Economics
Global
Q2 2024
By: Janet Henry and James Pomeroy
www.research.hsbc.com
Global Economics
Waiting for the main act
Globally, more central banks have
started to cut rates…
…but with a bumpy road ahead for
growth and inflation…
…the majors are still watching and
waiting to act
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
Q2 2024
Executive Summary
Still waiting patiently
More central banks are
starting to cut rates
If there were any doubts that we are in a different era for monetary policy, they were put paid to
by the Bank of Japan’s decision in March to finally lift its negative rate back to zero. Globally,
though, the tide has turned with Mexico and Switzerland’s central banks the latest joiners to the
rate-cutting club. But the main act has yet to start with most G10 central banks still waiting
patiently in the wings. They know that policy is restrictive but with inflation outturns no longer
surprising on the downside and growth in many economies proving more resilient than feared, they
seemingly have time on their side.
They are watching the data and waiting to become more confident that inflation will continue to
head down to target on a sustainable basis before easing. Reading the data tea leaves is not
getting any easier though and not just because of persistent data revisions, data collection
inadequacies and contradictory measures of the same metric, be it US employment or eurozone
wages. This is still a very complicated economic picture.
Some green shoots in global
trade
On the growth side, there have been some green shoots in recent months and there are early
signs world trade may be picking up. But the relative pace of activity is set to rotate between
sectors and there still enormous distributional differences across households and companies
that could both keep activity resilient and expose vulnerabilities. The problems at New York
Community Bank (NYCB) served as a reminder that big interest rate moves can still act as a
catalyst for big problems long after policy rates stopped rising, while higher rates are still to feed
through to mortgage holders who are not on long-term fixes and companies which did not term
out their financing in 2020-21.
This is all happening against an overlay of geopolitical conflicts and tensions which could mean
further surprises ahead, not least for inflation where the final leg down is already proving to be a
bumpy one. In this uncertain world, maintaining policy credibility and anchoring inflation
expectations is critical for any central bank. That likely means that the easing cycles that we
expect to start this year could be just as unusual as the economic expansion and tightening
cycle that preceded it.
Global cycle
The US and India are the
standouts
The main areas of growth outperformance are still the US and India, but even in some big
economies which generally continued to disappoint in recent months like China and large parts
of Europe, the data are mostly no longer getting worse. Manufacturing data, in particular, seem
to be showing some signs of improvement. Indeed, the latest rotation in this extraordinary cycle,
which shifted from a surge in goods demand during the pandemic to a surge in services activity
as economies re-opened, is now showing signs of shifting back to a firming of goods demand.
The global manufacturing PMI has just risen above 50 for the first time since mid-2022.
There are even signs of world trade ticking up. So far, we are still of the view that this is an
inventory rebuild in the making and some sector-specific electronics demand that is lifting some
Asian exporters. Our forecasts look for further improvement but we are not confident that this is
the start of a sustained broad-based recovery in the pace of world trade growth as we are not
looking for a near-term acceleration in consumer and investment spending growth, though there
1
Economics ● Global
Q2 2024
are likely to be some pockets of relative strength. Even if the cyclical upturn in trade is limited in
scale and duration, there will likely continue to be some winners and losers from the shifts
underway in trade corridors fuelled by supply chain resilience goals, geopolitical tensions and
protectionism, and now increasingly from industrial policy.
Trade patterns continue to
evolve
Mexico has already overtaken mainland China to become America’s main source of imports and
subsidies are increasingly being rolled out which could help to lift domestic investment, even in
Europe, in the way that the Inflation Reduction Act has in the US. We also look at which trading
partners could benefit from the stellar growth performance in India. Clearly, any upside surprise
in global import demand could lift export and GDP growth in some of the more cyclically
exposed economies like Germany which continues to underperform what is still a sluggish
eurozone.
Sticky inflation
Inflation data have been less positive. Inflation is still well down on the peak but recent progress
has stalled, notably on services inflation in the big advanced economies like the US and
eurozone but there have been upside surprises in Latin America and parts of Asia too. Central
banks are watching to see whether this is a “bump in the road” or something more concerning.
Inflation is proving sticky…
…and there could be upside
risks
We still anticipate a very gradual disinflation process and our global inflation forecasts are
unchanged at 5.8% in 2024 and 3.8% in 2025. Within the major economies, the main tweaks
have been slightly upwards for the US, Brazil and China and we have shaved the forecasts
lower for India, Japan and the UK.
But there are risks. Continued stronger than expected demand growth, particularly in the US, is
one, but many of the others are geopolitical. In most countries the commodity price deflation of
last year is over and the core goods side of the equation, which benefited from the dramatic
easing up in global supply chains, could be forced back up from an escalation of the disruption
in global shipping in the Red Sea, which has so far not materially impacted much of the hard
macro data. Our commodity price forecasts are for prices to stay elevated but they could also be
pushed higher by escalating tensions. Anything that adds to inflation volatility, and even
threatens to push it higher, could raise inflation expectations if central banks are not credible in
their commitment to get inflation back to 2%.
US and India still driving our global growth forecasts higher
Most of our growth forecasts are virtually unchanged from three months ago, but with the
familiar exception of the US where our growth forecast has once again edged a little higher, as
has India’s. These have dwarfed the significant downward revisions to Saudi Arabia – thanks to
oil production cuts – and Argentina where shock therapy is triggering a deeper recession and
more rapid disinflation than seemed likely last quarter. Hence, we have lifted our annual
average global GDP growth forecast for 2024 from 2.4% to 2.6% which is also the GDP growth
forecast we maintain for 2025.
Lots of uncertainty, still
2
We admit though that there is even more uncertainty about forecasts for next year given the
possibility of escalation in the geopolitical conflicts and how they may evolve in response to
possible political shifts following elections this year in the US and Europe. Fiscal policy could
also materially change the outlook. 2025 should be a year of fiscal tightening in the EU given
the fiscal rules and US public finances are on a precarious trajectory but tightening may not
happen without market pressure. Difficult policy choices lie ahead for governments facing an
array of new spending needs.
Economics ● Global
Q2 2024
Key forecasts
% Year
World
Developed
Emerging
US
US (Q4/Q4)
Mainland China
Japan
India*
Eurozone
UK
Brazil
Mexico
_____________ GDP _____________
___ 2023f ___ ___ 2024f ___ ___ 2025f ___
2.7
(2.7)
2.6
(2.4)
2.6
(2.6)
1.6
(1.6)
1.4
(1.1)
1.4
(1.4)
4.1
(4.1)
4.0
(4.0)
4.1
(4.1)
2.5
(2.4)
2.3
(1.7)
1.5
(1.5)
3.1
(2.6)
1.6
(1.2)
1.6
(1.7)
5.2
(5.2)
4.9
(4.9)
4.5
(4.5)
1.9
(1.9)
0.6
(0.8)
1.1
(1.1)
7.7
(7.0)
6.3
(6.0)
6.6
(6.3)
0.5
(0.5)
0.5
(0.5)
1.3
(1.3)
0.1
(0.3)
0.4
(0.6)
1.1
(0.9)
2.9
(2.9)
2.0
(2.0)
2.3
(2.3)
3.2
(3.4)
2.7
(2.7)
2.5
(2.5)
____________ Inflation ____________
___ 2023f ___ ___ 2024f ___ ___ 2025f ___
6.4
(6.3)
5.8
(5.8)
3.8
(3.8)
4.7
(4.7)
2.9
(2.8)
2.5
(2.5)
7.6
(7.5)
7.8
(7.8)
4.6
(4.6)
4.1
(4.1)
3.4
(3.1)
3.0
(2.9)
3.2
(3.2)
3.5
(3.3)
2.9
(2.9)
0.2
(0.2)
0.7
(0.5)
1.5
(1.3)
3.3
(3.3)
2.3
(2.6)
1.9
(2.0)
5.4
(5.4)
4.5
(5.0)
5.0
(5.0)
5.4
(5.4)
2.5
(2.5)
2.1
(2.2)
7.3
(7.3)
2.2
(2.4)
2.3
(2.3)
4.6
(4.6)
4.0
(3.8)
4.1
(4.2)
5.5
(5.5)
4.0
(4.0)
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 Q1 2024.
Policy rates
Markets have already priced
out many rate cuts…
…but we still expect the first
cuts from the Fed and ECB in
June
With inflation no longer surprising on the downside, financial markets have rapidly priced out
more than half of the rate cuts they had anticipated from the major central banks just three
months ago. Monetary policy is unlikely to stay this restrictive for long though. US financial
markets may be frothy on some measures, but the current Fed Funds rate is well above key
inflation metrics, higher than an array of estimates of the current neutral rate and even a little
above most policy rule estimates like the Taylor rule. Rates can be cut a little and still be
restrictive. But, as Chair Powell has communicated, the timing of the first cut is highly
consequential. He knows the risks are two-sided. Cutting too soon would mean the FOMC finds
itself having to quickly reverse course. Leaving it too late to be sure of hitting 2% quickly could
cause a very hard landing and even risk an undershoot of their inflation mandates over the
medium term. There is even a risk that the strength of growth and inflation warrants the next
move in rates to be up.
Our forecasts for the Fed and the ECB are unchanged: we still expect the first rate cut in June
and for both to cut by 150bps by end-2025 but it may not be a steady glide path. They could
even take a longer pause after one or two rate rises. In the case of the Fed a slowdown in the
pace of quantitative tightening looms – and could even precede the first rate cut – although we
think a halt to QT is unlikely before mid-2025.
In the emerging world, rate cuts are still proceeding at pace across most of CEE (except
Türkiye) and Latin America, with Mexico the latest to embark on an easing cycle in March. Asia
is still the exception. Apart from the policy rate cuts in mainland China, the surprise rise in
Taiwan and the nudge higher in Japan – we think the only one until 2025 – policy rates in Asia
have stayed firmly on hold. A couple of the large economies where policy rates are relatively
high like India and Indonesia might be able to pull the trigger in Q2. We forecast the others will
be later in the year and are looking for a slow and shallow easing cycle across the region. And if
ongoing resilience in US growth and inflation causes the Fed to delay, many in Asia will too.
