0.2
0.2
0.6
0.1
-0.6
4.8
3.7
1.6
-19.0
-2.1
1.20
0.87
5.25
Q3 24f
0.8
0.3
0.9
0.8
0.1
-0.2
0.7
1.6
1.4
-0.7
5.0
3.3
2.0
-19.0
-2.1
1.18
0.86
5.00
Q4 24f
1.0
0.3
0.9
0.8
0.7
-0.2
0.9
1.5
1.1
0.3
5.0
4.5
2.5
-18.9
-2.1
1.18
0.86
4.75
Economics ● Global
Q1 2024
Other Western Europe
Switzerland
Chantana Sam
Economist
HSBC Continental Europe
chantana.sam@hsbc.fr
+33 1 4070 7795
Inflation still below 2%
The inflation backdrop has remained surprisingly benign in Switzerland. Contrary to the
expectations of the Swiss National Bank (SNB) a few months ago, inflation has not bounced
back in Q4 2023 according to latest data. Swiss CPI fell to 1.4% y-o-y in November, versus
1.6% three months ago in August (and a peak of 3.4% in February). This was also well below
consensus expectations (1.7% according to Bloomberg). Granted, rental inflation picked up
markedly in November (2.4% y-o-y from 1.6% in October), reflecting in particular the fact that
the reference index on rents is indexed to interest rates. However, at the same time, inflation on
imported products fell markedly, to -0.6% y-o-y from 0.4% in October. This confirmed the
dampening impact on prices of the strong CHF, even if the latest drop in oil prices has also
played a role. On top of this, inflation on domestic products has been steady over the past few
months, hovering slightly above 2% y-o-y. This suggests that second round effects coming from
the labour market remain largely contained, as also signalled by the stability of wage growth
(1.8% y-o-y in Q3 2023, the same pace than in Q1 and in Q2).
Looking ahead, we expect Swiss inflation to edge up a bit in 2024, due to energy prices. This
would reflect base effects and a significant hike in regulated electricity prices for early 2024
(around 18% according to the government). However, the rise in inflation would be moderate
and we expect it to remain below 2% during the whole year. Given the sustained tensions on
the labour market (the unemployment rate was still at a very low level of 2.1% in November), we
expect wages to eventually rise at a more rapid pace, leading to a more supportive backdrop in
terms of real incomes. Therefore, we still expect consumer spending to gradually improve over
the next few quarters. In contrast, investment should remain more lacklustre. It has already
markedly faltered over the recent months, with construction being hampered by higher interest
rates and spending in machinery and equipment goods being hit by weak global trade.
Overall, our annual GDP forecasts remain unchanged relative to three months ago. We expect
growth to pick up to 1.1% in 2024 (from 0.8% in 2023) and then more markedly to 1.5% in 2025.
Our inflation forecasts are also little changed. We see Swiss CPI inflation at 1.7% in 2024 and
1.4% in 2025 (previous: 1.8% and 1.4%), after 2.1% in 2023.
Swiss inflation has continued to ease in
the recent months...
…on the back of a stronger CHF
Contrib., ppt
4
Index
155
Switzerland: Inflation
% Yr
4
0.90
145
0.95
140
1.00
135
1.05
130
1.10
-1
125
1.15
-2
120
1.20
3
2
2
1
1
0
0
-1
-2
2019
2020 2021 2022 2023
Petroleum products
Other imported goods and services
Domestic inflation
Headline inflation (RHS)
Source: Refinitiv Datastream , HSBC
CHF/EUR
0.85
150
3
2018
Switzerland: exchange rate
115
1.25
2017 2018 2019 2020 2021 2022 2023
Swiss nominal effective exchange rate (LHS)
EUR-CHF exchange rate (RHS, inverted)
Source: Bloomberg, HSBC
93
Economics ● Global
Q1 2024
Policy issues
The Swiss National Bank (SNB) has left its policy rate unchanged at 1.75% at its December meeting,
as expected. Even if SNB chairman Thomas Jordan let the door open to further rate hikes in case of
bad surprises on inflation, the overall message of the meeting was more dovish relative to the
previous ones. In particular, inflation forecasts were markedly revised down relative to September
and Swiss CPI is now expected by the Bank to remain at the SNB target (below 2% over the
medium term, while avoiding deflation) until the end of the forecast horizon (Q3 2026). This
suggests that further rate hikes are not expected under the central scenario.
The focus is now turning to when the SNB could start to cut its policy rate. Markets are fully pricing a
first rate cut in June and see a decent chance of rate cut in March. We are not convinced that the
SNB could move so soon, given that inflation would still be comfortably above 1% (and so well within
the SNB target) according to our forecasts. In addition, economic activity and the labour market have
proved reasonably resilient so far, limiting the need for the SNB to adopt a more accommodative
stance. That said, as we expect the Fed and the ECB to start cutting rates in the second quarter of
2024, the SNB could also be prompted to act in order to avoid an excessive appreciation of the CHF.
All in all, we now expect the SNB to start cutting rates (by 25bp) in September 2024, instead of
March 2025 previously. After that, we expect two additional rate cuts (by 25bp each) in December
2024 and March 2025. This would leave the SNB policy rate at 1%, a level that should then be
maintained until the end of 2025.
Risks
As a small open economy, Switzerland remains largely exposed to global trade. Bad news on
that front would imply downside risks to our Swiss growth forecasts and could lead the SNB to
cut rates sooner than we expect (especially if the CHF is supported by safe haven flows). The
evolution of real estate prices is another risk to monitor: so far, the slowdown caused by the
higher interest rates has remained moderate but a sharper correction cannot be ruled out.
In contrast, positive developments on global trade could lead the SNB to maintain a relatively
hawkish stance. This would also be the case if Swiss inflation rises more than expected in 2024,
due to second-round effects or due to new external shocks on energy and food prices.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
CHF/USD*
CHF/EUR*
Policy rate (%)*
Note: *Period end
Source: Refinitiv Datastream, HSBC estimates
94
2023f
0.8
2024f
1.1
2025f
1.5
2.1
0.7
-1.3
5.6
2.3
2.8
6.3
-2.3
2.0
1.8
2.1
79.8
9.1
-0.2
559.4
28.0
0.87
0.95
1.75
1.1
0.6
0.5
5.3
0.6
3.0
2.5
0.4
2.3
2.1
1.7
82.0
9.2
-0.1
558.7
28.5
0.92
0.94
1.25
1.3
0.4
2.5
5.3
1.5
3.9
4.3
2.4
2.4
1.8
1.4
82.3
9.0
-0.2
559.8
29.0
1.00
Q3 23
0.3
0.3
1.5
1.0
-3.1
5.4
1.2
1.8
4.0
-4.1
2.1
1.8
1.6
20.1
9.1
0.92
0.97
1.75
Q4 23f
0.7
0.2
1.3
1.0
-1.7
5.4
1.0
3.7
4.9
-2.2
2.1
2.0
1.5
20.5
9.2
0.87
0.95
1.75
Q1 24f
0.6
0.3
1.0
0.8
-2.5
5.4
-0.6
2.0
-0.1
-2.5
2.2
2.1
1.7
20.6
9.3
0.89
0.94
1.75
Q2 24f
1.1
0.3
1.0
0.9
0.6
5.4
0.3
4.1
3.0
0.7
2.3
2.1
1.8
20.4
9.2
0.90
0.94
1.75
Q3 24f
1.2
0.4
1.1
0.5
1.9
5.4
1.2
2.8
3.2
1.4
2.3
2.0
1.7
20.5
9.2
0.92
0.94
1.50
Q4 24f
1.3
0.4
1.2
0.4
2.1
5.4
1.4
3.2
3.6
1.9
2.3
2.0
1.5
20.5
9.1
0.92
0.94
1.25
Economics ● Global
Q1 2024
Other Western Europe
Sweden
James Pomeroy
Economist
HSBC Bank plc
james.pomeroy@hsbc.com
+44 20 7991 6714
Recession, peak rates and collapsing inflation
Sweden’s economy has followed a textbook playbook of what should happen when rates are
increased sharply. The economy has been hit by a barrage of shocks – firstly on the housing market
(which has seen a collapse in prices, and then construction), a consumer squeeze from higher rates
leading to a consumer downturn (and an economy-wide recession) and now that is having an impact
on inflation.
On the growth side, we cannot let the swings of the past few years cloud how bad 2023 has been.
The economy has shrunk in three of the past four quarters, and GDP was 1.4% lower than a year
ago in Q3. The drop in consumer spending has been even more stark (-2.3% y-o-y) and residential
investment is now down nearly 30% over the same period.
The worry for the Riksbank is that there are some signs of cracks emerging in the previously tight
labour market. Although Sweden’s labour market data are hard to get a clear read from, the
unemployment rate has started rising and there are signs that layoffs may be picking up. This was at
the heart of the pause in the hiking cycle in December, as the central bank awaits more data on the
health of the economy.
The good news for the Riksbank is that the economy is disinflating fast. Whilst the annual rate of core
(CPIF ex-energy) inflation may be still be around 6% but the sequential data suggest that on a threemonth basis, inflation has fallen back below the Riksbank’s 2% target. That means that the progress
towards the annual rate reaching 2% should become apparent in the months to come – and we
expect to see inflation close to 2% by the middle of 2024.
A combination of plummeting inflation, weak growth and more cracks appearing in the data makes
Sweden a prime candidate for earlier rate cuts that the rest of the developed world. We look for the
first rate cut to come at the 26 June meeting, by which time we expect that the core inflation readings
should have fallen to a level at which some easing to support the economy may be easier to justify.
We remain reasonably optimistic about 2025 in Sweden – simply because two years of recessionlike growth rates make it easy to get a bounce back, particularly with rates being cut. The highly
digitised economy is an obvious beneficiary of the usage of newer technologies, such as AI and
automation, and so we look for 2025 growth of 2.1% as Sweden bounces back.
Sweden is in recession, officially, now
The economy is disinflating quickly
Source: Macrobond
Source: Macrobond. Note: 3m annualised is based off of calculated seasonally
adjusted data.
95
Economics ● Global
Q1 2024
Policy issues
After hitting the pause button in November, the Riksbank’s next move is more likely to be down than
up, even though the central bank continued to suggest that another rate rise was possible should it
be needed.