3
Economics ● Global
Q2 2024
Contents
4
Executive Summary
1
Key forecasts
5
Waiting for the main act
6
Global economic forecasts
31
GDP
Consumer prices
Policy Rates
Exchange rates vs USD
Exchange rate vs EUR & GBP
Consumer spending
Investment spending
Exports
Industrial production
Wage growth
Budget balance
Current account
32
34
36
37
38
39
40
41
42
43
44
45
North America
48
US
Canada
48
50
Asia Pacific
52
Mainland China
Japan
India
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Hong Kong
Philippines
New Zealand
52
54
56
58
60
62
64
66
68
70
72
74
76
Eurozone
78
Eurozone
Germany
France
Italy
Spain
78
80
82
84
86
Other Western Europe
88
UK
Switzerland
Sweden
Norway
88
90
92
94
CEEMEA
96
Poland
Russia
Türkiye
Saudi Arabia
South Africa
96
98
100
102
104
Latin America
106
Brazil
Mexico
Argentina
Colombia
Chile
106
108
110
112
114
Disclosure appendix
116
Disclaimer
118
Economics ● Global
Q2 2024
Key forecasts
World (nominal GDP weights)
Developed
Emerging
North America
US
Canada
Asia-Pacific
Asia ex-Japan
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
Norway**
Sweden
Switzerland
CEEMEA
Poland
Russia
Türkiye
Saudi Arabia
South Africa
Latin America
Brazil
Mexico
Argentina
Colombia
Chile
_____ GDP _____
2023
2024f
2025f
2.7
2.6
2.6
1.6
1.4
1.4
4.1
4.0
4.1
2.4
2.2
1.5
2.5
2.3
1.5
1.1
0.8
2.0
4.4
4.0
4.0
4.8
4.5
4.4
4.9
4.3
4.2
5.2
4.9
4.5
1.9
0.6
1.1
7.7
6.3
6.6
2.5
3.0
3.2
2.1
1.5
1.9
1.4
2.0
2.3
5.0
5.2
5.3
1.3
3.2
2.9
1.9
2.7
3.1
3.7
4.5
4.6
1.1
2.4
2.6
3.2
2.8
2.8
5.6
5.8
6.1
0.6
1.2
1.9
0.5
0.5
1.3
0.5
0.5
1.3
-0.1
-0.2
0.9
0.9
0.7
1.3
1.0
0.6
0.8
2.5
1.7
1.6
0.3
0.6
1.4
0.1
0.4
1.1
1.1
1.0
1.2
0.0
0.6
2.6
0.8
1.1
1.5
2.0
2.4
2.8
0.2
3.3
4.1
3.6
2.6
1.7
4.5
3.1
3.6
-0.8
1.4
4.0
0.5
1.0
1.5
2.0
1.4
2.4
2.9
2.0
2.3
3.2
2.7
2.5
-1.6
-4.0
3.0
0.6
1.2
2.0
0.2
1.8
2.4
_____ Inflation _____
2023
2024f
2025f
6.4
5.8
3.8
4.7
2.9
2.5
7.6
7.8
4.6
4.1
3.3
2.9
4.1
3.4
3.0
3.9
2.5
2.2
2.3
2.0
2.4
2.2
2.0
2.5
1.9
1.9
2.4
0.2
0.7
1.5
3.3
2.3
1.9
5.4
4.5
5.0
3.6
2.6
2.5
5.6
3.4
2.8
3.6
2.6
2.0
3.7
2.9
3.0
2.5
2.2
1.8
1.2
0.8
1.9
2.5
2.2
2.3
4.8
2.8
2.1
2.1
2.3
2.2
6.0
3.6
3.8
5.7
3.4
2.8
5.7
2.4
2.1
5.4
2.5
2.1
6.1
2.4
2.4
5.7
2.4
2.2
5.9
1.3
1.9
3.4
3.1
2.5
6.6
2.3
2.2
7.3
2.2
2.3
5.5
3.7
2.5
8.5
3.1
2.5
2.1
1.3
1.1
18.8
20.1
12.3
11.6
4.2
3.2
5.9
7.4
5.0
53.9
61.1
34.3
2.3
2.0
2.2
5.9
5.3
5.1
22.3
34.8
12.0
4.6
4.0
4.1
5.5
4.0
3.6
133.5
249.2
72.2
10.8
7.2
4.6
7.6
3.6
3.3
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
Q2 2024
Waiting for the main act
◆
Globally, more central banks have started to cut rates…
◆
…but with a bumpy road ahead for growth and inflation…
◆
…the majors are still watching, and waiting to act
Green shoots
The world is an uncertain place given the geopolitical conflicts underway in this major election
year. So there are plenty of reasons to be cautious about the outlook for the global economy.
But as far as the surveys and some of the hard data are concerned, there are actually-some
signs of green shoots in the early part of 2024. The global PMI in February rose above 50 for
the first time since mid-2022 (chart 1). And composite PMIs show a general improvement over
the course of the last four months across all regions (chart 2).
The US and India are still
faring well
1. Global manufacturing PMI is above 50
for the first time since mid-2022…
2. …and composite PMIs are turning up in
all regions
Source: Macrobond, S&P Global
Source: Wind, HSBC
The main areas of outperformance are still the US and India. Growth in the latter came in at a
stellar 8.4% y-o-y in Q4 2023. Our growth forecasts for both have once again edged a little
higher. These have dwarfed the significant downward revisions to Saudi Arabia – which
continues to take the lion’s share of the OPEC+ oil production cuts – and Argentina where the
shock therapy of the new President Milei is triggering a deeper recession than seemed likely
last quarter. Our global growth forecast for 2024 has been lifted from 2.4% to 2.6%.
But even in some of those economies which generally disappointed in recent months like China
and large parts of Europe the data, while not exactly shooting the lights out, are no longer
getting worse, with signs of a revival in manufacturing in particular. Surveys in much of Europe
are consistent with a more positive start to the year even if any glimmers of light are still hard to
find in Germany.
6
Economics ● Global
Q2 2024
4. …and India is still surprising on the
upside
3. US growth prospects continue to
improve…
US: Consensus GDP forecasts by year
% Yr
% Yr
(y ear av erage)
5.0
5.0
4.5
4.5
4.0
4.0
3.5
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
2021
2022
2023
2024
2022
2023
2024
Source: Consensus economics, HSBC
Some better data in China…
Source: CEIC
And in China industrial production and manufacturing and infrastructure investment surprised a
little to the upside in the first two months of the year and there are signs that consumer
spending has broadened out beyond services, which were particularly strong over the LNY holiday
(see: China’s holiday wrap-up, 19 February) and towards durable goods purchases like autos and
electronics.
5. Germany is still underperforming a weak
eurozone
6. Some of mainland China’s data at the
start of 2024 look a little more promising
% Yr
10
Source: Macrobond,
…but the property sector
remains the big challenge
Mainland China activity data
% Yr
10
8
8
6
6
4
4
2
2
0
0
-2
-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
2022 FY
2023 FY
2024 Jan-Feb
Source: Wind, HSBC
The property sector remains the major challenge which is weighing on consumer confidence. New
home sales remain weak, falling about 30% y-o-y in January and February in value terms. The
roll-out of a more holistic plan to support the sector, including subsidised housing for lower income
households to rent or purchase, should at least limit the decline in property investment this year (see:
Propping up property, 8 February).
7
Economics ● Global
Q2 2024
Market pricing for rate cuts
has become less dovish
7. Still awaiting stabilisation in China’s
very weak property sector…
8. …which would also lift consumer
confidence
Source: Macrobond
Source: Macrobond
While we have revised up our global GDP forecasts for 2024, it is mainly a function of growth
already delivered. Our central scenario is unchanged: it neither fits the narrative of a perfect soft
landing nor a very hard one as we set out in Navigating the global disorder, 3 January 2024,
and any changes to our inflation forecasts have been minor. By the end of 2024, consensus
forecasts had already revised their earlier forecasts of a US recession. Now, amid resilient
activity data and, more importantly, upside surprises to inflation data in the advanced
economies in the first two months of the year, markets have also scaled back their expectations
of early and aggressive rate cuts (chart 9). Rate cuts from the Fed are now not quite fully priced
in for June.
9. Upside surprises to inflation in Jan-Feb
2024
ppts
0.4
Eurozone: Difference betw een outturns
and consensus HICP inflation (y-o-y)
10. Since December markets have priced
out half of the 2024 Fed and ECB rate cuts
ppts
0.4
0.2
0.2
0.0
0
-0.2
-0.2
-0.4
-0.4
-0.6
-0.6
Feb-24
Jan-24
Dec-23
Nov-23
Oct-23
Sep-23
Aug-23
Jul-23
Jun-23
May-23
Apr-23
Mar-23
Feb-23
Jan-23
Headline surprise
Source: Macrobond,
Core surprise
Source: Bloomberg, HSBC Note: Grey lines show market pricing at various points
Our central assumption is that the need for an ongoing disinflationary adjustment means only a
gradual easing cycle from the major central banks. As we explain later, we expect many of the G10
central banks to start in June. As our forecast of only a modest rise in unemployment also implies not
much slack being generated, there is little scope for an above-trend rate of growth rebound in 2025.
We admit though that there is even more uncertainty about forecasts for next year.
8
Economics ● Global
Q2 2024
Signs of a turn in world trade…
US spending on goods has
recovered again
Asian export orders are
rising…
An upturn in manufacturing data?
The key area of the global economy that has seen a more notable turn around the turn of the
year is on the industrial side. Over the course of the past few years, subdued goods demand as
consumers shifted spending towards services as economies re-opened meant companies found
themselves facing high inventory levels and sustained weakness in global manufacturing. But,
in the US at least, inventories have been reduced and goods spending has picked up (charts
11-12) even if its own industrial production has not.
11. Inventory levels for durable goods
have been reduced…
12. …partly as durable goods spending
has picked up strongly
Source: Macrobond
Source: Macrobond
There are, however, some signs that industry and world trade is bottoming out in a wide range
of manufacturing surveys and lead indicators. The global manufacturing PMI new export orders
index has picked up in recent months and although it is still below the 50 watermark, we can
see signs of stabilisation and even growth in global trade volumes and exports from some key
Asian economies which provide timely trade data.
13. Some signs of global trade bottoming
out…
14. …evident in the export data from key
Asian economies
Source: Macrobond
Source: Macrobond
9
Economics ● Global
Q2 2024
…for specific areas of
electronics
A clear divergence between
sectors
But this isn’t universal – some sectors and countries are faring better than others, In the key
electronics sector, Korea and Singapore are benefitting from the global memory chip upcycle
(see: Not all chips are created equal: What the latest electronics indicators mean for Asia,
11 February 2024) and there is a difference between the components in the Taiwanese export
data, too, with AI development supporting exports of server-related products.
15. US import demand looks to have
bottomed in several areas...
16. …and US goods imports rose in the
second half of 2023
Source: Macrobond
Source: Macrobond
Divergences between other sectors can be seen more clearly in the sector PMI data (chart 17)
which show that machinery and equipment as well as other sectors more exposed to investment
spending are yet to see a turn while consumer goods and services are faring better. There has
also been a notable improvement in raw materials, with the likes of basic materials, metals and
mining as well as chemicals seeing a notable improvement in early 2024.
17. Sector PMIs show a broad improvement, but some like autos are still very weak
Autm & Auto Parts
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56
54
52
50
48
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Comm & Prof Service s
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Food
Consumer S ervices
Beverages & Food
Tourism & Recreation
Insuran ce
Beverage s
Other Financials
February 2024
Healthcare Service s
Global sector PMI: Output
Index
58
56
54
52
50
48
46
44
2023 average
Source: S&P Global, HSBC
For what currently looks like something of an inventory rebuild and strengthening demand for
some electronics related structural stories, a sustained more broadly-based improvement in
industrial production and world trade hinges on strength of consumer and investment spending.
10
Economics ● Global
Q2 2024
…but a sustained recovery hinges on demand
Can consumer demand hold up?
Our forecasts still suggest that consumer spending will slow but not stall in 2024. Our broad
view is unchanged from that set out in Navigating the global disorder, 3 January 2024:
Wage growth has slowed less
than inflation
Firms are keeping workers
but new hiring has slowed
Savings could still pose
upside risks for spending
Rising real wages: A key part of our view that a consumer recession will be avoided is that this
is an unusual cycle whereby inflation has already slowed much more than wage growth. That
means the real wage picture is improving which should continue to offset some of the slowdown
in employment. The fact that the rise in the wage level in the eurozone since the start of 2020
still lags the increase in the consumer price level materially may mean slightly less of an impact
than in the US where the cumulative increase in the wage level has increased more (chart 19).
Slowing jobs growth: The overall impact on consumption also hinges on just how much job
creation slows, as well as the ongoing impact of past rate rises. A significant slowdown in hiring
activity is becoming very apparent in the countries for which we have data but firms are
seemingly not (at least, not yet) actively trimming workforces, but they are not growing them as
quickly either. Job openings and quit rates continue to decline.
18. Employment growth has slowed
sharply but real wage growth has
improved…
19. …although in Europe wage levels have
still not risen as much as CPI
Source: Macrobond
Source: Macrobond
Savings: Changes in both the stock and flow of savings could also still bring surprises given the
enormous distributional differences across households and companies. Currently the aggregate
picture still looks quite robust: there is still more than USD700bn of excess savings in the
pockets of US households as of the start of 2024, based on using a similar saving rate to 2019
(although estimates can vary depending on pre-existing assumptions used). In Europe, where
savings rates haven’t fallen below pre-pandemic norms, the savings picture is even brighter but
how much is spent hinges on confidence, which itself is heavily influenced by employment
prospects as well as inflation and interest rate expectations.
Restrictive policy: High interest rates still have the potential to squeeze incomes as more
households refinance their mortgages at higher rates, or if more firms go bankrupt under the strain of
higher rates that hits the jobs market. Enormous distributional differences across households and
companies means the aggregate impact is hard to gauge. The fact that smaller firms tend to be more
tied to variable rate financing and often operate on tighter margins, this is where an employment
effect might be clearest. Timing is impossible to predict: the problems at New York Community Bank
(NYCB) served as a reminder that high interest rates can still act as a catalyst for big problems some
time after they have stopped rising so there could also be spillovers from unexpected areas.
11
Economics ● Global
Q2 2024
Migration flows are boosting
labour supply but in places
boosting demand more
20. Stresses are showing up in a few
places…
21. …on the household and corporate side
Source: Macrobond
Source: Macrobond
Complex migration effects: as we argued in Immigration: the near-term labour force, growth
and wage effects, 19 March 2024, these are impacting differently between countries. Without
immigration, the growth rate of the US labour force in 2023 would have been only 0.7% but,
thanks to 5% growth in the foreign-born population, it was more than double that at 1.5%
(chart 22). As the Fed knows, this higher labour supply is an important part of the labour market
rebalancing needed to bring inflation sustainably down to 2%. But in other high-immigration
economies – e.g. Australia, New Zealand, Canada – rather than just improving the supply side,
the surge in population inflows seems to be boosting demand more, particularly for housing.
22. A big resurgence in immigration lifted
US labour force growth in 2022-23...
% Yr (3mma)
10
12
% Yr (3mma)
10
5
5
0
0
-5
-5
-10
2008
-10
Source: FRED
Some areas of spending have
been very strong
US labour force grow th
2012
2016
Foreign born
2020
2024
Native born
23. …while immigration in Australia has
mainly boosted demand and house prices
Australia Housing Prices
Index
250
Index
250
200
200
150
150
100
100
50
50
0
1995
0
2000
2005
2010
2015
2020
Source: Refinitiv Datastream
Spending rotation: the impact of lower inflation in specific areas also seems to be impacting
the mix of spending. Some of this pickup in demand in the volume of goods spending over the
past year seems to be the result of the aggressive discounting. This has helped to prop up
overall durable goods demand (chart 24) and helped to drain overstocked inventories. There
are specific areas though where higher demand is driving prices higher, notably live
entertainment seeing which saw a pick-up in spending volumes of more than 20% despite a 5%
increase in prices. The Taylor Swift/Beyonce impact on US GDP in Q3 was widely reported but
there has been a similar impact in Singapore. As Yun Liu highlighted in Music tourism as
Singapore’s new growth driver, 11 March 2024, it is not just the huge demand for tickets for
Taylor Swift and Coldplay concerts, but fans they are drawing in from across Asia, transitioning
the economy away from the traditional business travel and boosting GDP.
Economics ● Global
Q2 2024
24. Demand has typically picked up for products where prices have fallen
Price change, past 12m (% 3m/Yr)
US: Personal spending volumes v prices
Repair of Household
Appliances
20
15
​
Legal Services
10
5
​
​ ​
Tobacco
​
0
-5
​
Live Entertainment,
Ex cluding Sports
​
​​
​ ​ ​
​
​ ​ ​ ​ ​ ​ ​​​
​​ ​
​ ​
​
​
​ ​ ​​
​ ​ ​ ​ ​ ​ ​ ​​ ​
​
​
​
​​ ​
​
​
​
​
​
​
​
-10
​
​
​
​
Household Linens Information Processing
Equipment
​​
​
Computer Software &
Accessories
Telephone & Facsimile
Equipment
Motor Vehicle Rental
-15
Fuel Oil &
Other Fuels
-20
-25
-10
-5
0
5
10
PCE v olumes, past 12m (% 3m/Yr)
15
20
25
Source: Refinitiv Datastream. HSBC
Tourist numbers are still
rising
Tourism is still an area of strength: and it is not just concerts. The recovery in Thailand’s
arrivals from China has resumed, while the outright strength in tourist arrivals into southern
Europe has played a key role in the resilience of Greece, Italy and Spain, with the latter also
benefitting from inward migration as growth surprises on the upside (see: Spain's gains: Key
takeaways from our recent trip to Madrid, 5 March 2024).
25. Chinese tourists to Thailand have
picked up again…
26. …with tourism a clear driver of the
recovery in southern Europe, too
Index
140
Tourist arrivals vs corresponding
month in 2019 (3mma)
Index
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
2008
Source: Macrobond
2012
2016
Greece
2020
2024
Italy
Source: Refinitiv Datastream
Turning to investment outlook:
House prices are rising, will
construction follow?
A rebound in housing? Despite the ongoing impact of tighter policy on existing mortgage
holders on variable rates or those that have to re-fix, there are signs of a turn in prices as higher
demand runs up against very limited supply. Mortgage applications, transactions and
construction activity are generally extremely depressed but could potentially start rising in 2024
as interest rates start to drop and would likely see a rise in associated spending, particularly on
durable goods. Residential construction in the US started to grow a little in the second half of
2023 after having fallen sharply since Q1 2021.
13
Economics ● Global
Q2 2024
27. House prices are back on the rise in
most markets…
28. …but transactions are at multi-year
lows
Source: Macrobond
Source: Macrobond
A broader investment rebound?
The potential for a property rebound depends on lower rates, but this could extend into a
broadly better environment for business investment, if a drop in interest rates is met with a bit
more certainty about the economic environment – which appears to be the case based on the
latest Federal Reserve Beige Book in the US.

The outlook for future economic growth remained
generally positive, with contacts noting expectations for
stronger demand and less restrictive financial conditions
over the next 6 to 12 months
Federal Reserve Beige Book, 6 March 2024
Tech investment has been
strong in recent years
14
Over the last few years, business investment has, in aggregate, held up relatively well in much
of the world – but it has been heavily concentrated in the higher-tech end of the spectrum
globally. That could continue to be the case in China, with the strength in electrical machinery
manufacturing rollouts, and in the US where investment has been extremely strong in the
software space, as the economy continues to digitise and adapt to new ways of working – with
teleworking, cybersecurity and automation tools seeing strong investment growth in recent
years but it is also the area of European investment that has been strongest.
Economics ● Global
Q2 2024
Subsidies can boost
investment too
Infrastructure spending is
supporting Indian growth
29. Investment has been strong in China’s
high-tech sectors…
30. …and infrastructure spending too but
the property sector is still very weak
Source: Macrobond
Source: Macrobond
But as rates look to have peaked, could we now see some of the cash that firms have in the
bank being put to work, driving a broader pickup in investment? Subsidies and other incentives
can help. We have already seen it in the US on the back of the impact of the CHIPS act and the
Inflation Reduction Act. Construction in the electronics manufacturing sector has surged in
recent years (chart 32).
31. Software has been the area of strength
in the US…
32. …and manufacturing investment is still
surging
Source: Macrobond
Source: Macrobond
An Indian lift?
While infrastructure spending has been an area of relative strength within China’s investment over
the past year, we are not convinced that the pace and mix of growth on the mainland will
meaningfully lift global import demand. The real standout in recent quarters has been India – where
government spending on capex has moved to a much higher gear (chart 33), supported further by
the recent budget (India's no-compromise budget: Fiscal discipline meets capex thrust, 1 February
2024). Private investment has risen too, led by an ongoing housing boom, even as investment in
‘machinery and equipment’ remain tepid. This is supporting a more favourable growth story with the
latest robust GDP print and PMIs showing broad-based strength.
15
Economics ● Global
Q2 2024
34. …and there is still plenty of scope for
economic catch up
33. India is seeing a pickup in government
capex…
India: Central gov ernment capex
8
6.0
4.0
2.0
1.2
1.1
1.0
0.0
1.3
FY21
FY22
Roads
Telecom
Urban infra
Total
0.7
0.8
0.5
1.6
2.4
2.5
2.2
2.8
2.8
FY23
FY24 RE FY25
Railways
Interim
Power
Housing
2
30
USD, 000s
30
25
25
20
20
15
15
10
10
5
5
0
0
Total GDP Total GDP GDP per
GDP per
(PPP, LHS) (USD, LHS) head (PPP) head (USD)
Mainland China (2003)
India (2022)
Mainland China (2022)
Source: World Bank
While India’s import demand is currently very small relative to the likes of China, the US and the
EU, the scope for catch up is clear. As shown in chart 34, India’s GDP per head is still only
roughly 20% of China’s in USD and only roughly 40% in PPP terms. Using the comparison
shown in chart 34 with where China’s GDP was in 2003, its ability to become an increasingly big
player in the world trade cycle in the coming years should not be underestimated. In terms of
the current beneficiaries of Indian import growth, it is very much an Asian and Middle Eastern
story (chart 35).
India: share of imports from (2022):
Mainland China
US
Russia
7%
14%
17%
7%
5%
MENA
Other Asia
Europe
Other
Source: IMF DOTS
24%
26%
36. …but the biggest exposures are in Asia
and the Middle East
% GDP
8
7
6
5
4
3
2
1
0
Goods ex ports to India (2022)
% GDP
8
7
6
5
4
3
2
1
0
Hong Kong, SAR
Singapore
Saudi Arabia
Switzerland
Malaysia
Thailand
Vietnam
Indonesia
South Africa
Korea
Australia
Argentina
Colombia
Mainland China
Russia
UK
Germany
Chile
35. A diverse set of economies benefits
from India’s growth…
A year of elections adds to
uncertainty
4
0
Source: CEIC
India still has lots of catch-up
potential
6
GDP
USDtrn
INR, tr
Thousands
Thousands
INR, tr
8.0
Source: IMF DOTS, IMF WEO
Politics wildcard
Another key uncertainty on the trade front is clearly politics. As we outlined in Global Economics
Quarterly: Navigating the global disorder, 3 January 2024, this is a big year for elections. And
while the first few months of the year have seen elections pass without any major shocks or
disruption, markets are beginning to focus more on the US election on 5 November. That focus
has intensified as current polls largely show a narrow victory for Donald Trump, though betting
markets vary on the extent which the former president has an advantage.