Given the cocktail of weak growth, a loosening labour market and rapidly falling inflation, rate cuts
look likely to come sooner than the central bank currently envisages. While we remain wary of being
too dovish in terms of our rate forecasts, given the market moves in terms of pricing of global central
banks and our own changes in this publication, keeping a rate cut call for around the middle of 2024
seems sensible. We look for the first rate cut to come at the 26 June meeting.
There is then a question of magnitudes. Whilst it’s easy to forecast 25bps cuts each quarter, as is our
forecast, we could see a faster pace of easing in Sweden given that the trigger for cuts is as much a
growth problem as simply lowering the real rate as inflation comes down.
The SEK remains the potential fly in the ointment. At close to record lows on a trade-weighted basis
and close to lows against the EUR, the currency could be a key reason why the Riksbank either opts
for another rate rise or delays easing should we see a bout of further weakness.
Risks
As well as the uncertainty over the Riksbank’s interest rate path, we could see some impacts on the
economic outlook because of which path is taken. If the policy rate is taken even higher or held here
for longer – there could be a non-linear impact on financial stress throughout the Swedish economy.
We could see household spending stay weaker for longer or a more protracted weakness in the
housing sector.
On inflation, our forecasts assume a similarly low run rate on monthly inflation as we’ve seen in
recent months. This could give way to a period of higher underlying inflation prints, and inflation could
then be higher through 2024, with clear implications for the Riksbank’s cutting cycle. We may also
see a worse spillover from the labour market that means rate cuts come either sooner or more
sharply than we expect.
In terms of 2025, our optimistic outlook for a rebound may not come to fruition if rate cuts are delayed
or some of the productivity upsides we look for don’t bear fruit.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)*
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
SEK/USD*
SEK/EUR*
Policy rate (%)*
Note: * Period end
Source: Refinitiv Datastream, HSBC estimates
96
2023f
-0.4
-2.3
2.1
-1.2
-0.1
-2.3
2.7
-0.8
2.1
7.6
3.4
8.0
33.5
5.3
-0.1
33.0
10.28
11.20
4.00
2024f
0.5
0.6
1.5
0.7
-2.9
0.1
1.2
0.7
1.7
8.1
3.2
2.7
34.0
5.0
-0.1
32.0
11.76
12.00
3.00
2025f
2.1
1.4
2.0
4.0
-2.8
2.3
2.0
2.4
2.0
7.2
2.8
1.8
34.0
5.0
-0.1
32.0
2.00
Q3 23
-1.4
-0.3
-2.3
1.7
-2.7
-0.9
-4.2
1.7
-3.3
-0.4
7.8
3.7
7.7
10.93
11.55
4.00
Q4 23f
-0.9
-0.3
-1.6
1.7
-2.4
-0.7
-2.1
1.5
-0.6
2.7
8.0
3.5
3.5
10.28
11.20
4.00
Q1 24f
-1.1
0.4
-0.4
1.1
-1.3
-0.7
-2.0
1.1
-0.6
1.1
8.5
3.4
3.2
10.75
11.40
4.00
Q2 24f
0.1
0.4
0.2
1.2
-0.5
-0.7
-1.0
1.6
-0.4
1.8
8.2
3.3
3.0
11.15
11.60
3.75
Q3 24f
1.0
0.5
1.2
1.7
1.2
-0.7
1.5
0.6
1.7
2.0
8.0
3.2
2.5
11.57
11.80
3.50
Q4 24f
1.8
0.6
1.4
1.8
3.2
-0.7
2.0
1.6
2.0
2.0
7.8
3.1
2.0
11.76
12.00
3.00
Economics ● Global
Q1 2024
Other Western Europe
Norway
James Pomeroy
Economist
HSBC Bank plc
james.pomeroy@hsbc.com
+44 20 7991 6714
Last to the finish
Norway’s economy has shown plenty of resilience through 2023. Despite the headwinds of
higher interest rates on a heavily indebted population, activity has held up better than in much of
Europe, in particular its neighbour Sweden, despite a slowdown that has become more evident
throughout the year.
GDP growth was revised down sharply for the first half of 2023, and the trajectory of the monthly
activity figures continues to flatten out – GDP growth for 2023 as a whole is now likely to be just
1.1%, with consumer spending faring worse and the economy being held up by a combination
of net exports and government support – which is able to step in as needed given the swelling
value of the Pension Fund, which now stands at USD1.4trn, nearly 3x Norwegian GDP.
This wealth has been supported by oil and gas sales through 2022 and 2023, but the recent leg
lower in the oil price may well hurt sentiment in the sector – which can spill into mainland
activity, particularly in the region around Stavanger.
This backstop is why we have been reluctant to forecast a recession in Norway, despite the
economy being one of the most exposed to rate rises – with a large share of the massive
household debt stock being at variable rates. But, equally, we cannot envisage a reason why
Norway would grow quickly – the world’s richest economy, with one of the highest standards of
living – simply doesn’t have many avenues for further improvements. Hence, we expect only
slow growth in 2024 and 2025, even as interest rates start to come down.
Unlike in Sweden, we haven’t seen a favourable turn in inflation, with the latest readings of CPIATE, Norway’s core inflation metric, showing much less of a drop than equivalent indices around
Europe. We do expect inflation to subside in 2024, but at a slower pace, as supply and demand
get to a closer balance, but the developments in the currency remain a wildcard.
As a result of all of this, the Norges Bank has been the last developed market central bank to
tighten in this cycle – but we expect this to be the peak, as we outline overleaf.
Growth has slowed after returning to the
pre-pandemic trend
Core inflation is proving stubborn
Source: HSBC, Macrobond
Source: HSBC, Macrobond
97
Economics ● Global
Q1 2024
Policy issues
The Norges Bank’s focus on financial stability means that we believe that it will look to trim its
policy rate as soon as it is comfortable with the path of inflation. Given the risks of keeping
policy too tight for too long, we would expect rates to be lowered in 2024, back towards 3%,
once inflation looks to be on a sustainable footing.
The central bank did raise its policy rate on 14 December, to 4.50%, but signalled that this is
likely to be the peak. The profile for the likely policy rate path for the next few years has been
highlighting the chance of cuts for some time, and now it suggests that the policy rate will be cut
in the autumn. Our forecasts have long pointed to rate cuts beginning in June 2024, and we
continue to expect that – with the Norges Bank cutting its policy rate around the same time as
other major central banks.
Risks
The biggest risks to our view centre on the NOK and the impact that higher rates has on the
economy. We are relatively sanguine about downside risks to Norwegian growth given the
ability for the state to step in with support should it be needed, but the chance of a weaker
period of private consumption and/or investment is possible in the coming quarters.
Equally, inflation could stay stickier, either due to the weaker currency, or it taking longer for the
energy input cost shock to feed through the economy. That could mean that rates aren’t
lowered in 2024 and growth could be weaker than our forecast.
As always, the direction of the oil price could be important. A higher oil price may support the NOK
and local employment and investment, whereas a lower oil price may have the opposite effect.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross government debt (% GDP)
NOK/USD*
NOK/EUR*
Policy rate (%)*
Note: *Period end
Source: HSBC Estimates, Refinitiv Datastream
98
2023f
1.1
-0.9
2.8
-1.7
2.9
0.5
5.3
2.3
-0.2
3.6
5.4
5.5
149.0
27.0
10.9
29.0
10.55
11.50
4.50
2024f
1.2
1.6
2.3
-1.0
2.3
0.5
1.8
1.4
2.2
3.6
4.0
3.7
140.0
26.0
10.0
30.0
11.76
12.00
3.00
2025f
1.1
1.1
2.0
0.9
2.3
1.3
2.4
2.4
3.5
3.6
4.0
2.5
140.0
26.0
10.0
31.0
2.50
Q3 23
0.6
0.1
-0.6
3.2
-5.3
2.3
1.3
0.6
-1.7
-0.8
3.6
6.3
4.5
10.70
11.32
4.00
Q4 23f
0.4
0.2
-4.2
2.8
-3.3
2.3
1.3
2.1
-1.8
0.2
3.6
6.2
4.6
10.55
11.50
4.50
Q1 24f
0.7
0.4
1.6
2.9
-3.8
2.3
1.3
1.6
0.7
0.8
3.6
4.1
4.5
10.85
11.50
4.50
Q2 24f
1.1
0.4
1.5
2.5
-2.7
2.3
1.3
1.0
0.3
2.0
3.6
4.0
3.8
11.15
11.60
4.00
Q3 24f
1.4
0.4
1.5
2.0
1.5
2.3
1.3
2.1
2.4
3.0
3.6
3.9
3.6
11.57
11.80
3.50
Q4 24f
1.6
0.4
1.6
2.0
1.4
2.3
1.4
2.4
2.4
3.1
3.6
3.9
3.0
11.76
12.00
3.00
Economics ● Global
Q1 2024
CEEMEA
Poland
Agata Urbanska-Giner
Economist, Central and Eastern
Europe
HSBC Bank plc
agata.urbanska@hsbcib.com
+44 20 7992 2774
New government, new policy, new optimism
A new coalition government, led by former PM and European Council president Donald Tusk, was
sworn in on 13 December. A three-party coalition has been formed between the Civic Coalition, the
Third Way and the New Left - representing a varied mix of liberal, conservative and left economic
and socio-cultural values. The incoming coalition has said its aims include ending the state capture
by the outgoing PiS government, restoring the rule of law and resetting and strengthen the
relationship with the EU. Its economic priorities include the unlocking of the EU recovery and
resilience funding - EUR25.3bn in grants and EUR34.5bn in loans (8% of GDP total). It will be
challenging for Poland to utilise all of this funding in a tight timeframe (end 2026), not mentioning
meeting the required reform milestones. On the latter, the key caveat is how supportive or obstructive
President Andrzej Duda might be. The government has a comfortable majority to pass laws but does
not have the required majority to reject a potential/hypothetical presidential veto. The first reform
focus will likely be on the judiciary, as strengthening the independence and impartiality of courts is
a precondition for the first out of a total of nine instalments (worth EUR2.7bn in grants and EUR4.2bn
in loans).
The new government’s other economic policy priorities include: speeding up the green transition;
improving the business environment, in particular via a transparent and predictable tax system;
business law making and reduced social security costs for businesses; lowering income taxes for
employees; improving transparency of the public finances; depoliticising management boards of the
state-owned companies; decentralisation and support for more independence of local governments;
better access to public health; and higher spending on education.
If implemented timely the new policies stand to boost Polish economic growth via consumption and
investment. For now, we tweak our GDP growth numbers up only a little while we await news on the
timing and scale of flagged personal income tax cuts and EU funding flows. The immediate upside
comes from frozen energy prices in H1 2024, supporting disposable incomes, and the extended
credit holiday scheme for mortgage holders or Eur5bn of RRF pre-financing. We raise 2024 and
2025 GDP growth by 0.4ppts to 3.0% and 3.4% y-o-y respectively.
CPI likely to dip below 4% y-o-y in March
but it should spike above 5% in H2 …
… with current momentum for core CPI at 56% y-o-y range
% y -o-y
20
% y -o-y
16
14
12
10
8
6
4
2
0
-2
2014
% y -o-y
20
Inflation
16
16
12
12
8
8
4
4
0
0
-4
-4
2014
2016
2018 2020
Headline
Source: Refinitiv Datastream, HSBC forecasts
2022
2024
Core
Core CPI momentum
2016
2018
3mma, saar (RHS)
y-o-y (LHS)
2020
% m-o-m
16
14
12
10
8
6
4
2
0
-2
2022
saar (RHS)
Source: Refinitiv Datastream
99
Economics ● Global
Q1 2024
Policy issues
Stronger growth, largely consumer driven, represents a headwind to inflation. Core inflation has been
moderating but was still well above 7% y-o-y in November with momentum also at ca 6%. In 2024,
the minimum wage will be increased by 19%, teachers will get a 30% wage hike, pensions will be
raised at a double-digit rate as well, the child benefit will increase by 60% (from PLN500 to PLN800)
– all adding up to a strong mid-to-high single-digit real disposable income growth. We have pencilled
in private consumption growth accelerating to 5% y-o-y in 2024 from zero in 2023. Accordingly, we
assume further disinflation at the core level will be gradual from here – from 7% in Q4 2023 to 5% yo-y in Q4 2024. Headline inflation will likely be more volatile and we expect it might dip below 4% y-oy in March down from 12% average in 2023. We have recently trimmed our 2024 average inflation
forecast from 5.9% to 4.9% y-o-y on the back of the energy price freeze in H1 2024. The extended
zero VAT rate on food in Q1 24 delivers another headline CPI squeeze. While energy tariffs
applicable from July 2024 are yet to be determined, we have pencilled in relatively moderate hikes.
But the risks are skewed to the upside given preliminary reports that energy companies filed motions
with the regulator to hike tariffs by 76% for electricity and 48% for gas (8 December Business
Insider). Such hikes would represent 2-3ppts upside risk to our H2 2024 CPI forecast. In light of this
we see limited scope for monetary easing in 2024, after the 100bp of rate cuts in September and
October 2023 took the central bank’s policy rate to 5.75%. We have pencilled in a 25bp cut in March
and another 25bp cut in July. Downside inflation risks are external: including currency appreciation,
commodity prices and broader imports prices. But the risk to our forecast for the CB policy rate also
stems from uncertainty about NBP’s reaction function. We find that a policy anchor is missing in
terms of clarity about the neutral real rate level, the warranted tightness of the policy to support the
disinflation process, and implicit inflation target. The communication on all of the above has been
lacking or has been inconsistent and fragmented (see CE3 central banks: Deciphering the policy bias
published on 7 December 2023).
Risks
We expect Poland to be growth outperformer in the EU. The key downside risks we are concerned
with is the political constraint to unlocking EU funding and poor fiscal position. The new government
enjoys the benefit of the doubt from the markets – zloty strengthened nearly 6% by early December
vs September average – but the budget deficit will likely stay elevated in the next couple of years.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
PLN/USD*
PLN/EUR*
Policy rate (%)*
Note: *Period end
Source: HSBC estimates
100
2023f
2024f
2025f
Q3 23
Q4 23f
Q1 24f
Q2 24f
Q3 24f
Q4 24f
0.3
0.0
4.5
6.4
-2.3
-4.8
-9.1
-1.8
2.8
12.9
11.6
7.9
1.0
-5.8
48.8
50.9
3.94
4.30
5.75
3.0
5.1
1.5
5.8
4.8
-2.8
-0.0
3.8
2.9
11.1
4.8
4.7
0.5
-4.7
45.9
55.5
4.22
4.30
5.25
3.4
4.0
1.3
7.0
3.7
3.9
4.8
5.9
2.9
9.2
4.3
-4.5
-0.5
-4.4
44.5
55.6
4.50
0.5
1.5
0.8
3.3
7.2
-5.2
-11.0
-20.3
-1.7
2.8
11.0
9.7
0.0
0.0
4.37
4.62
6.00
1.5
0.1
3.8
10.9
3.3
2.7
-7.5
-5.6
-1.4
2.8
12.5
6.5
1.1
0.5
3.94
4.30
5.75
2.8
0.9
5.7
4.1
4.6
5.5
-8.5
-4.2
1.5
2.9
12.1
4.3
2.5
1.2
4.06
4.30
5.50
2.6
1.1
5.9
2.2
6.8
5.5
-7.7
-3.6
4.1
3.0
10.9
4.0
1.5
0.8
4.13
4.30
5.50
3.1
0.8
4.4
1.9
6.3
4.6
1.8
4.0
4.8
3.0
10.7
5.4
0.1
0.0
4.22
4.30
5.25
3.2
0.8
4.3
-1.3
5.5
3.8
2.0
3.0
4.8
3.0
10.9
5.4
0.6
0.3
4.22
4.30
5.25
Economics ● Global
Q1 2024
CEEMEA
Russia
Melis Metiner
Economist
HSBC Bank plc
melismetiner@hsbcib.com
+44 20 3359 2636
Sharp monetary tightening, growth set to slow
The economy expanded by 5.5% y-o-y in Q3, accelerating from a 4.9% gain in Q2. Full-year
2023 growth is now on track to be above 2% compared to our previous forecast of 1% (figures
in the table have been updated to reflect the data release on 29 December). The size of the
economy is now back to its pre-war level. But the unbalanced nature of economic activity, with
growth driven solely by domestic demand, has led to growing price pressures and a smaller
external surplus. We also push up our 2024-2025 GDP growth forecasts to above 1% for both
years, but this should still mark a significant slowdown compared to 2023. We do not expect the
contribution of net exports to GDP growth to turn significantly positive in our forecast horizon.
High frequency data for Q4 has been mixed. Retail sales and manufacturing output both
averaged zero growth m-o-m in October-November. Manufacturing and services PMIs remained
well above 50 throughout Q4, but fell compared to September. We expect the deceleration to
become more marked as the impact of CBR’s tightening is felt with a lag.
The unemployment rate was at a record low of 2.9% in November, but the CBR has argued that
the current state of the labour market, with certain sectors facing severe labour shortages is a
headwind to economic growth. The acceleration in wage growth to well above 10% also speaks
to the same pressures.
Annual inflation rose to 7.5% in November, up sharply from the 2-3% range seen in mid-2023. Price
pressures are broad based, but, at above 10%, services inflation is running well ahead of goods
inflation. Core inflation (excluding fruit, vegetable, fuel and various administered prices) has also
accelerated sharply, reaching 6.4% in November. In addition to domestic demand overheating and
various supply-side constraints weighing on output, RUB depreciation in Q3 likely also played a role
in pushing up price growth and inflation expectations. Households’ 1-year ahead inflation
expectations have been rising and are elevated, at above 14% in December. The central bank has
responded forcefully to the deterioration, but we still expect headline inflation to remain above 4%
throughout our forecast horizon. The government tightened capital controls (specifically, export
revenue surrender requirements) in October, in a bid to provide support for RUB. With presidential
elections due in 2024, currency stability is likely to be important for policymakers.
Growth is set to slow going forward…
Index
Russia PMI
…and the fiscal deficit is likely to widen
Index
60
60
55
55
50
50
45
45
40
Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23
Manufacturing
Services
40
Source: CEIC
% GDP
Russia budget balance
4
3
2
1
0
-1
-2
-3
-4
-5
-6
2017 2018 2019 2020 2021 2022 2023
% GDP
4
3
2
1
0
-1
-2
-3
-4
-5
-6
Source: CEIC
Source: HSBC with data from INEGI
101
Economics ● Global
Q1 2024
Policy issues
The government adopted its new budget for 2024-2026 in late November. The framework
envisions a highly prudent stance (we would argue optimistic), with the headline deficit staying
below 1% of GDP throughout all three years, as revenue growth is forecast to keep up with rapid
gains in spending. For 2024 specifically, the official fiscal framework sees expenditures rising from
19% of GDP in 2023 to 21% as military and social spending rise by 66% and 19% y-o-y
respectively, with the former reaching 6% of GDP in 2024. On the revenue side, both oil (5.6% to
6.5% of GDP) and non-oil revenues (12.4% to 13.3% of GDP) are expected to improve. The
primary balance is forecast to be close to zero in 2023 before shifting to a surplus in 2024.
Despite a better-than-expected performance in 2023, with the 12-month cumulative fiscal
shortfall at around 3.5% of GDP in November, we think risks to the framework laid out in the
official figures are clearly tilted in the direction of larger shortfalls as expenditure accelerates to
sustain the war effort. We think that spending is likely to run ahead of official targets while tax
revenues fall short of expectations.
We had expected CBR’s key rate to peak at 15% but the bank delivered an additional 100bp
hike on 15 December. We think this will be the last rate rise in the hiking cycle that started in
July and continue to expect a cautious easing cycle to start in 2H 2024, with the key rate falling
to 11% by end-2024. That said, the bank’s reaction function is significantly more opaque than it
was pre-war, with policymakers keeping an eye on short-term FX dynamics and over-delivering
tightening to provide support for RUB, when necessary. Capital controls have also been
tightened recently, but CBR said that it expects the positive impact of this on the currency to be
short-lived.
Risks
For inflation, the risk to our base case forecast is tilted towards stronger price pressures. This in
turn could lead to more hikes from the CBR. The December statement did not rule this out.
Even though it did not materialise in 2023, aggressive fiscal easing remains a risk. Finally,
media reports recently said that G7 officials are discussing the possibility of seizing Russia’s
frozen FX reserves to provide financial support to Ukraine (FT, 15 December).