The US president cannot make big legislative changes unless the same party manages to win
the White House and both chambers of Congress in the 2024 election. These "clean sweep"
scenarios are possible but appear less likely than election outcomes that result in divided
16
Economics ● Global
Q2 2024
government. So, attention is focusing on post-election trade-related measures given that
previously enacted legislation provides the president with some authorities to adjust tariff rates,
and Mr Trump is reportedly1 considering a range of protectionist measures should he win.
37. The US now buys more imports from
Mexico than China
% share
25
The US election could
materially impact global trade
% share
25
20
20
15
%
60
Share of global trade distorted by tariffs v s.
subsidies
%
60
50
50
15
40
40
10
10
30
30
5
5
20
20
0
2000 2003 2006 2009 2012 2015 2018 2021
Mainland China
Mexic o
Canada
Vietnam
Japan
Germany
0
10
10
Source: Refintiv Datastream
Supply chain changes could
be accelerated in the coming
years
US goods imports
38. More trade is distorted by subsidies
than tariffs
0
0
2009 2011 2013 2015 2017 2019 2021 2023
Subsidies
Tariff increases
Source: Global trade alert Note: Based on Global Trade Alert’s tracking and
classification of government trade interventions applied to 2019 trade data from UN
Comtrade.
This could also mean an acceleration in the supply chain rejigging that has already been
underway across the world in recent years – with re-shoring and friend-shoring likely to pick up
further in an era of heightened geopolitical uncertainty, particularly over tariffs and between the
US and China. Already, Mexico has surpassed mainland China for the first time in over two
decades to become the US' top import source and mainland China's exports to Mexico and
Vietnam have more than doubled since 2016 - suggesting some degree of trade re-routing
taking place even ahead of potentially more drastic levels of tariffs in the event of another
Trump Presidency (see: The great relocation: How supply chains are shifting, 20 March 2024).
Even before the election, industrial policy is already impacting on competitiveness and trade
flows. Under the current US administration, President Biden maintained the Trump-imposed
tariffs but the trade-restrictive measures have been of a more regulatory nature (eg on tech
transfer) and/ or involved subsidies. As shown in chart 38, at the global level trade distortions
from subsidies are even more commonplace than from tariffs. There are already signs of copycat or retaliatory measures elsewhere to Biden’s policies. Most recently, Germany’s economy
and finance minister in announcing a new subsidy to support green industry said2 that the
instrument was not only for climate protection, “but also a response to the American Inflation
Reduction Act”.
1
2
Financial Times, A second dose of Trump on trade would differ from the first, 23 February 2024
Financial Times, Germany takes a page from US playbook with new climate subsidy 22 March 2024
17
Economics ● Global
Q2 2024
Reading the tea leaves ain’t easy
Overall, the global economic picture – and many of the countries within it – is still a complex
one. Given the various ups and downs in the economic data, opting when to ease and by how
much remains a key challenge for central banks all over the world.
A number of data issues
make tracking the economy
very difficult in real time
As we outlined in Flying blind: Why is it so hard to track the global economy?, 17 January 2024,
a combination of reduced survey response rates and substantial revisions to key data points is
making life very difficult for economists and policymakers looking to assess the balance of risks
in real time. For example, the value gleaned from the US BLS’ household survey is more limited
today than in previous years, with the response rate down by nearly 25ppts over the past
decade or so.
39. Dropping response rates…
40. …and revisions make central banks’
jobs even harder
000s
400
US: Non farm pay rolls
000s
400
300
300
200
200
100
100
0
-100
-200
-200
Mar-23
Apr-23
May-23
Jun-23
Jul-23
Aug-23
Sep-23
Oct-23
Nov-23
Dec-23
Jan-24
Feb-24
0
-100
Change in non-farm payrolls (latest release)
Revis ion since initial release
Source: Macrobond
Including data revisions…
…and conflicting messages
18
Source: Refinitiv Datastream, HSBC
Revisions have always been a key part of economic data releases, but for central banks trying
to assess the resilience of the labour market, for example, having non-farm payrolls estimates
move by 100k or more within a month isn’t helpful when central banks are promising to be data
dependent in their policymaking. And in some economies, revisions to growth numbers make it
hard to keep tabs on the data. In Canada and Sweden we saw the growth story flip around with
extraordinarily large quarterly growth rate revisions through 2023.
There is also the issue of which measure of the same variable to give more weight to. The Fed
has said that some more labour market rebalancing may be required to achieve its inflation
goal, so should it focus on US payrolls which still paint a picture of robust job creation or the
household survey numbers (chart 41) which suggest that employment is now falling? In the UK
experimental labour market data have showed a mixed picture, with the reinstated Labour Force
Survey showing a much stronger picture than the experimental series had been showing (UK
Labour Market (Dec): Alive and well, 13 February 2024). And in the eurozone policymakers say
that any initial move to cut rates will be based on wages but they have an array of sometimes
contradictory wage measures that could sway that decision (chart 42).
Economics ● Global
Q2 2024
41. How much is US employment growth
slowing?
42. And what IS happening to eurozone
wage growth?
Source: Macrobond *Adjusted household employment survey: This series has been
adjusted by the BLS to be more conceptually similar to the payroll survey but does not
remove the population controls that impact the household survey data each January
Source: Macrobond
Inflation outlook
43. Inflation has come down a long way…
% Yr
8
7
6
5
4
3
2
1
0
-1
06
World CPI
08
10
12 14
Headline
16
18
20
22
Core
Source: Refinitiv Datastream. Note: Excludes Argentina and Türkiye
% Yr
8
7
6
5
4
3
2
1
0
-1
24
44. …but is still above target in many
places
% Yr
8
7
6
5
4
3
2
1
0
-1
Headline CPI inflation: February 2024
% Yr
8
7
6
5
4
3
2
1
0
-1
Colombia
South Africa
India
Sweden
Norway
Brazil
Chile
Mexico
UK
Philippines
US
Korea
Poland
Japan
Canada
Indonesia
Eurozone
Malaysia
Switzerland
Mainland China
Thailand
Inflation is proving stickier
than policymakers would like
Inflation no longer surprising on the downside
These data challenges notwithstanding, for the most part the growth data have generally been in line
with or slightly better than expected this year, while the inflation news has mostly been the reverse.
Having fallen materially from their peaks in 2022 and consistently surprising on the downside in the
second half of 2023, the January and February releases were generally a little firmer.
Source: Refinitiv Datastream, HSBC.
Progress on core inflation rates in particular has slowed. It has even risen is some places (chart 45).
Geographically, the upside surprises are broad based and central banks are watching to see whether
this is a temporary seasonal effect or something more concerning.
19
Economics ● Global
Q2 2024
45. Progress on core inflation has stalled in much of the world
Source: Macrobond
Inflation surprise in Taiwan
forced a surprise rate rise
In the eurozone, inflation surprised to the upside in February, even if the annual rate dropped. It
was also higher than expected in Latin America and parts of Asia. The surprise in Taiwan
caused the central bank to not just be more cautious about its easing plans but to actually
deliver a surprise rate rise at the March meeting (see: Taiwan CBC: A precautionary hike to
contain inflation expectations, 22 March 2024). But it was the upside surprises in the US in
January-February that grabbed the headlines and caused the biggest shift in market rate
expectations. Part of the reason was the fact that it was not just a story of sticky rental prices
and volatile used car prices (chart 46). Many components of services inflation contributed to this
sticky core (see: US inflation briefing: Stubborn core, 13 March 2024).
46. US inflation may be bottoming
sequentially…
47. …with areas such as shelter,
recreation and insurance still seeing big
price rises
Source: Macrobond
Source: Macrobond
Services pressures
And, as shown in charts 48-49, the stubbornness of services inflation is by no means just a US
story. Goods price inflation has come down quickly except in Japan, but services inflation is
proving particularly sticky in many key economies where a full breakdown of inflation is available
(chart 49).
20
Economics ● Global
Q2 2024
Central banks are concerned
about services inflation
Central banks may be willing
to wait a little longer to get
back to 2% inflation
48. Services inflation is higher than goods
inflation everywhere, apart from Japan…
49. …and the pace of slowdown in
services inflation has lessened
Source: Macrobond, HSBC
Source: Macrobond
Hence it is service sector inflation that central banks are most concerned about. As much as the
ECB in particular keeps making the link with wage growth, what matters for the cost of
production is unit labour costs which are still much higher in Europe than in the US given the
latter’s superior productivity performance (chart 51).
50. US wage growth has slowed more than
elsewhere…
51. …and, with higher productivity growth,
unit labour cost growth has been low
Source: Macrobond
Source: Macrobond
Wages matter as does the strength of consumer demand but for a central bank the biggest
priority is its policy credibility and what that means for inflation expectations. Hence the constant
insistence by central bankers that they will get back to 2% even if it takes a little longer than
previously anticipated. As Chair Powell repeated several times at the March press conference
they will get there “over time”. So far markets are keeping the faith.
21
Economics ● Global
Q2 2024

We’re strongly committed to bringing inflation down to 2%,
over time. That is -- that is our goal. And we will achieve
that goal. Markets believe we will achieve that goal. And
they should believe that, because that's what -- that's what
will happen, over time. But we stress, over time.
Chair Powell, FOMC press conference, March 2024
Goods inflation may have
seen its low
Commodity prices will no
longer be as disinflationary
Could disinflation of commodity and goods prices now be over?
That policy credibility is critical in this highly uncertain world as there are plenty of risks.
Stronger than expected demand growth could keep prices higher but the more fearful one is the
risk of spikes in commodity prices and supply disruptions if the conflicts in Ukraine and the
Middle East escalate. They could all mean that the sharp slowdown in goods price inflation –
particularly energy and core goods – starts to unwind.
52. Food price inflation is abating,
broadly…
53. …and lower gas prices in Europe are
providing some relief
Source: Macrobond
Source: Macrobond
Most foodstuffs are falling in price (with some notable exceptions of rice, olive oil, coffee, cocoa
and orange juice – see: Commodities Economics Comment: 'Finer foods' get 'super-squeezed',
6 March 2024) and, while the oil price has risen about USD10/bl since the start of the year
some other energy prices are dropping – most notably European gas prices (chart 53).
Nonetheless, in most countries the commodity price deflation of last year is over. The UK is
something of an outlier. A combination of a further easing in base effects and an imminent 12%
cut in regulated utility bills means we still expect CPI inflation to fall below 2% this April, and
could go as low as 1.2% y-o-y in June (see: UK Inflation Briefing (Feb): Still on track for a (brief)
1.2% trough, 20 March 2024) but, as has happened in other countries, once the energy drag
wanes, the headline rate will rise back above 2% towards the end of this year.
Equally, the core goods side of the equation, that has benefited from the easing up in global
supply chains could be facing some challenges from the disruption in global shipping in the Red
Sea. This, so far, hasn’t materially impacted much of the hard macro data. There is some
evidence of lengthening supplier delivery times but the PMI price indices remain contained,
albeit with a small uptick, and PPI data through to February showed no material changes. But
the longer disruption continues, and certainly in the event of an escalation, the bigger the impact
on the availability of goods and costs for firms, posing upside risks for goods price inflation
through 2024.
22
Economics ● Global
Q2 2024
54. Supply chain disruption could lift
goods inflation…
55. …particularly if shipping rates remain
elevated
Source: Macrobond
Source: Macrobond
This is the challenge for central bankers across the world – much progress has been made on
inflation, but certain areas remain sticky and anything that adds to inflation volatility and even
threatens to push it higher has the ability to raise inflation expectations if central banks are not
credible in their commitment to get it back to 2%. But they are still grappling with how restrictive
monetary policy needs to be to ensure that happens.
Monetary policy
Where is r* right now?
How restrictive is Fed policy?
The natural rate of interest (r*) – typically defined as the real short-term interest rate expected to
prevail when an economy is growing at trend and inflation is stable – is the standard concept
central banks use to consider how restrictive policy is ie how the actual level of real interest
rates compares with r*. The problem is that r* is not observable in real time. Even the
economists3 that developed the most widely quoted empirical estimates (illustrated in chart 56)
specifically emphasise that it is a hypothetical construct that cannot be measured directly. Some
key variables are simply unknown, not least future productivity growth and the output gap.
56. The natural rate of interest – or r* – is unobservable and estimates vary
%
6.0
%
6.0
r* estimates for US
5.0
5.0
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
0.0
-1.0
-1.0
1961
1966
1971
1976
Lubik-Matthes
1981
1986
1991
1996
Laubach and Williams
2001
2006
2011
2016
2021
Holston, Laubach, and Williams
Note: r* is the real short-term interest rate expected to prevail when an economy is at full strength and inflation is stable. Source: Federal Reserve Bank of New York,
Measuring the Natural Rate of Interest, https://www.newyorkfed.org/research/policy/rstar/overview. Lubik-Matthes Natural Rate of Interest, Federal Reserve Bank of Richmond,
last updated December 14, 2023, https://www.richmondfed.org/research/national_economy/natural_rate_interest.
3
The widely-cited Labach-Williams (2003) model; the Holston, Laubach, and Williams (2023) model, which
was adapted to incorporate the COVID-19 supply shock; and the Lubik-Matthes (xxxx) model all derive their
r* from actual data. They all use the output gap, trend growth, inflation and the Fed Funds rate to make their
estimates.
23
Economics ● Global
Q2 2024
We show them primarily to illustrate the large range of estimates between the three series. So
while r* is a useful framework to think about and explain policy choices, the nature of its
construct means that the central bank cannot be certain of degree of policy restrictiveness in
real time.
57. Simple policy rule prescriptions are now below the current Fed Funds rate
%
%
Historical federal funds rate prescriptions from simple policy rules
10
10
5
5
0
0
-5
-5
-10
-10
2018
2019
Taylor (1993) rule
2020
2021
2022
Effective Fed funds rate
2023
Adjusted Taylor rule
Source: Monetary Policy Report, March 1, 2024 (federalreserve.gov). The adjusted Taylor rule recognises that the Federal Funds rate cannot be reduced materially below zero.
The Fed’s Monetary Policy Report highlights the fact that these policy rules cannot capture the impact of other policy tools like QT and QE..
US policy rates are restrictive
Similarly, simple policy rules like the Taylor rule which looks at the difference between current and
desired inflation and the unemployment/output gap, also include an estimate of long term r*. These
policy rules certainly indicate that the Fed was slow to respond to the rise in inflation in 2021 –
unsurprisingly given they had just adopted flexible average inflation targeting (FAIT) – but have
recently fallen slightly below the effective Fed Funds rate.
58. The current real Fed Funds rate is now
restrictive…
59. …but other measures of financial
conditions are not
Index
5300
US: Equities and credit spreads to UST
ppts
6.5
5000
6.0
4700
5.5
4400
5.0
4100
4.5
3800
4.0
3500
3.5
3200
3.0
2022
2023
2024
S&P 500 (LHS)
USD HY Credit spread (RHS)
Source: Macrobond
Broader financial conditions
are less restrictive
24
Source: Refinitiv Datastream
Likewise, a Fed Funds rate that is higher than their preferred inflation measure – core PCE –
looks restrictive. With credit spreads at such tight levels and the S&P500 at a record high,
broader financial conditions are less obviously restrictive than the policy rate implies even if
Chair Powell opted to play down the influence of buoyant financial markets at the March
meeting, in complete contrast to the December meeting.
Economics ● Global
Q2 2024

We did see progress on inflation last year – significant
progress, despite, you know, financial conditions
sometimes being tighter, sometimes looser.
Fed Chair, Jay Powell, FOMC press conference 20 March 2024
Inflation data matter most for
central banks
This all goes some way to explaining why central banks have little choice but to look at the
recent data for signs monetary policy is too restrictive or too accommodative. The challenge is
that the data are far from equivocal in this extraordinary cycle of rotation discussed above.
Already there are signs that parts of the economy are reaccelerating even as other parts slow.
But among all the data it is the inflation prints that still matter most. While Chair Powell stated
that the story of inflation moving gradually back to 2% has not changed, he acknowledged the
uncertainty of the outlook:

I don't think we really know whether this is a bump on the
road or something more
Fed Chair, Jay Powell, FOMC press conference 20 March 2024
We still expect the first rate cut in June…
The FOMC is certainly hoping to cut rates and Mr Powell said at the December meeting that
timing of that first move – which we have long forecast will be in June – is highly consequential.
He is acutely aware that the risks are two-sided. Cutting too soon would mean they find
themselves having to quickly reverse course. Leaving it too late could cause a very hard landing
and even risk an undershoot of their inflation mandates over the medium term. Coming after a
period when inflation has been so high, the most important tool the Fed has is its policy
credibility which is critical to keeping inflation expectations anchored. So clearly if inflation
continues to surprise on the upside in March and April, they will not be cutting in June.
60. Every easing cycle is different, the next one may be even more unusual
%
20
%
20
US policy rate and inflation
15
15
10
10
5
5
0
0
-5
1960
-5
1965
1970
Recession
1975
1980
1985
CPI (% Yr)
1990
1995
2000
2005
Unemployment rate (%)
2010
2015
2020
Fed Funds rate
Source: Refinitiv Datastream
25
Economics ● Global
Q2 2024
After the first cut, how much
will rates fall?
…but the cuts will be gradual and may not be evenly spaced
Once they do finally lower rates, the next question is how far down they will go. During a full
recession the US has on average cut rates by 500bps or more. During the only perfect soft
landing after a tightening cycle (1995) the Fed Funds rate was lowered by a cumulative 75bps
over a seven-month period with the gap between the first and the second rate cuts being a full
six months. Our own forecasts, which the Fed (and the market) have now moved to, is for a
slower but even path down. That would be an unusual easing cycle in the sense of how long we
envisage it will take to cut rates by 150bps to 3.50%-3.75% so to a level that is still above
neutral by end-2025. And, although not in our forecasts, we do not rule out that the Fed could
cut once or twice before taking a longer pause. Small cuts in rates can still keep policy
restrictive.
61. Central bank balance sheets are still very large but pace of QT to slow
% GDP
40
% GDP
40
Central bank bond holdings
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
BoE
ECB
Fed
Source: Bloomberg, HSBC
A decision on the pace of QT could come first
Is possible that a slowdown in the pace of Fed quantitative tightening (QT) comes before the
rate cut. Policymakers discussed the topic of balance sheet run-off at this meeting and while
Chair Powell said no decisions had yet been made, the general sense of the FOMC was that it
will be appropriate to slow the pace of run-off “fairly soon.” In a way, this guidance is even more
concrete than the guidance on rate cuts reflected in the DOTs, since any decision to reduce
policy rates still rests on the FOMC achieving “greater confidence” on inflation. A decision on
the pace of QT could be reached as soon as May, but Powell made it clear that policymakers
had yet to discuss other “balance sheet issues,” such as a full conclusion to QT. We expect it to
continue at least in the first half of 2025 and Chair Powell himself said that a slower pace of
balance sheet run-off could actually mean that they are able to continue it for longer.
June is a key month for major
central banks’ first cut
26
June could be a busy month for other G10 central banks – but not all
The Fed is not the only major central bank which we expect to cut the policy rate for the first
time in June. We still expect the ECB to do likewise while our forecasts for the Bank of England
and Bank of Canada have also converged on the same month. There is a risk that the first cut
from the Fed might come later. Recent communication from the ECB and BoE has used a
similar language to that of the Fed regarding the importance of watching the data taking
decisions “meeting by meeting”. The reality is that this is such an uncertain economy, central
banks have no choice but to base decisions on the recent run of data.
Economics ● Global
Q2 2024
Japan: the end of an era (kind of)
After much deliberation, the BoJ made its move out of negative policy rates at the March
meeting which was held within days of the strong first round results for this year’s Shunto spring
wage negotiations in which agreed total pay hikes reached a record 5.28%. Even more
importantly, the increase was driven by base pay, which more accurately represents the raising
of the overall wage ‘floor’ (chart 63). Getting back to zero (0.0%-0.1%) rates is certainly a
tentative step towards “normalisation” – and the first since the ill-fated attempt to do so back in
2007 – but the decision was by no means hawkish. At the press conference which followed,
Governor Ueda reiterated that it was important to keep monetary policy accommodative with the
price stability target not yet achieved. And our Asian economists advise that a tempering of
expectations with regards to subsequent imminent tightening is warranted: our forecasts include
only an additional 20bp of rate rises and not until 2025.
63. …and Shunto negotiations are for a big
base pay bump in 2024
% y-o-y
6
1
0
0
2024*
1
2023
2
2022
2
2021
3
2020
3
2019
4
2018
5
4
2016
5
Base pay
Source: Macrobond
% y-o-y
6
Japan: Shuntō pay round
2017
62. Replace with a chart of just headline
and core inflation instead
2015
The BoJ finally exited
negative rates
Seniority-related pay
Source: CEIC
That said, given how investors have underpriced the BoJ’s policy normalisation over the past
year, it is worth considering the implications should sustained inflation and full policy
normalization follow instead. Helped by the weak yen, strong corporate profits growth has fuelled
equally strong capital spending and reconstruction following the tragic Noto Peninsula earthquake is
also set to buttress growth. While consumer spending has disappointed recently, an acceleration
in real wage growth given the current pay round, could also mean upside surprises to growth in 202425. Externally much would need to go “right” for Japan’s policy rates to rise much more
aggressively ie. a synchronised global recovery led by the US and China, perhaps supported by
a significantly brighter geopolitical landscape.