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
RUB/USD*
Policy rate*
Source: HSBC estimates, Refinitiv Datastream
Note: *Period end
102
2023f
2.6
5.6
5.6
7.8
-4.2
18.2
3.2
3.2
13.5
5.1
60.5
3.0
-2.9
16.2
15.7
90.0
16.00
2024f
1.5
3.8
6.5
2.6
-1.7
8.4
1.7
3.1
11.0
7.3
47.6
2.7
-3.4
17.4
18.3
110.0
11.00
2025f
1.7
0.8
5.0
1.2
1.6
1.0
1.8
3.2
8.8
5.0
37.6
2.0
-2.4
16.4
19.8
7.00
Q3 23
5.5
0.9
8.0
5.4
9.0
5.9
23.1
5.0
3.0
14.2
5.2
81.3
3.8
97.6
13.00
Q4 23f
1.8
1.0
5.9
1.9
7.4
-5.5
25.7
3.5
2.9
14.8
7.3
60.5
3.0
90.0
16.00
Q1 24f
0.5
0.0
5.5
8.6
6.7
-5.3
22.2
3.6
3.1
13.3
7.6
65.6
3.4
100.0
16.00
Q2 24f
1.5
0.0
4.7
3.9
2.6
-3.1
6.1
0.5
3.1
12.9
8.1
66.6
3.6
105.0
16.00
Q3 24f
1.5
0.1
3.2
7.3
1.9
-0.9
3.2
1.0
3.1
10.3
7.5
56.3
3.1
110.0
13.50
Q4 24f
2.4
0.1
2.2
5.8
1.3
2.4
3.8
1.7
3.1
7.6
6.0
47.6
2.7
110.0
11.00
Economics ● Global
Q1 2024
CEEMEA
Türkiye
Melis Metiner
Economist
HSBC Bank plc
melismetiner@hsbcib.com
+44 20 3359 2636
Soft landing
We continue to expect a gradual economic adjustment process in 2024. In theory, it should be
possible to deliver a much faster pace of disinflation and to shrink the external shortfall more
meaningfully, but we think policymakers will continue to prioritise soft landing the economy.
Local elections will be held on 31 March. We expect some fiscal stimulus in the lead up to the
vote (and expect the budget deficit to widen in 2024 as a whole) but envision no monetary or
credit-channel easing.
The economy grew by 5.9% y-o-y in Q3 23, accelerating from 3.9% in Q2. Meanwhile, the
sequential data painted a different and less rosy picture, with headline growth slowing sharply to
0.3% q-o-q in Q3 (from 3.3% in Q2, revised down from 3.5%). Most strikingly, after a 4.7%
quarterly gain in Q2, household spending fell by 1.7% q-o-q in Q3. Given the deceleration
already evident in the data as well as monetary tightening that exceeded our initial expectations,
we see full-year GDP growth for 2023 and 2024 at 4.0% and 2.5% respectively. We revised
these estimates down recently but left our 2025 forecast of 3.5% unchanged.
Inflation stood at 62% y-o-y in November, while the six available core inflation indicators were in
the 60-70% range. We currently expect a slower pace of disinflation compared to the central
bank’s projections and see headline inflation at 43% by end of 2024 (vs the CBRT’s forecast of
36%). There is a high degree of stickiness in services prices in particular, a trend that could
prove challenging to reverse if inflation expectations do not become more firmly anchored at a
lower level. 1-year ahead expectations stood at 41% in December, while pre-2018, they
fluctuated in a 5-10% range.
Using a lower oil price assumption of around USD80/bbl for 2024 and 2025 and accounting for
a slower pace of domestic demand growth, we now expect the current account deficit to
average USD25bn over the next two years (vs USD30bn previously). We continue to believe
that short-term external loans (cUSD60bn over the next 12 months) will continue to be rolled
over in full. But, if FDI and portfolio investment remain subdued, financing of the current account
shortfall is unlikely to be straightforward and could require Türkiye to rely on bilateral funding
flows again.
CBRT has raised rates sharply, but the real
policy rate (using realised inflation)
remains negative
%
CBRT policy rate
The improvement in net foreign assets
excluding swaps has been more modest
compared to gains in gross reserves
USDbn
60
60
USDbn
150
40
40
100
100
20
20
0
0
50
50
-20
-20
0
0
-40
-40
-60
-60
-50
-50
-80
-80
%
-100
-100
2018
2019 2020
Policy rate
Source: CBRT
2021
CBRT reserves
150
-100
-100
2018
2022 2023
Real policy rate
2019
2020 2021 2022 2023
Total reserves inc gold
Net foreign assets
Net foreign assets excluding swaps
Source: CBRT
Source: HSBC with data from INEGI
103
Economics ● Global
Q1 2024
Policy issues
CBRT has tightened monetary policy more than we were initially expecting, but real interest
rates (using realised inflation) remain negative. As we approach the end of the monetary
tightening cycle, focus will shift towards how actively income and fiscal policies are used to help
address lingering imbalances. We currently do not expect fiscal tightening and see the budget
shortfall widening from c4% of GDP in 2023 to c7% in 2024.
Minimum wages and economy-wide wages more than doubled in nominal terms in 2023, thus
rising by c50% in real terms. Treasury and Finance Minister Mehmet Simsek said he thinks
inflation expectations (not realised inflation) should be a key determinant of wage negotiations
(Cumhuriyet, 12 October). But the government announced a minimum wage hike of 49% for
2024, exceeding the CBRT’s end-2024 inflation forecast of 36%.
Risks
Despite the persistence of the current account deficit, reserves have risen since June, when the
CBRT started its tightening cycle. That said, this was partly due to strong net errors and
omissions inflows. Net FDI and portfolio flows, meanwhile, have remained subdued.
While Türkiye's external dynamics have become more sustainable in recent months,
vulnerabilities remain. Despite monetary and macro-prudential tightening and moderating loan
growth, the current account deficit is shrinking at a gradual pace. The improvement in portfolio
investment in recent months is encouraging, but inflows remain low both compared to pre-2018
levels and to the current account shortfall. Pledged funding from the UAE has also been slow to
materialise. We continue to believe that a more forceful monetary policy response (as well as
fiscal tightening) would help deliver a more rapid improvement in the external deficit, as well as
a faster pace of disinflation.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
TRY/USD*
Policy rate**
2023f
4.0
11.3
5.8
8.5
-1.3
13.9
1.5
9.6
110.4
53.7
-47.2
-4.5
-4.1
47.4
29.1
29.00
42.50
Source: HSBC estimates, Refinitiv Datastream
Note: *Period end **One week-repo rate, period end
104
2024f
2.5
1.3
4.9
2.1
4.9
4.3
1.8
9.7
55.3
52.5
-29.7
-2.7
-7.1
48.1
32.3
33.00
42.50
2025f
3.5
2.8
4.3
4.8
3.5
5.1
2.8
9.6
35.3
34.3
-24.1
-2.1
-2.9
46.1
32.7
30.50
Q3 23
5.9
0.3
11.2
5.3
14.7
1.1
14.5
4.8
9.6
111.4
56.1
-51.7
-4.9
27.42
30.00
Q4 23f
2.4
0.3
3.8
5.9
9.4
5.7
9.4
2.4
9.2
100.1
62.2
-47.2
-4.5
29.00
42.50
Q1 24f
3.9
0.6
3.4
5.4
4.5
6.0
8.7
3.2
9.5
74.6
59.0
-33.8
-3.2
30.00
42.50
Q2 24f
2.6
0.5
-3.5
0.1
0.5
6.8
5.3
1.5
9.5
64.2
63.6
-33.0
-3.1
31.00
42.50
Q3 24f
1.3
0.5
1.1
4.6
-1.6
3.6
3.0
1.2
9.9
42.5
48.4
-30.9
-2.9
32.00
42.50
Q4 24f
2.4
0.5
4.2
8.5
5.0
3.8
1.7
1.5
9.9
39.9
43.6
-29.7
-2.7
33.00
42.50
Economics ● Global
Q1 2024
CEEMEA
Saudi Arabia
Simon Williams
Chief Economist, CEEMEA
HSBC Bank plc
simon.williams@hsbc.com
+44 20 7718 9563
Capacity challenges
We have made a series of downward revisions to our economic projections for Saudi Arabia,
driven primarily by the likelihood that OPEC+ output cuts will remain in place for longer than we
had previously assumed, and that the Kingdom will carry the bulk of the production loss.
The view accounts for much of the cut to our forecast for growth which we now see at a little
over 3.5% in 2024 – up from near zero in 2023 but down more than 0.5ppt on our previous
estimate. The feed through to the underlying economy will be muted, however, and we look for
the non-oil sector to grow at over 4%, buoyed by strong private consumption, rising investment
and firm gains in services exports. This is well ahead of the long-term average, and little
changed on 2023, reflecting the gains already delivered by the Kingdom’s structural reform
programme, demographic trends and a continued expansionary fiscal stance.
However, the pace is a little lower than we had previously assumed – a re-assessment triggered
in part by weaker than anticipated Q3 GDP data that showed non-oil growth stalling as
investment unexpectedly fell. Given the strength of public policy commitment to giga-projects
that run through the Vision 2030 economic transformation plan, it is likely that this loss reversed
in Q4 – a review underscored by strong high frequency data into year end. Nonetheless, the
weak data point is of note, highlighting the funding and capacity constraints the Kingdom faces
as it seeks to execute its investment plans.
As we have left our oil price forecast unchanged, the prospect of lower oil production also
weighs on the outlook for energy export receipts which continue to dominate public finances
and the Kingdom’s external accounts. For now, however, Saudi Arabia’s balance sheet leaves it
well placed to absorb the revenue losses, and we see public debt remaining stable and low at
under 30% of GDP despite weaker than expected economic growth and lower oil receipts. We
have fewer concerns still over the Kingdom’s external position with reserves high the current
account likely to remain comfortably in surplus over 2024-25, buoyed in part by surging travel
and tourism receipts which will help offset lower energy income. We see inflation printing at
around 2.5% over 2024-25 – close to the 2023 average. Housing costs remain the most
significant risk to the stable outlook though we also see sustained pressure on costs as giga
project demand for labour and inputs continues to build.