27
Economics ● Global
Q2 2024
64. Japan policy normalisation could have a global impact
YCC band w idened to %
JPY
Japan
+/- 50bps
160
7
​​ ​
Quantitativ e and
QE Policy ends
​​​ ​ ​ Launch of QE policy
150
6
Qualitativ
e
Monetary
​
​​ ​ ​ ​ ​ ​​ ​ ​​
Launch of
​​ ​ ​ ​
​ ​ ​​
​ ​ ​​ ​ ​ ​
140
5
​​ ​ ​ ​ ​ ​​​
Comprehensiv e easing launched YCC launched
​​ ​ ​​​​ ​​ ​ ​ ​ ​ ​ ​ ​ ​​
​​ ​ ​​ ​ ​ ​ ​ ​ ​​
​
​ ​
​​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​​ ​ ​ ​
Monetary Easing
​ ​​ ​​ ​​ ​ ​ ​ ​​ ​​ ​ ​
​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
130
4
​
​
​
​​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​
​
​
​
​
​
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​​ ​ ​ ​
​ ​ ​ ​ ​​ ​​ ​ ​ ​ ​ ​
​​
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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​
120
3
​​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​​ ​ ​
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​
​
​
​
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​
End
of
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​
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​
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​
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​
​​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​​ ​
​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​​ ​ ​ ​ ​ ​ ​
​
​ ​ ​ ​ ​ ​​ ​
​ ​ ​ ​ ​ ​​ ​
​
​
​
​
​
​ ​​ ​ ​ ​ ​ ​​​
​
​
​
​
​
​
​
​
​
​
110
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​
​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​​ ​ ​
​ ​ ​​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NIRP 2
​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​
​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​​ ​
​ ​​ ​ ​​ ​ ​ ​
​ ​​ ​ ​ ​ ​
​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​​ ​​ ​ ​​
​​
100
1
​​ ​ ​​ ​ ​​​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​​ ​ ​ ​ ​ ​​ ​​ ​​ ​ ​​ ​​
​​ ​ ​ ​ ​
​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​
​ ​ ​​
​
​
​
​
​
​
​
​
​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
90
0
​
​​​ ​ ​
​
​ ​ ​ ​​ ​ ​ ​
​​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
80
-1
​ ​ ​ ​ ​ ​​ ​ ​ ​ ​
Inflation target adjusted
Abe becomes Prime
70
-2
to be 2%
Minister
60
-3
1990
1994
1998
2002
2006
2010
2014
2018
2022
USDJPY (LHS)
Policy rate (RHS)
Headline CPI (RHS)
Source: Refinitiv Datastream, HSBC
Rapid policy normalisation in
Japan could have global
implications…
Even if policy rates in Japan do rise more significantly that we are forecasting, it seems unlikely
they would rise by more than a fraction of the amount that the world’s other major central banks
raised them. We are mindful though that two years ago few would have conceived that the ECB
would have lifted the policy rate to as high as 4% by now.
At the domestic level, bigger rate rises would mean higher savings rates for the large amount of
money still held in savings accounts but for the government there would be, over time, a rise in
government debts service costs but also potential losses for the BoJ and the enormous stock of
JGBs it holds: losses that would have to be recouped by the government. Some increase in debt
servicing costs is already partly accounted for in government estimates and will also influence the
government’s fiscal position. The quicker the normalisation the bigger the impact. Management of
the central bank’s massive balance sheet, which also consists of non-traditional assets like ETFs, will
be in even greater focus if rates rise further, impacting on the comprehensive monetary policy review
currently under way.
…especially if it results in
asset allocation shifts
28
65. Japan has invested heavily overseas…
66. …and is still the biggest foreign holder
of US Treasuries
Source: Macrobond
Source: Macrobond
It is hard to estimate what the impact on carry trades and Japan’s investment overseas would
be. Initially it would be small. But if rates continue to rise it would represent a turning point in the
downward impact that Japan has exerted on the global cost of capital since the start of its own
QE in 2001 and particularly since the start of Abenomics in 2012. Japan’s banks, pension funds
and insurance companies have become major investors of the country’s abundant savings in
Economics ● Global
Q2 2024
foreign assets, particularly US and European government debt, and demand could slow if yields
at home became more attractive. That said the increase in hedging costs as the Fed raised
rates caused Japan’s share of foreign holdings of US Treasuries to continue to fall back
markedly even if the level has jumped a bit over the past six months (chart 66).
EM still leading the pack on rate cuts
Rate cuts continue across
EM…
In the emerging world, rate cuts are still proceeding at pace across most of CEE (except
Türkiye) and Latin America, with Mexico the latest to embark on an easing cycle in March. Even
in the emerging economies the path of easing may be an unusual one and the magnitude of
cuts may not be great. Indeed, the pace of easing may now slow in Chile because of some
upside surprises to inflation and the Czech central bank governor at the March meeting, even
while delivering a 50bps rate cut (and a cumulative 125bps since December), stated that the
easing cycle could be halted at a restrictive level if needed.
67. Mexico’s central bank is the latest in
EM to cut…
%
16
Policy rates and HSBC forecasts
%
16
%
14
14
14
12
12
12
12
10
10
10
10
8
8
8
8
6
6
6
6
4
4
4
4
2
2
2
2
0
2016
0
0
0
2016 2017 2018 2019 2020 2021 2022 2023 2024
US
EM Asia
CEE
Latam
2018
Brazil
Source: Refinitiv Datastream
…but many Asian economies
are waiting for the Fed
68. …while many central banks in Asia are
still waiting for the Fed
2020
Chile
2022
Colombia
2024
Mexico
Regional policy rates
%
14
Source: Refinitiv Datastream. CEE excludes Türkiye and LatAm excludes Argentina
Asia is still the exception. Apart from the policy rate cuts in mainland China, the surprise rate
rise in Taiwan and the nudge higher in Japan, policy rates in Asia have stayed firmly on hold
though we expect they will start to ease in the course of 2024. Inflation is under control and
growth is below trend but real rates imply that policy is much less restrictive than in the US and
policymakers are mindful of currency volatility while the USD is so strong. So while we think that
a couple of the large economies with the higher rates like India and Indonesia might be able to
pull the trigger in Q2 we forecast the others will be later in the year and are looking for a slow
and shallow easing cycle across the region. And if the Fed delays primarily because of ongoing
resilience in US growth and inflation, many in Asia will too.
29
Economics ● Global
Q2 2024
This page has been left blank intentionally
30
Economics ● Global
Q2 2024
Global economic forecasts
31
Economics ● Global
Q2 2024
GDP
Annual
% Year
World (Nominal GDP weights)
World (PPP Weights)
Developed
Emerging
North America
US
Canada
Asia-Pacific
Asia ex-Japan
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
3.0
3.0
2.0
4.6
2.6
2.5
2.9
4.7
6.1
5.1
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
5.8
5.6
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
2.3
2016
2.8
2.8
1.7
4.5
1.8
1.8
1.0
5.0
6.0
5.6
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
3.4
3.3
2.5
4.9
2.5
2.5
3.0
5.0
5.9
5.4
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
3.3
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
4.9
2.9
3.0
2.7
4.9
5.9
5.3
6.7
0.6
7.3
3.6
2.8
2.9
5.2
2.8
4.2
4.8
3.5
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
4.8
4.3
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
0.6
2020
-2.9
-3.6
-4.2
-1.1
-2.4
-2.2
-5.0
-0.8
-0.1
-0.3
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
-1.4
-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
-7.2
-6.1
2021
6.2
6.0
5.5
7.2
5.8
5.8
5.3
6.7
7.6
7.3
8.4
2.6
9.5
4.9
5.6
4.3
3.7
6.6
1.6
3.3
9.7
6.5
5.7
5.6
6.0
5.6
3.1
6.4
7.0
6.4
7.4
8.7
5.4
5.9
4.5
6.6
6.9
5.6
11.4
4.3
4.7
6.7
4.8
5.8
10.7
10.8
11.3
2022
3.0
3.4
2.6
3.6
2.1
1.9
3.8
3.2
3.5
3.0
3.0
1.0
6.4
3.6
3.8
2.6
5.3
2.6
2.5
8.7
3.8
-3.7
7.6
2.4
3.5
3.4
1.9
2.5
3.8
5.8
3.8
4.3
2.7
2.7
3.7
2.7
5.3
-2.1
5.5
8.7
1.9
3.8
3.0
3.9
5.0
7.3
2.1
2023 2024f
2.7
2.6
2.7
2.5
1.6
1.4
4.1
4.0
2.4
2.2
2.5
2.3
1.1
0.8
4.4
4.0
4.8
4.5
4.9
4.3
5.2
4.9
1.9
0.6
7.7
6.3
2.5
3.0
2.1
1.5
1.4
2.0
5.0
5.2
1.3
3.2
1.9
2.7
3.7
4.5
1.1
2.4
3.2
2.8
5.6
5.8
0.6
1.2
0.5
0.5
0.5
0.5
-0.1
-0.2
0.9
0.7
1.0
0.6
2.5
1.7
0.3
0.6
0.1
0.4
0.8
1.1
0.0
0.6
1.1
1.0
2.0
2.4
0.2
3.3
3.6
2.6
4.5
3.1
-0.8
1.4
0.5
1.0
2.0
1.4
2.9
2.0
3.2
2.7
-1.6
-4.0
0.6
1.2
0.2
1.8
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.