OPEC cuts mask a strong underlying
growth story…
% y-o-y
25
20
15
10
5
0
-5
-10
-15
Saudi Arabia Real GDP
% y-o-y
25
20
15
10
5
0
-5
-10
-15
-20
2023-Q3
2023-Q2
2023-Q1
2022-Q4
2022-Q3
2022-Q2
2022-Q1
2021-Q4
2021-Q3
Non-Oil
% y-o-y
35
30
25
20
15
10
5
0
-5
-10
Gross fixed investment
2021-Q2
Oil
% y-o-y
35
30
25
20
15
10
5
0
-5
-10
2021-Q1
2023-Q3
2023-Q2
2023-Q1
2022-Q4
2022-Q3
2022-Q2
2022-Q1
2021-Q4
2021-Q3
2021-Q2
2021-Q1
2020-Q4
2020-Q3
2020-Q2
2020-Q1
Headline
Source: Macrobond, HSBC Calculations
…but the challenges facing investment are
also clear
Source: Macrobond, HSBC Calculations
Source: HSBC with data from INEGI
105
Economics ● Global
Q1 2024
Policy issues
The 2024 budget announced in December adopts a cautious stance, projecting modest fiscal
shortfalls averaging under 2% of GDP over the coming three years premised flat oil receipts and
firm spending control. With access to private sector funding from home and overseas likely to
remain tight, however, this disciplined stance is likely to be tested by pressure on the public
sector to support growth and finance the state’s large scale investment projects will likely be
pronounced much as it was in 2023 when spending ran well ahead of target.
The Kingdom’s balance sheet is so strong that the authorities have room for manoeuvre.
However, if spending continues to increase more quickly than tax receipts, Saudi Arabia’s nonoil budget shortfall will continue to rise, pushing the breakeven oil price higher. This will build
long-term vulnerabilities to any sustained decline in oil receipts that may come – an exposure
that extends to off-budget state entities such as the Public Investment Fund whose dominant
position in large-scale development projects that run through Vision 2030 not only brings
contingent liabilities to the state, but also risks crowding out the private sector.
Fed-driven monetary easing will offer some relief, but we expect cuts to come through slowly,
and with inflation so low real rates will remain very high throughout our forecast period.
Whatever frustrations the Kingdom’s monetary regime may cause, however, we see no
meaningful prospect of it triggering a shift away from the long-standing dollar-peg, with the
central bank instead restricting itself to more limited action such as the provision of liquidity
where required, and support for targeted credit facilities to support priority sectors.
Risks
Our forecasts continue to be premised on oil prices trading around USD70-90/b over the coming
two years, with USD80/b as a mid-point. Although the forecast is unchanged, the risks have
shifted to the downside and soft demand and strong supply growth have moved the market
toward surplus. If oil were to slip below USD70/b, it would impact our forecasts for nominal
balances but not our broader story. If earnings were to settle around USD60/b, however, the
impact on non-oil growth would be more marked, and any continued gains in public spending
would shift attention to a surging funding need.
0
Key forecasts
% Year
GDP
Consumer spending
Government consumption
Investment
Domestic demand
Exports
Imports
Industrial production
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
USD/SAR (eop)
Policy rate (%)*
2017
2018
2019
2020
2021
2022
2023f
2024f
2025f
-0.1
4.6
3.3
1.0
1.8
-3.1
0.3
-2.1
-0.8
10.5
1.5
-8.9
27.7
16.5
3.75
1.50
2.8
2.5
9.3
2.4
0.4
7.2
2.6
0.4
2.5
72.0
8.5
-5.5
28.3
17.6
3.75
2.50
0.8
6.5
-3.0
4.8
6.9
-5.0
9.6
-1.9
-2.1
38.2
4.6
-4.2
26.9
21.6
3.75
1.75
-4.3
-8.1
3.3
-10.4
-6.1
-10.6
-19.7
-5.9
3.4
-22.8
-3.1
-10.7
36.4
31.0
3.75
0.50
3.9
9.4
0.8
10.1
6.5
1.0
8.3
1.8
3.1
44.3
5.1
-2.3
33.6
28.8
3.75
0.50
8.7
4.8
6.7
24.1
5.1
18.7
12.0
12.8
2.5
150.8
13.6
2.5
28.0
23.8
3.75
4.50
0.2
3.5
3.0
12.0
6.1
-9.0
4.0
0.8
2.3
62.7
5.8
-2.4
29.6
24.5
3.75
5.50
3.7
3.5
3.0
10.0
6.1
-1.0
5.0
1.5
1.9
46.0
4.0
-3.9
29.1
23.9
3.75
4.75
4.5
3.0
2.5
10.0
5.6
4.0
7.5
0.0
2.2
51.4
4.2
-3.6
27.8
22.7
3.75
4.00
Source: Saudi Arabia Monetary Agency, Central Department for Statistics and Information, HSBC estimates
Note: *Period end
106
Economics ● Global
Q1 2024
CEEMEA
South Africa
South Africa’s economy contracted by 0.2% q-o-q in Q3, consistent with weak activity data
during the quarter and paring some of the GDP gains registered in H1. The contraction was led
by a sharp decline in inventories, likely reflecting the impact of transport and logistics
constraints, including disruptions to the country’s freight road and rail corridors and congestion
at Transnet’s ports. These losses were exacerbated by a drop in gross fixed capital formation,
reversing the strong gains seen in Q2 and abruptly ending seven quarters of successive
expansion. Consumer strains were still evident, with household spending falling for a second
consecutive quarter amid headwinds from a sluggish labour market recovery, weak real wage
growth, and the surge in household debt service costs. Net exports were the main positive
contributor to GDP growth in Q3 through a sharp contraction in imports – the corollary to falling
inventories and investment spending – while there was a slight rise in both exports and
government consumption during the quarter.
The growth outlook remains sensitive to local energy constraints, although we think these may
start to ease in the months ahead amid improving supply and softer demand (see: Hope on the
horizon, 17 November), however rail inefficiencies and port congestion suggest that logistics
bottlenecks will continue to impede business conditions and cap the upside from an improving
power situation. We have nudged our growth forecasts 10bp lower and expect the economy to
expand by 1.1% in 2024 and 1.5% in 2025.
Alongside a subdued growth outlook, inflation is likely to be sticky. Recent near-term food price
pressures pushed inflation higher in recent months, while material upside risks from El Nino,
suggests that that food price dynamics are likely to be less supportive of disinflation in South
Africa in 2024. These pressures are compounded by upside risks from a weak rand, electricity
tariffs and other administered prices, and elevated inflation expectations. After averaging 5.9%
in 2023e, we forecast headline inflation to average 5.4% in 2024 and 5.1% in 2025. Core
inflation is likely to be more benign and we forecast it to average 4.8% over 2023-25.
While the current account shortfall compressed in Q3 amid the sharp fall in imports, we expect
subdued commodity prices, import intensive renewable energy investments and logistics
constraints to weigh on South Africa’s external dynamics. Further tourism gains and smaller net
income payments will provide some offset, but we expect the current account deficit to widen
over the coming quarters and to -2.8% of GDP in 2024 and -3.0% of GDP in 2025.
Source: Eskom sePush, HSBC
Actual
FY25/26f
FY26.27f
FY22/23
FY20/21
FY21/22
FY19/20
National Treasury
% GDP
0
-1
-2
-3
-4
-5
-6
-7
-8
-9
-10
FY24/25f
Stage 3
Stage 6
FY18/19
4Q23
3Q23
2Q23
1Q23
Stage 2
Stage 5
8000
7000
6000
5000
4000
3000
2000
1000
0
Main budget balance
FY23/24f
Stage 1
Stage 4
4Q22
3Q22
8000
7000
6000
5000
4000
3000
2000
1000
0
% GDP
0
-1
-2
-3
-4
-5
-6
-7
-8
-9
-10
FY17/18
GWh
Composition of monthly
load-shedding (upper limit)
FY16/17
GWh
We think revenue and spending risks will
prevent fiscal consolidation
FY15/16
Power cuts have become less severe in H2
2023, supporting stronger growth in 2024
2Q22
Matlhodi Matsei
Economist
HSBC Securities (South Africa)
(Pty) Ltd
matlhodi.matsei@za.hsbc.com
+27 11 676 4251
Elections and macro risks
1Q22
David Faulkner
Economist
HSBC Securities (South Africa)
(Pty) Ltd
david.faulkner@za.hsbc.com
+27 11 676 4569
HSBC
Source: National Treasury, HSBC
Source: HSBC with data from INEGI
107
Economics ● Global
Q1 2024
Policy issues
We think that the SARB policy rate has reached a peak, with the unanimous decision to hold rates
in November suggesting that the hurdle rate for further hikes may now be higher. Nevertheless,
we see upside risks to the SARB’s inflation forecasts, with higher food price pressures, stickier
core inflation, elevated price expectations, and fiscal risks likely to delay medium term disinflation
and limit the scope for policy easing. A higher neutral real rate over the SARB’s forecast horizon
may also result in a shallow cutting cycle, when it eventually begins. We forecast 50bp of easing
from Q3 2024, with the policy rate likely to end 2025 at 7.25% (unchanged).
Meanwhile, the government presented a worse set of fiscal projections in the Medium Term
Budget Policy Statement (MTBPS), with the main budget balance set to record a deficit equal to
4.7% of GDP in FY23/24 (ending March) from a forecast of 3.9% of GDP previously. The bigger
deficit primarily reflects a large tax shortfall, while spending pressures from a higher-thanbudgeted public sector wage deal and rapidly rising debt service payments are broadly offset by
cost containment measures. The government forecasts consolidation with the deficit narrowing
to 3.7% of GDP in FY26/27. New fiscal rules will be presented at the Budget in February.
We remain cautious on the fiscal outlook, with the proposed consolidation path subject to a
range of risks, and the heavy financing needs set against a backdrop of challenging global
financial conditions and a bigger competition for flows. Lower commodity prices and a soft
labour market recovery could result in more sluggish revenue growth, while public sector wages,
social grants and SOE support are spending risks that give us pause, particularly given political
pressures facing the ruling party ahead of the upcoming elections.
Risks
Political uncertainty is likely to inject volatility to the macro outlook and markets ahead of the
2024 national elections where the ruling African National Congress (ANC) could potentially lose
its parliamentary majority. The near-term economic outlook meanwhile will pivot on how
effectively and quickly the government’s policy interventions can lift energy supply, address
logistics disruptions and boost confidence. Further declines in the prices of South Africa’s export
commodities and higher state spending could expose deeper external and fiscal vulnerabilities.