32
2025f
2.6
2.7
1.4
4.1
1.5
1.5
2.0
4.0
4.4
4.2
4.5
1.1
6.6
3.2
1.9
2.3
5.3
2.9
3.1
4.6
2.6
2.8
6.1
1.9
1.3
1.3
0.9
1.3
0.8
1.6
1.4
1.1
1.5
2.6
1.2
2.8
4.1
1.7
3.6
4.0
1.5
2.4
2.3
2.5
3.0
2.0
2.4
Economics ● Global
Q2 2024
Quarterly
Q3 22 Q4 22 Q1 23 Q2 23 Q3 23 Q4 23 Q1 24f Q2 24f Q3 24f Q4 24f Q1 25f Q2 25f
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
2.7
1.7
1.8
4.0
2.6
0.7
-0.9
2.2
2.2
1.7
2.6
1.8
2.1
2.4
0.6
1.0
4.9
2.9
-0.5
0.5
3.2
3.1
1.0
0.9
1.6
2.9
0.9
0.5
1.8
2.9
0.4
0.4
1.4
2.0
1.8
1.0
1.4
1.6
1.9
1.2
1.4
1.5
2.2
1.6
1.5
1.4
2.3
2.0
3.9
-0.2
1.5
5.5
0.2
5.8
3.2
5.7
4.0
4.4
14.1
4.2
-4.9
7.7
6.4
2.9
0.4
0.5
4.3
0.8
2.4
1.4
5.0
-0.7
1.3
7.1
2.4
-4.3
7.1
2.2
4.5
1.0
2.6
6.1
0.6
2.5
0.9
5.0
-3.5
2.6
5.6
0.5
2.9
6.4
2.0
6.3
1.0
2.3
8.2
0.5
2.1
0.9
5.2
1.4
1.8
2.9
0.6
1.5
4.3
1.5
4.9
-0.8
1.6
8.1
0.3
2.1
1.4
4.9
2.1
1.4
3.3
0.8
4.1
6.0
-0.6
5.2
0.1
1.2
8.4
0.2
1.5
2.2
5.0
4.9
1.7
3.0
2.1
4.3
5.6
-0.3
4.2
0.1
0.4
6.1
0.3
1.3
2.2
5.0
6.0
2.1
3.8
3.0
0.7
5.9
0.5
6.1
0.3
-0.2
5.9
0.4
1.2
1.9
5.1
4.2
2.5
4.4
2.8
2.9
6.3
0.6
4.5
0.3
0.9
6.5
0.6
1.5
1.9
5.2
2.5
2.8
4.7
2.5
3.5
5.8
1.5
4.6
0.3
1.1
6.8
0.6
1.9
1.9
5.4
0.8
3.4
4.9
1.7
3.8
5.2
2.3
4.4
0.3
1.3
6.7
0.4
2.0
2.3
5.0
1.8
2.7
4.8
2.1
3.5
6.3
2.3
4.3
0.3
1.2
6.6
0.5
2.0
2.5
5.2
2.7
2.5
4.7
1.7
2.9
6.5
2.0
0.4
2.5
0.4
1.2
0.6
1.4
0.3
2.8
0.5
5.4
-0.1
1.8
-0.4
0.8
0.0
0.7
0.0
2.0
0.5
3.8
0.1
1.1
0.0
-0.2
0.0
0.9
0.5
2.3
0.5
4.1
0.1
0.6
0.0
0.1
0.6
1.2
-0.2
0.6
0.5
2.0
-0.1
0.1
0.0
-0.3
0.0
0.6
0.2
0.5
0.4
1.9
0.0
0.1
-0.3
-0.2
0.1
0.7
0.2
0.6
0.6
2.0
0.1
0.2
-0.1
-0.4
0.1
0.8
0.1
0.3
0.3
1.9
0.2
0.2
0.0
-0.4
0.2
0.3
0.2
0.7
0.4
1.8
0.3
0.6
0.1
-0.3
0.3
0.7
0.2
0.7
0.4
1.8
0.3
0.9
0.2
0.1
0.3
0.9
0.2
0.7
0.3
1.5
0.4
1.1
0.3
0.5
0.3
1.1
0.1
0.7
0.4
1.6
0.3
1.2
0.3
0.8
0.3
1.3
0.2
0.7
0.4
1.6
-0.1
2.1
1.1
2.5
2.7
0.1
0.6
1.1
-0.3
2.2
0.2
0.3
1.6
1.4
2.2
0.0
0.3
0.4
-0.2
1.1
-0.1
0.2
0.4
-1.0
0.7
-0.3
-0.2
0.6
-0.1
0.5
0.4
-0.1
0.6
-0.5
0.6
0.2
0.1
1.1
0.4
0.9
0.3
0.5
1.2
0.9
1.3
0.3
1.2
1.3
1.5
1.4
0.3
1.1
1.4
2.0
1.5
0.3
1.1
1.4
2.5
1.4
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
6.1
-0.7
1.0
5.3
4.0
1.2
2.3
4.1
4.6
0.6
3.5
3.4
2.8
0.4
4.4
2.2
2.8
1.1
3.1
1.2
2.5
1.6
4.4
1.9
4.5
1.7
4.5
2.2
1.2
1.6
0.9
4.3
1.2
5.1
0.4
5.7
1.0
7.4
-0.1
0.5
0.2
2.7
0.6
4.2
-1.7
1.5
-0.9
2.2
0.1
-2.3
1.3
4.2
0.5
3.6
0.8
1.4
1.4
2.9
0.7
0.3
0.8
3.5
0.8
3.4
-2.7
-5.0
-1.4
0.1
-0.8
-0.4
0.0
2.0
1.1
3.5
2.7
-0.8
0.3
-0.6
0.8
0.6
0.0
2.1
0.1
2.5
-1.9
-1.4
0.0
0.3
0.1
0.4
0.5
0.1
0.8
2.1
-3.5
-5.4
0.6
-0.2
0.4
1.0
0.9
2.1
0.8
3.7
0.0
-3.1
0.6
0.8
0.6
2.1
0.8
2.6
0.5
2.5
0.3
-5.0
0.6
1.6
0.6
2.7
0.6
3.2
0.5
2.5
1.0
-2.3
0.5
2.3
1.3
1.4
0.2
2.0
0.5
3.0
1.2
2.9
0.4
2.1
0.4
2.3
0.4
2.2
0.7
1.5
0.6
3.7
0.5
2.0
0.4
2.4
Source: HSBC estimates. Notes:*Quarterly annualised rate; **Mainland
33
Economics ● Global
Q2 2024
Consumer prices
Annual
% Year
World
Developed
Emerging
North America
US
Canada
Asia-Pacific
Asia ex-Japan
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
3.2
1.4
4.6
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
2.6
0.3
4.4
0.2
0.1
1.1
2.1
2.3
2.1
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
4.4
2016
2.6
0.7
4.2
1.3
1.3
1.4
2.1
2.4
2.2
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
2.2
1.9
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
2.4
2.3
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
2.9
3.0
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
2.8
3.1
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
2.2
1.8
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
2.6
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
3.7
3.2
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
34
2023 2024f
6.4
5.8
4.7
2.9
7.6
7.8
4.1
3.3
4.1
3.4
3.9
2.5
2.3
2.0
2.2
2.0
1.9
1.9
0.2
0.7
3.3
2.3
5.4
4.5
3.6
2.6
5.6
3.4
3.6
2.6
3.7
2.9
2.5
2.2
1.2
0.8
2.5
2.2
4.8
2.8
2.1
2.3
6.0
3.6
5.7
3.4
5.7
2.4
5.4
2.5
6.1
2.4
5.7
2.4
5.9
1.3
3.4
3.1
6.6
2.3
7.3
2.2
2.1
1.3
8.5
3.1
5.5
3.7
18.8
20.1
11.6
4.2
5.9
7.4
53.9
61.1
2.3
2.0
5.9
5.3
22.3
34.8
4.6
4.0
5.5
4.0
133.5 249.2
10.8
7.2
7.6
3.6
2025f
3.8
2.5
4.6
2.9
3.0
2.2
2.4
2.5
2.4
1.5
1.9
5.0
2.5
2.8
2.0
3.0
1.8
1.9
2.3
2.1
2.2
3.8
2.8
2.1
2.1
2.4
2.2
1.9
2.5
2.2
2.3
1.1
2.5
2.5
12.3
3.2
5.0
34.3
2.2
5.1
12.0
4.1
3.6
72.2
4.6
3.3
Economics ● Global
Q2 2024
Quarterly
Q3 22
% Year
North America
US
8.3
Canada
7.1
Asia-Pacific
Mainland China
2.7
Japan
2.9
India
7.0
Australia
7.3
South Korea
5.8
Indonesia
5.2
Taiwan
2.9
Thailand
7.3
Malaysia
4.5
Singapore
7.3
Hong Kong
2.7
Philippines
6.5
New Zealand
7.2
Western Europe
Eurozone
9.3
Germany
9.4
France
6.5
Italy
9.0
Spain
10.0
Other Western Europe
UK
10.0
Switzerland
3.4
Sweden
9.7
Norway
6.7
CEEMEA
Poland
16.3
Russia
14.4
Türkiye
81.1
South Africa
7.7
Latin America
Brazil
8.7
Mexico
8.5
Argentina
77.6
Colombia
10.8
Chile
13.6
Q4 22
Q1 23
Q2 23
Q3 23f
Q4 23
Q1 24f
Q2 24f
Q3 24f
Q4 24f
Q1 25f
Q2 25f
7.1
6.6
5.8
5.2
4.0
3.5
3.5
3.7
3.2
3.2
3.2
2.9
3.6
2.8
3.4
2.2
3.5
2.2
3.2
2.3
2.9
2.3
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
4.6
5.2
2.6
3.9
3.6
6.1
1.9
8.3
6.7
0.1
3.4
4.6
6.0
3.3
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
-0.3
2.9
5.4
4.1
3.4
2.7
2.9
-0.5
1.6
4.0
2.6
4.3
4.7
0.0
2.6
5.0
3.6
2.8
2.6
2.4
-0.8
1.6
3.0
2.1
3.3
4.2
0.7
2.5
4.9
3.5
2.5
2.8
2.5
0.8
2.0
3.0
2.6
4.2
3.8
0.8
2.3
3.4
3.2
2.6
3.1
2.2
1.1
2.4
2.7
2.7
3.7
2.7
1.5
1.7
4.9
3.2
2.3
3.0
1.8
2.0
2.6
2.5
1.9
3.4
2.9
1.6
2.1
4.6
3.0
2.4
3.2
1.9
2.4
2.5
2.7
2.3
3.8
2.8
1.3
2.0
4.9
2.9
2.1
3.1
1.7
2.0
2.4
2.2
2.2
3.8
2.8
10.0
10.8
7.0
12.5
6.5
8.0
8.7
7.0
9.5
5.0
6.2
6.9
6.1
7.8
2.8
5.0
5.7
5.5
5.8
2.6
2.7
3.0
4.2
1.0
3.3
2.7
2.7
3.1
1.1
3.2
2.5
2.4
2.4
1.3
3.3
2.2
2.1
2.1
1.3
2.7
2.4
2.5
2.2
1.6
3.3
2.2
2.5
2.3
1.7
2.7
2.2
2.3
2.2
1.9
2.6
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
4.2
1.6
5.6
4.5
3.5
1.3
4.9
4.5
1.4
1.4
3.0
3.8
1.6
1.4
2.1
3.6
2.2
1.1
2.3
3.0
2.2
1.2
2.4
2.8
2.5
1.0
2.5
2.6
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
7.2
62.7
5.4
2.9
7.6
66.9
5.5
3.1
8.1
74.2
5.5
5.2
7.6
57.4
5.4
5.4
6.1
51.0
4.8
5.0
5.6
41.7
5.3
3.9
5.3
35.4
5.1
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
4.4
172.8
6.9
4.6
4.3
4.6
248.8
7.2
3.6
3.8
4.4
289.8
6.9
3.7
4.0
4.1
276.7
6.1
3.8
4.0
4.1
208.0
8.4
3.4
4.0
3.7
130.3
5.2
3.6
4.3
3.7
83.1
4.8
3.3
Source: HSBC estimates
35
Economics ● Global
Q2 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 ___________
Q1
Q2
Q3
Q4
__________ 2024 ___________
Q1f
Q2f
Q3f
Q4f
__________ 2025 ___________
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
2.000
2.50
3.00
5.75
6.50
5.50
3.45
0.10
6.25
4.35
3.50
5.75
2.000
2.50
3.00
5.50
6.50
5.50
3.35
0.10
6.00
4.35
3.25
5.50
2.000
2.50
3.00
5.25
6.25
5.50
3.25
0.10
6.00
4.35
3.00
5.00
2.000
2.50
3.00
5.00
5.75
5.25
3.15
0.20
6.00
4.00
2.75
5.00
1.875
2.50
2.75
4.75
5.50
5.00
3.05
0.20
6.00
4.00
2.50
5.00
1.750
2.50
2.75
4.50
5.25
4.75
3.05
0.30
6.00
3.75
2.25
5.00
1.750
2.50
2.75
4.25
5.00
4.50
3.05
0.30
6.00
3.75
2.25
5.00
1.750
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
1.50
4.00
4.50
4.25
3.75
5.00
1.25
3.75
4.50
3.65
3.50
4.75
1.00
3.50
4.25
3.40
3.25
4.50
1.00
3.25
4.00
3.15
3.00
4.25
1.00
3.00
3.75
2.90
2.75
4.00
1.00
3.00
3.50
2.65
2.50
3.75
1.00
3.00
3.50
2.65
2.50
3.50
1.00
3.00
3.50
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
5.75
16.00
50.00
8.25
5.75
16.00
50.00
8.25
5.75
13.00
50.00
8.25
5.50
11.00
50.00
8.00
5.25
10.00
45.00
7.75
5.00
9.00
40.00
7.50
4.50
8.00
35.00
7.50
4.50
7.00
30.00
7.50
13.75
11.25
78.00
13.00
11.25
13.75
11.25
97.00
13.25
11.25
12.75 11.75
11.25 11.25
118.00 100.00
13.25 13.00
9.50
8.25
10.75
11.00
80.00
12.25
7.25
9.75
10.50
75.00
11.75
5.50
9.00
10.00
65.00
10.25
4.50
8.50
9.50
65.00
8.50
4.50
8.50
8.50
60.00
8.00
4.50
8.50
7.50
50.00
7.50
4.50
8.50
7.50
40.00
7.50
4.50
8.75
7.50
30.00
7.50
4.50
Source: HSBC estimates. Note: *midpoint of Federal Funds target range. **1-year Loan Prime Rate (LPR). ***Türkiye rate given is the one week repo rate.