While our base case is for inflation that is sticky and above the 4.5% inflation target, broadbased disinflation could open the path for earlier and steeper rate cuts from the SARB.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)**
Gross external debt (% GDP)
Gross government debt (% GDP)
ZAR/USD*
Policy Rate (%)*
2023f
0.5
0.7
1.8
4.9
0.4
0.9
3.1
4.3
-0.5
32.2
5.3
5.9
-6.4
-1.7
-4.9
43.0
73.2
18.50
8.25
Note: *Period end. **Budget balance is fiscal year
Source: Refintiv Datastream, Bloomberg, HSBC estimates
108
2024f
1.1
1.1
0.0
6.1
0.5
1.8
2.2
4.5
1.7
31.1
5.3
5.4
-10.6
-2.8
-5.1
45.5
75.6
20.50
7.75
2025f
1.5
1.7
-0.1
5.8
0.7
2.2
1.9
4.1
1.3
30.4
5.5
5.1
-11.7
-3.0
-5.2
47.7
78.9
7.25
Q3 23
-0.7
-0.2
0.5
2.6
3.3
0.3
-1.4
2.7
-2.1
-0.5
31.9
5.6
5.0
-1.1
-0.3
18.92
8.25
Q4 23f
0.9
0.2
0.8
1.4
4.8
-0.4
1.1
2.9
3.6
0.7
31.5
5.3
5.4
-10.6
-2.8
18.50
8.25
Q1 24f
0.6
0.3
1.0
0.8
6.2
-1.0
1.1
2.7
4.2
2.1
31.7
5.2
5.5
-9.5
-2.5
19.50
8.25
Q2 24f
0.5
0.3
1.1
0.0
5.5
1.7
1.2
1.9
4.3
1.1
31.3
5.0
5.5
-10.9
-2.9
20.00
8.25
Q3 24f
1.6
0.6
1.1
-0.3
6.6
1.4
2.8
1.6
5.5
1.9
31.0
5.3
5.5
-10.7
-2.8
20.50
8.00
Q4 24f
1.6
0.4
1.3
-0.4
6.2
-0.1
2.0
2.7
4.1
1.6
30.5
5.5
5.1
-11.1
-2.9
20.50
7.75
Economics ● Global
Q1 2024
Latin America
Brazil
Ana Madeira
Chief Economist, Brazil
Banco HSBC S.A.
ana.madeira@hsbc.com
+55 11 2802 2558
Resiliency all the way
Looking back at 2023, Brazil has had a positive macro performance and we expect this to
continue into 2024 (A tale of two halves, 9 August). To put things into perspective, consensus
expectation for 2023 growth was 0.8% at the beginning of 2023 and is now close to 3.0%, while
inflation expectation was close to 6% and is now at 4.5%. In this environment, the central bank
has been cutting interest rates on a steady pace. On the political side, Congress is close to
approving the tax reform and much focus is on the remaining revenue-raising measures which
need to be approved soon to impact positively the 2024 fiscal result.
We have a constructive view on GDP growth into 2024, and the successive positive GDP surprises
in the first three quarters of 2023 reinforce our view for a soft landing into 2024. We forecast GDP to
growth 2.9% in 2023; consensus is slightly below at 2.8% but should revise it upwards following the
better than expected 3Q23 data. The main drivers were private consumption once again and net
exports. Investment, on the other hand, remains a drag contracting (y-o-y) for the second quarter in
a row likely pressured by the still very-high interest rates.
For 2024, we keep our above consensus GDP growth at 2.0% (consensus at 1.5%), especially
as we expect the labour market to remain resilient and cushion the deceleration in private
consumption. The labour market resiliency throughout 2023 has played a key role in explaining
the resiliency in private consumption. Notably, we adjust lower our average unemployment
forecasts to 8.0% for 2023 (from 8.1% before) and to 7.8% for 2024 (from 7.9% before).
And while growth is outperforming, the continuous benign inflation trend led us to revise down
our end-year inflation forecast to 4.5% (from 4.8%) for year-end (Lowering inflation forecast
following positive surprises, 12 December). Annual inflation accelerated during 3Q23 – as
expected due to base effects – reaching 5.2% y-o-y in September but the rise was brief and will
likely trend down for most of 1H24. Inflation was 4.7% in November with a composition that
remains benign as core and services inflation continue to consolidate the downward trend.
We forecast inflation slowing to 3.9% by 2024 year-end, still affected by the long period of tight
monetary policy and slow easing cycle during 2023 and part of 2024.
3Q GDP driven by a resilient private
consumption and external sector
ppts.
15
Contribution to GDP grow th (y -o-y)
Services inflation is losing steam
ppts.
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
Sep-19
Source: IBGE
Sep-20
Sep-21
Pvt consumption
GFCF
GDP
-15
Sep-22
Sep-23
Govt consumption
NX
ppts.
9
8
7
6
5
4
3
2
1
0
-1
Oct-19
Contribution to inflation (y -o-y)
Oct-20
Oct-21
Non-durables
Semi-durables
Market-driven
ppts.
9
8
7
6
5
4
3
2
1
0
-1
Oct-22
Oct-23
Durables
Services
Source: IBGE, BCB
109
Economics ● Global
Q1 2024
Policy issues
The central bank (BCB) started the easing cycle in August 2023 and has been cutting rates at a
steady pace of 50bp since, with the Selic reaching 11.75% in YE23 (Easing cycle on a steady pace,
for now, 13 December). In its latest statement, BCB repeated the forward guidance of the previous
statements signalling it will keep the same cutting pace of 50bp in the “next meetings”. It repeated the
need to pursue a contractionary stance until the disinflationary process consolidates and
expectations re-anchor. We remain confident with our below-consensus terminal Selic rate at 8.50%
for YE24 (consensus at 9.25%). The biggest risk, in our view, is to our call for an acceleration of the
easing pace early next year to cuts of 75bp. On the one hand, the benign performance of inflation
should allow for a faster easing in 1Q24. On the other, the positive surprise in GDP growth for 3Q23
keeps the incentive for a steady easing instead.
On the political side, Congress is close to approving the tax reform and some relevant revenueraising bills to impacts positively revenues in 2024. The tax reform was approved at the Lower
House and the Senate, and is now awaiting a final vote at the Lower House. Political analysts
are optimistic the reform will be approved before year-end which would be positive as it aims at
simplifying the highly complex tax system in Brazil. The government also proposed revenueraising bills – estimated at 1.5% of GDP – to balance the primary result in 2024. Given the bills
already approved and the changes made by Congress to several of the projects, we expect the
government will only be able to raise about 0.6% of GDP in revenues for 2024 from those
measures. We recently weakened our fiscal forecasts to a primary deficit of -0.6% of GDP for
2024 (vs -0.5%) (A (small) turn for the worse, 1 Nov). Meanwhile, short-term fiscal accounts
continue to show resilient results despite a rise in spending. The positive GDP growth surprises
is also improving some fiscal statistics. We now expect gross debt/GDP to reach 75.7% in 2023
(vs 77.1%) and 76.6% in 2024 (vs 79.1%).
Risks
Fiscal risks are likely to prevail under the current government as it focusses on social support and
continues to pressure for a larger fiscal expansion. Notably, recent discussions of a possible increase
in the deficit target for 2024 by the government caused noise. That said, the timing of eventual new
policies will be key and we see more medium-term risks, than short-term. The extension of the soft
landing into 2024 that we expect, should also be a favourable scenario to postpone eventual marketunfriendly measures and limit big shifts in policies in the short term. Risks are also more mediumterm in nature, in our view, given the positive reforms done in the past seven years that increased the
economy’s resilience, giving it a better starting point from a growth and fiscal perspective. An
unwinding of the reforms is possible, but would take time.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices (avg)
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
BRL/USD*
Policy rate (%)*
2023f
2.9
3.1
1.4
-2.7
1.5
8.7
-0.2
1.0
8.0
10.7
4.6
-37.3
-1.7
-8.0
15.3
75.7
4.90
11.75
Note: *Period end
Source: Thomson Reuters DataStream, HSBC estimates
110
2024f
2.0
2.0
2.9
2.3
2.2
3.9
2.9
2.7
7.8
6.0
3.8
-38.8
-1.6
-6.6
14.7
76.6
4.50
8.50
2025f
2.3
2.5
2.8
2.0
2.5
5.7
6.0
2.0
7.8
5.6
4.2
-52.3
-1.9
-6.3
14.5
77.0
8.75
Q3 23
2.0
0.1
3.3
0.8
-6.8
0.9
10.0
-6.1
2.1
8.6
9.4
4.6
-50.3
-2.4
5.03
12.75
Q4 23f
1.9
0.1
2.2
2.1
-3.0
0.9
5.5
3.0
4.2
8.1
8.4
4.7
-37.3
-1.7
4.90
11.75
Q1 24f
0.1
0.5
0.7
2.5
2.2
1.0
3.7
1.5
2.2
8.9
7.5
4.0
-30.8
-1.4
4.75
10.25
Q2 24f
2.1
0.9
2.0
2.8
2.1
1.8
3.3
2.2
1.8
8.7
7.0
3.5
-41.5
-1.8
4.75
9.00
Q3 24f
2.6
0.8
2.6
3.0
2.3
2.3
3.8
4.3
3.2
8.4
6.4
3.9
-40.7
-1.7
4.75
8.50
Q4 24f
3.2
0.6
2.7
3.2
2.4
2.7
4.7
3.6
5.3
8.0
5.5
3.8
-38.8
-1.6
4.50
8.50
Economics ● Global
Q1 2024
Latin America
Mexico
Jose Carlos Sanchez
Senior Economist, Mexico
HSBC Mexico, S.A., Institucion de
Banca Multiple, Grupo Financiero
HSBC
jose.c.sanchez@hsbc.com.mx
+52 55 5721 5623
Highly dynamic year in sight
Mexico will remain in the spotlight in 2024, as the economy looks set to prove sound and
general elections will take place in June. Stronger-than-expected growth in 2023, explained by a
broad-based resilience and an unexpected strengthening of domestic sources of growth, will
likely set a harder floor for growth in 2024, we think. Meanwhile, the disinflationary process will
continue, opening the door to policy rate cuts as soon as in Q1 2024, we forecast. It will also
prove key to monitor the fiscal stance, due the one-off widening of the primary deficit proposed
for 2024, which adds to the downside risks for public finances from 2025. Finally, general
elections to pick a president and renew Congress will matter for the economic policy agenda.
Q3 2023 GDP grew 1.1% q-o-q seasonally adjusted and 3.3% y-o-y. This marked the eighth qo-q increase in a row, as most sectors keep positive momentum. The solid results so far in 2023
and the increased resilience across the board lead us to fine-tune our 2023 GDP growth
forecast to 3.4%, from 3.3%. While we expect further moderation in the pace of growth, we think
most sectors will prove resilient to a potential moderation abroad. As a result, we revise our
2024 GDP growth forecast up to 2.7%, from 2.1%. Our 2025 GDP growth forecast is 2.5%.
From a demand perspective, domestic demand will remain the main driver, while external demand
may continue to soften, subject to the evolution of the US economy. Private consumption will remain
supported by a low unemployment rate, large real wage gains and solid remittances. While these
three sources of income could moderate ahead, in our view, the floor for them is proving stronger.
Investment is growing at a faster and steadier pace, partly supported by nearshoring trends. FDI
reached USD33bn in the first nine months of 2023, one of the strongest prints for any year.
With respect to inflation, November’s results continued to show improved dynamics. The annual
headline inflation rate eased to 4.32% in November, from 4.45% in end-Q3. Meanwhile, the
annual core inflation rate fell to 5.30%, from 5.76% in end-Q3. This shows the disinflationary
process in the component is proving clearer. We expect this pattern to prevail ahead, led by
stable tradable goods prices and a relatively well-anchored non-core component. Yet, strong
domestic demand is an upside risk for some service sector prices, we think. Our end-2023 and
end-2024 inflation forecasts stand at 4.5% and 3.9%. Our end-2025 inflation forecast is 3.5%.
GDP grew on a q-o-q for the eighth time in
a row, setting a harder floor in 2024
Consistent disinflation across the board
will open the door for rate cuts in 2024
MXNtn
27
% y -o-y
12
GDP
MXNtn
27
26
26
25
25
24
Inflation and policy rate
%
12
10
10
24
8
8
23
23
6
6
22
22
21
21
4
4
20
20
19
19
2018 2019 2020 2021 2022 2023 2024 2025
Source: INEGI, HSBC forecasts
2
2
2016
2018
2020
2022
2024
Headline (LHS)
Core (LHS)
Banxico policy rate (RHS)
Source: Banxico, INEGI, HSBC forecasts
Source: HSBC with data from INEGI
111
Economics ● Global
Q1 2024
Policy issues
The Mexican central bank (Banxico) kept the key rate unchanged at 11.25% on 14 December,
in line with our, consensus and market expectations. However, the guidance shift introduced in
November’s meeting, suggests that the first benchmark rate cut could come in Q1 2024. Given
the evolution of inflation and the recent tone of some Board members, we keep our forecast that
the first 25bp rate cut will occur in February, while consensus is expecting it in March. Inflation
prints for December and H1 January will prove key for Banxico to determine whether February
is appropriate or wait until March, to have more evidence on the disinflationary process.
It is not yet clear what pace of policy easing to expect in 2024, as the Board said that it will
adopt a meeting-by-meeting approach, but we think there is space to adjust the policy rate while
maintaining a very-restrictive stance (i.e. real ex-ante rate is approaching 7.25%, notably above
the 3.4% in which the restrictive stance begins, according to Banxico). Our policy rate forecasts
for end-2024 and end-2025 are 9.25% and 7.50% by end-2025. The latter would be the floor for
the nominal rate, in our view, as structural stickier core inflation could prompt the policy stance
to stay between the neutral and restrictive border for longer.
On the fiscal front, the 2024 fiscal budget includes larger nominal deficits. Even with those figures,
we envision a debt-to-GDP below 50% by end-2024. However, an expansionary fiscal stance in
2024 adds to the list of downside risks for public finances from 2025.
General elections will take place on 2 June 2024, with voters set to elect a new president, all
Congress members (i.e. 500 Deputies and 128 Senators), and nine state governors.
Risks
The severity of any US deceleration remains the key downside risk. Stickier core inflation is another
key risk. In contrast, nearshoring effects on investment and output are upside risks. A faster inflation
decline could support activity, too. Further disinflationary progress and composition within the CPI
will prove key for the pace of policy rate cuts, which remains one of the biggest uncertainties ahead.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
MXN/USD*
Policy rate (%)*
Note: *Period end
Source: HSBC estimates
112
2023f
3.4
3.9
1.2
15.6
-4.7
6.6
-1.3
7.1
3.9
2.9
10.8
5.5
-10.0
-0.6
-3.3
49.5
46.5
17.25
11.25
2024f
2.7
2.4
2.3
7.5
-4.0
3.7
-0.5
6.0
2.8
3.1
8.1
4.0
-11.6
-0.7
-4.9
50.7
48.8
17.50
9.25
2025f
2.5
2.8
1.5
5.5
-4.0
3.3
3.5
8.2
3.4
3.0
6.5
3.6
-10.7
-0.6
-3.7
51.0
49.0
7.50
Q3 23
3.3
1.1
3.6
1.0
14.0
5.9
0.6
6.4
4.5
2.9
10.6
4.6
2.6
0.2
-0.8
17.42
11.25
Q4 23f
3.2
0.6
3.0
0.9
12.0
5.0
0.4
5.9
4.1
3.0
10.0
4.3
3.9
0.2
-1.0
17.25
11.25
Q1 24f
2.4
0.4
2.2
2.6
8.8
3.9
-1.9
6.5
2.0
3.0
9.0
4.2
-7.5
-0.4
-2.1
17.50
10.75
Q2 24f
3.5
0.5
2.3
3.0
7.5
3.7
-1.0
6.9
3.8
3.1
8.3
4.1
-3.5
-0.2
-2.1
17.75
10.25
Q3 24f
2.6
0.7
2.5
2.0
7.0
3.6
0.2
5.6
2.9
3.1
8.0
3.9
-2.0
-0.1
-0.4
17.75
9.75
Q4 24f
2.3
0.7
2.3
1.5
6.7
3.3
0.9
5.0
2.3
3.0
7.0
3.9
1.4
0.1
-0.3
17.50
9.25
Economics ● Global
Q1 2024
Latin America
Argentina
The many challenges of a new government
As we go to print, Javier Milei is in the first week of a 4-year term as President of Argentina. He
came to government from outside traditional parties and with a slim presence from his party in
both Chambers of Congress. Ahead of him lies the immense challenge to stabilise the economy
and put it on a path for sustained growth.
We can see three possible paths ahead for Argentina in the mid term. By 2025, stabilisation
could be well under way, with a monetary regime similar to those of other economies in the
region (Peru, for example), that acknowledge the pervasive use of US dollars. It could also be
the case that Mr Milei is able to carry his promise to dollarise the economy as a way to stop
inflation, and that job is partially done. A third alternative is that he could not be successful, the
immense implementation risks of a stabilisation plan result in excessive macro instability and
this proves too much for the initial political and social support. In this scenario, Argentina would
still be facing very high inflation but with an added new layer of political uncertainty.
Corrections will take some time. Inflation and economic activity will be worse before getting
better. Our base scenario implies that these start to improve in H2 2024.
We now forecast a 2.0% contraction in GDP in 2024. The agricultural sector should recover
after a drought, but the rest of the economy will undergo a significant correction, with
consumption and investment suffering. We forecast a 1% contraction in 2023, including a c2ppt
negative impact of the drought, as expansionary policies supported the rest of the economy.
This had a huge cost in actual and suppressed inflation, which is likely to erupt in the coming
months. Since mid-2022, the central bank has monetised government funding needs for 10ppt
of GDP. We expect double-digit monthly inflation rates throughout most of 1H 2024, with annual
inflation peaking above 300% and year-end 2024 at 210%. Prices of staple goods that the
previous administration forced down have begun to catch-up. Other price-setters have
anticipated a devaluation of the currency. We also expect the government to allow a significant
increase of regulated prices.
With FX controls in place, FX reserves
have fallen to a net-negative level
ARS-USD
1400
FX rates and Net FX reserves
Achieving fiscal equilibrium is necessary
but it will be a challenge
USDbn
50
1200
40
1000
30
800
20
600
10
400
0
200
-10
0
-20
2010 2012 2014 2016 2018 2020 2022 2024
Official
Source: BCRA, Refinitiv
Unofficial
Net reserves (RHS)
%GDP
Thousands
Jorge Morgenstern
Senior Economist, LatAm
HSBC Bank Argentina S.A.
jorge.morgenstern@hsbc.com.ar
+54 11 4130 9229
Fiscal balance
%GDP
25
25
20
20
15
15
10
10
5
5
0
0
2019
2020
2021
Provinces
Subsidies
Social
Revenues ex FX taxes
2022 Last 12m
Capex
Operational
Revenues
Source: Ministry of economy. Last 12-months are November 2022 to October 2023
113
Economics ● Global
Q1 2024
Policy issues
In the near term, we think that the monetary policy rate will not match the very high inflation
levels we forecast for early-2024. Our forecast assumes that real rates will become positive in
2H 2024. While dollarising the economy is not an immediate goal, it remains an objective for
President Milei. We think that the prospect of dollarisation implies that a higher level of the
exchange rate, interest rates and fiscal consolidation will be required to liberalise the FX market
in a controlled way.
The 2023 primary deficit stood at 3.0% of GDP and turning it into a surplus is one of the first
goals stated by the new administration. The challenge is significant as some of the spending
cuts will have an impact on inflation (ie, energy subsidies) and most of the spending by the
federal administration are transfers in the form of pensions and social assistance, which
authorities have pledged to preserve. Capex (mostly on public works), operational spending and
transfers to provincial governments are the main targets of spending cuts.
Risks
The stabilisation plan is subject to significant risks. These come both from the very unstable
economic environment and also from the risk of the new government losing social support due
to the economic hardship.
Government initiatives will also be subject to the uncertainty of political negotiations and
potential judicial challenges. For the economy, this implies the risk that reforms take longer, with
a negative impact. Major structural reforms, on labour, social security and taxes have taken a
backseat to the urgency of stabilisation. These are fundamental, in our view, for the country to
grow sustainably again. Any inability of the government to move forward with the near-term
stabilisation agenda could also jeopardise these much-needed mid-term and long-term goals.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
ARS/USD*
Monetary policy rate*
2023f
-1.0
1.1
1.6
-0.8
-1.0
0.1
-22.0
-7.0
-0.3
6.6
123.0
130.7
-22.6
-3.8
-4.7
53.6
86.0
810
100.0
Note:*Period end Source: HSBC estimates, Refinitiv Datastream
114
2024f
-2.0
-4.0
-8.2
-8.3
-0.4
-4.8
4.7
-10.8
-2.9
7.1
257.3
265.4
-13.5
-2.8
-1.9
63.7
83.0
2000
65.0
2025f
3.0
3.2
0.5
7.6
-0.4
3.6
8.6
4.1
3.1
6.5
92.9
76.9
-13.9
-2.5
-1.5
60.4
83.0
30.0
Q3 23
-0.9
2.9
0.5
2.0
3.0
-1.2
0.2
-22.2
-8.1
-3.6
7.2
126.5
125.9
-6.1
-4.0
350
118.0
Q4 23f
0.6
-0.3
-2.0
-1.0
-5.0
-1.0
-1.5
-16.0
-1.2
0.2
6.2
144.3
164.1
-4.3
-7.1
810
100.0
Q1 24f
-2.8
-2.5
-5.0
-9.0
-8.5
-0.7
-5.0
3.9
-10.4
-3.8
7.5
201.0
243.9
-3.2
-8.6
1200
100.0
Q2 24f
-0.5
-0.5
-4.4
-9.0
-11.0
-0.4
-5.5
4.0
-15.8
-1.1
6.5
263.2
303.8
-3.5
-6.3
1500
90.0
Q3 24f
-3.2
0.1
-5.0
-8.0
-10.0
-0.4
-6.3
5.7
-10.9
-4.3
7.9
284.1
294.0
-4.8
-4.6
1750
75.0
Q4 24f
-1.5
1.5
-1.5
-7.0
-3.0
-0.4
-2.3
5.0
-4.9
-2.3
6.5
260.1
232.8
-2.0
-3.8
2000
65.0
Economics ● Global
Q1 2024
Latin America
Colombia
Jorge Morgenstern
Senior Economist, LatAm
HSBC Bank Argentina S.A.
jorge.morgenstern@hsbc.com.ar
+54 11 4130 9229
Stalemate
We expect economic activity to remain sluggish. Fixed investment has been soft for the past
year, with sentiment hurt due to regulatory uncertainty. In the coming quarters, we expect tight
monetary policy to be a more important drag. With the government likely to accelerate spending,
we think private consumption will have to compensate. Weaker than expected growth in Q3 led
us to revise down our 2023 GDP growth forecast, to 1.0%. Similarly, we cut our forecast for
2024 to 1.0%. We expect a recovery in 2025, with GDP growth at 2.0%.
Gasoline prices are now close to their import parity price. The process of convergence took
more than a year and kept energy inflation elevated. We think the government will only let the
price of diesel -used by trucks- to adjust very gradually to avoid additional pressures on. Our
forecast for inflation at 9.4% and 5.0% by YE 2023 are mostly unchanged but we think the
trajectory during 2024 will be more gradual.
The slowdown of economic activity allowed a decline in the current account deficit, which we
expect to fall to 3.2% of GDP in 2023 from 6.2% of GDP in 2022. Most of this was thanks to an
improvement of the trade deficit and the decline of non-consumption imports. We think this trend
will change in the coming quarters, with consumer imports weakening and capital and
intermediate goods levelling. We forecast the current account deficit to widen to 3.5% of GDP in
2024 and to 3.8% of GDP in 2025.
The government’s proposals to reform the pension and the healthcare system and labour
market regulations are still being discussed in Congress. The healthcare reform moved ahead in
December, but debates will continue in 2024. The fiscal rule committee estimated that the
healthcare and pension reforms could imply higher permanent spending for 0.7% of GDP.
There is no final agreement yet on key parameters, such as the level of income below which
social security contributions will go to the public system and the amount of subsidised pension
in the public system.
We expect less improvement in
Colombia’s twin deficit in the future
We expect public debt to remain near
current levels
% GDP
% GDP
0
70
% GDP
70
-2
-2
60
60
-4
-4
50
50
-6
-6
40
40
-8
-8
30
30
% GDP
0
-10
2013
Tw in deficit
-10
2015
2017 2019
Ax is Title
Fiscal balance
Source: Ministry of finance, Banrep
2021
2023
Current account
Public debt (central gov ernment)
20
20
2010 2012 2014 2016 2018 2020 2022
Ax is Title
Gross
Net
Fiscal rule anchor
Source: Dane
115
Economics ● Global
Q1 2024
Policy issues
There is a stalemate in the policy stance between fiscal and central bank authorities.
Considering the hawkish stance on monetary policy, the government wants to accelerate the
execution of public investment and we think it will spend beyond what the fiscal rule allows in
2024. We think this will increase market uncertainty and lead to a higher trajectory for monetary
policy rates.
We forecast the central bank to cut rates by 50bp per meeting throughout 2024, leaving the policy
rate at 9.0% by YE 2024. This faster pace should become possible as uncertainty around some
drivers of inflation start to ease. These include the annual increase in the minimum wage, the yearend inflation level which is used to adjust the price of many items and the potential impact of El
Niño on food and energy prices in the coming months.
The fiscal deficit will not improve significantly in our view. The 4.1% of GDP deficit we forecast
for 2023 is the result of slow spending execution. We expect it to widen to 4.5% of GDP in 2024
and moderate only slightly to 4.0% in 2025. The government is counting on favourable rulings
for the tax authority to shore up revenues, against the recommendation of the committee
overseeing the fiscal rule. President Petro has called for the rule to be eliminated. He would
need Congressional support for that, which he does not have. For us, this illustrates how fiscal
consolidation has taken a back seat to the goal of supporting GDP growth.
Risks
Reforms such as healthcare and pensions could have sizable impacts for fiscal accounts,
capital markets and the demand for government bonds.
Another risk is the possibility of divisive initiatives from the government such as the possibility of
suspending or changing the fiscal rule, further limit hydrocarbon production, land reform and
negotiations with armed groups. Market participants have taken comfort from the lack of support
in Congress for the Executive and thus its inability to pass radical reforms.
Key forecasts
% Year
GDP
GDP (% quarter)
Consumer spending
Government consumption
Investment
Stockbuilding (% of GDP)
Domestic demand
Exports
Imports
Industrial production
Unemployment (%)
Wage growth
Consumer prices
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
COP/USD*
Policy rate (%)*
Note: *Period end
Source: Refinitiv Datastream, HSBC estimates
116
2023f
1.0
1.1
1.4
-6.4
-1.8
-3.8
-10.3
-14.4
0.4
10.2
11.0
11.5
-12.0
-3.2
-4.1
52.8
58.9
3960
13.00
2024f
1.0
0.9
1.1
-0.2
-1.8
1.0
4.1
1.8
-2.0
9.6
6.7
6.2
-15.3
-4.0
-4.6
50.9
59.0
3950
9.00
2025f
2.0
1.7
1.1
2.5
-1.8
2.3
1.3
3.7
-3.7
9.4
5.3
4.5
-17.6
-3.8
-4.0
49.7
59.4
8.00
Q3 23
-0.3
0.2
0.4
1.9
-11.0
-1.8
-6.8
4.2
-21.5
-3.7
9.7
-11.0
11.1
-1.7
-3.4
4068
13.25
Q4 23f
0.8
-0.5
0.3
2.0
-6.0
-1.8
-0.4
2.0
-3.1
-1.9
10.4
-6.0
9.9
-4.9
-3.2
3960
13.00
Q1 24f
-0.7
0.6
-0.8
0.0
-8.0
-1.8
-2.4
1.0
-7.7
-4.2
10.8
-8.0
7.2
-2.4
-2.9
4050
12.50
Q2 24f
0.8
0.6
0.8
1.0
-3.0
-1.8
0.6
1.0
-1.7
-1.0
10.1
-3.0
6.6
-2.9
-2.9
4000
11.50
Q3 24f
1.3
0.6
1.5
1.0
5.1
-1.8
2.2
1.0
1.9
0.9
9.5
5.1
5.9
-4.1
-3.4
3950
10.50
Q4 24f
2.3
0.5
1.9
1.8
5.0
-1.8
2.5
1.0
2.5
0.7
9.9
5.0
5.2
-6.0
-3.5
3950
9.00
Economics ● Global
Q1 2024
Notes
117
Economics ● Global
Q1 2024
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s)
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views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect
their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Janet Henry, James Pomeroy, Ryan Wang, David Watt, Jing Liu,
Erin Xin, Lulu Jiang, Taylor Wang, Frederic Neumann, Jun Takazawa, Pranjul Bhandari, Aayushi Chaudhary, Paul Bloxham,
Jamie Culling, Jin Choi, Aris Dacanay, Yun Liu, Simon Wells, Stefan Schilbe, Chantana Sam, Fabio Balboni, Elizabeth Martins,
Agata Urbanska-Giner, Melis Metiner, Simon Williams, David Faulkner, Matlhodi Matsei, Ana Madeira, Ph.D., Jose Carlos
Sanchez and Jorge Morgenstern
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118
Economics ● Global
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Additional disclosures
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This report is dated as at 03 January 2024.
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Economics ● Global
Q1 2024
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Main contributors
Janet Henry
Global Chief Economist
HSBC Bank plc
janet.henry@hsbcib.com
+44 20 7991 6711
Janet Henry was appointed as HSBC’s Global Chief Economist in August 2015 and is
responsible for all HSBC’s economic forecasts and thematic economic research output
globally. She was previously HSBC’s Chief European Economist. Much of her research
has focused on globalisation – including the global determinants of local inflation – and
the political and economic challenges of the post global financial crisis era, notably labour
market disruption and the implications of income and wealth inequality within major
advanced economies. Since the COVID-19 pandemic, her work has focused on the labour
market implications, evolving inflation dynamics and policy challenges of the unprecedented
recession and recovery. Janet is a Governor of the UK’s National Institute of Economic and
Social Research, a member of the World Economic Forum’s Chief Economists Community
and a Non-Executive Director of HSBC Bank UK plc. She has given evidence to financial
committees of the EU Parliament on China and UK House of Lords on Europe. Janet joined
HSBC in 1996 in Hong Kong where she worked as an Asian economist in the run-up to, and
aftermath of, the Asian crisis.
James Pomeroy
Global Economist
HSBC Bank plc
james.pomeroy@hsbc.com
+44 20 7991 6714
James is a global economist at HSBC. He joined the Economics team in 2013 having
previously worked within the Asset Allocation research team. His global work focuses on
longer-term trends and themes, and the impact that they have on the economy and policy
decisions today. Demographic data is at the heart of much of his work, but he has also written
about urbanisation, the role of technology in the economy and how the world is moving away
from cash. Alongside this, he provides economics coverage of Scandinavia. James holds a
BSc in Economics from the University of Bath.
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