36
Economics ● Global
Q2 2024
Exchange rates vs USD
End period
___ 2022 ___ ____________ 2023 __________ ___________ 2024 __________ ____ 2025 ___
Q3
Q4
Q1
Q2
Q3
Q4
Q1f
Q2f
Q3f
Q4f
Q1f
Q2f
Americas
Canada (CAD)
1.38
1.36
1.35
1.32
1.36
1.32
1.35
1.33
1.31
1.30
1.30
1.30
Mexico (MXN)
20.14 19.50 18.05 17.12 17.42 16.97 17.25 17.75 17.75 17.75 17.50 17.50
Brazil (BRL)
5.42
5.28
5.06
4.79
5.03
4.85
4.85
4.85
4.75
4.75
4.75
4.75
Argentina (ARS)
147.10 176.78 208.58 256.23 350.02 808.00 860.00 1000.00 1200.00 1600.00 1800.00 2000.00
Colombia (COP)
4609 4851 4623 4172 4068 3854 4000 4100 4150 4150 4150 4150
Chile (CLP)
969
851
795
802
892
879
950
900
890
880
870
870
Asia/Pacific
Japan (JPY)
145
131
133
144
149
141
146
143
140
136
136
136
Australia (AUD)*
0.64
0.68
0.67
0.67
0.64
0.68
0.66
0.66
0.67
0.68
0.68
0.68
New Zealand (NZD)*
0.56
0.64
0.63
0.61
0.60
0.63
0.62
0.62
0.63
0.64
0.64
0.64
Mainland China (RMB)
7.12
6.90
6.87
7.25
7.30
7.10
7.20
7.15
7.10
7.10
7.10
7.10
Hong Kong (HKD)
7.85
7.80
7.85
7.84
7.83
7.81
7.80
7.80
7.80
7.80
7.80
7.80
India (INR)
81.3
82.7
82.2
82.0
83.0
83.2
82.8
82.8
82.8
82.8
82.8
82.8
Indonesia (IDR)
15228 15568 14995 15066 15455 15397 15550 15500 15450 15400 15400 15400
Malaysia (MYR)
4.64
4.40
4.42
4.67
4.70
4.59
4.65
4.62
4.58
4.55
4.55
4.55
Philippines (PHP)
58.6
55.7
54.4
55.2
56.6
55.4
55.8
55.6
55.4
55.2
55.2
55.2
Singapore (SGD)
1.44
1.34
1.33
1.35
1.37
1.32
1.33
1.32
1.31
1.31
1.31
1.31
South Korea (KRW)
1431 1266 1302 1318 1349 1288 1300 1290 1280 1270 1270 1270
Taiwan (TWD)
31.9
30.7
30.5
31.1
32.3
30.7
31.4
31.0
30.6
30.2
30.2
30.2
Thailand (THB)
37.7
34.6
34.2
35.5
36.4
34.1
35.4
35.2
34.8
34.2
34.2
34.2
Western Europe
Eurozone (EUR)*
0.98
1.07
1.08
1.09
1.06
1.10
1.09
1.07
1.06
1.05
1.05
1.05
UK (GBP)*
1.12
1.21
1.23
1.27
1.22
1.27
1.27
1.24
1.22
1.20
1.20
1.20
Sweden (SEK)
11.09 10.43 10.41 10.79 10.93 10.09 10.28 10.65 10.94 11.24 11.24 11.24
Norway (NOK)
10.89
9.81 10.48 10.74 10.70 10.17 10.37 10.65 10.85 11.05 11.05 11.05
Switzerland (CHF)
0.99
0.92
0.92
0.90
0.92
0.84
0.87
0.88
0.88
0.89
0.89
0.89
CEEMEA
Poland (PLN)
4.95
4.38
4.32
4.06
4.37
3.93
3.93
4.02
4.06
4.10
4.10
4.10
Russia (RUB)
60.1
74.2
77.7
89.3
97.6
89.5
91.0 100.0 105.0 110.0 110.0 110.0
Türkiye (TRY)
18.53 18.71 19.18 26.01 27.42 29.53 32.00 34.00 35.00 36.00 36.00 36.00
South Africa (ZAR)
18.09 17.04 17.80 18.85 18.92 18.36 18.58 19.50 20.00 20.50 20.50 20.50
Source: HSBC estimates, Bloomberg. Note: *Denoted XXX-USD.
37
Economics ● Global
Q2 2024
Exchange rate vs EUR & GBP
End period
vs EUR
Americas
Asia/Pacific
Europe
Africa
vs GBP
Americas
Asia/Pacific
Europe
Africa
___ 2022 ___
Q3
Q4
_______ 2024 _______
___ 2025 ___
Q1f
Q2f
Q3f
Q4f
Q1f
Q2f
US (USD)
Canada (CAD)
0.98
1.36
1.07
1.45
1.08
1.46
1.09
1.44
1.06
1.44
1.10
1.46
1.09
1.47
1.07
1.42
1.06
1.39
1.05
1.37
1.05
1.37
1.05
1.37
Japan (JPY)
Australia (AUD)
New Zealand (NZD)
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
156
1.62
1.75
159
1.65
1.76
153
1.62
1.73
148
1.58
1.68
143
1.54
1.64
143
1.54
1.64
143
1.54
1.64
UK (GBP)
Sweden (SEK)
Switzerland (CHF)
Norway (NOK)
Poland (PLN)
Russia (RUB)
0.88 0.89 0.88 0.86 0.87 0.87 0.86 0.86 0.87 0.88 0.88 0.88
10.87 11.16 11.28 11.77 11.55 11.14 11.20 11.40 11.60 11.80 11.80 11.80
0.97 0.99 0.99 0.98 0.97 0.93 0.95 0.94 0.93 0.93 0.93 0.93
10.67 10.50 11.36 11.72 11.32 11.22 11.30 11.40 11.50 11.60 11.60 11.60
4.86 4.69 4.68 4.43 4.62 4.34 4.28 4.30 4.30 4.30 4.30 4.30
58.9 79.4 84.2 97.4 103.1 98.8 99.2 107.0 111.3 115.5 115.5 115.5
South Africa (ZAR)
17.73 18.24 19.29 20.56 20.01 20.27 20.25 20.87 21.20 21.53 21.53 21.53
US (USD)
Canada (CAD)
1.12
1.72
1.21
1.74
1.23
1.67
1.27
1.68
1.22
1.66
1.27
1.68
1.27
1.71
1.24
1.65
1.22
1.60
1.20
1.56
1.20
1.56
1.20
1.56
Japan (JPY)
Australia (AUD)
New Zealand (NZD)
136
1.80
1.95
141
1.78
1.90
164
1.85
1.97
183
1.91
2.07
182
1.90
2.03
179
1.86
2.01
185
1.92
2.05
177
1.88
2.00
171
1.82
1.94
163
1.76
1.88
163
1.76
1.88
163
1.76
1.88
Eurozone (EUR)
Sweden (SEK)
Norway (NOK)
Switzerland (CHF)
0.88 0.89 0.88 0.86 1.15 1.15 1.17 1.16 1.15 1.14 1.14 1.14
11.57 11.25 12.84 13.71 13.33 12.81 13.05 13.21 13.35 13.49 13.49 13.49
12.06 11.73 12.93 13.64 13.06 12.91 13.17 13.21 13.24 13.26 13.26 13.26
1.19 1.21 1.13 1.14 1.12 1.07 1.11 1.09 1.07 1.06 1.06 1.06
South Africa (ZAR)
20.20 20.59 21.96 23.94 23.08 23.32 23.60 24.18 24.40 24.60 24.60 24.60
Source: HSBC estimates, Bloomberg.
38
_______ 2023 _______
Q1
Q2
Q3
Q4
Economics ● Global
Q2 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
3.3
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
3.2
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
5.1
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
4.3
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
2.7
-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
3.1
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
-3.9
-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
-13.3
-10.6
-8.0
-1.7
-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
-5.0
-7.4
2021
7.1
6.2
8.7
8.2
8.4
5.2
7.3
8.6
11.7
0.8
11.2
3.5
5.3
3.6
2.0
-0.2
0.6
1.9
8.1
5.6
4.2
7.7
4.7
4.1
1.5
5.1
4.7
7.2
6.3
7.4
1.8
6.2
4.8
9.9
6.2
10.0
15.4
9.5
5.8
7.1
3.0
6.3
10.4
14.7
21.0
2022
3.6
3.4
4.0
2.7
2.5
5.1
3.2
2.4
1.1
2.2
7.1
5.3
6.6
4.1
4.9
3.7
6.2
11.2
8.2
-2.2
8.3
3.2
4.4
4.3
3.9
2.3
4.6
4.8
4.7
5.0
4.2
2.4
6.3
5.1
5.2
-1.4
19.0
4.9
2.5
6.4
4.1
8.0
9.7
10.7
1.6
2023
3.3
1.5
6.2
2.2
2.2
1.7
6.1
7.0
10.0
0.6
3.8
3.9
1.1
1.8
4.8
8.3
7.1
4.7
3.8
7.3
5.6
0.3
0.5
0.6
-0.6
0.7
1.2
1.7
0.3
0.4
2.1
-2.5
-0.5
5.2
-1.0
5.8
12.8
5.3
0.7
2.4
3.1
3.9
1.1
1.1
-5.2
2024f
2.7
1.4
4.8
2.0
2.1
0.9
4.7
5.4
7.0
-0.4
6.0
2.9
0.7
1.5
5.6
2.3
3.5
4.4
3.0
3.2
5.8
1.1
0.8
0.9
0.8
0.9
0.1
1.9
0.5
0.2
1.1
0.7
1.4
3.5
4.1
3.2
5.5
3.0
1.2
1.2
2.0
2.4
-6.6
0.9
3.0
2025f
2.9
1.4
5.3
1.5
1.4
1.8
5.3
6.0
7.2
0.7
7.4
3.4
1.5
2.5
5.6
2.4
3.3
4.3
2.6
4.2
6.0
2.8
1.5
1.5
1.5
1.2
1.0
1.5
1.3
1.2
1.3
2.1
1.0
2.2
4.7
0.9
2.8
2.5
1.7
2.5
2.5
2.8
4.1
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
39
Economics ● Global
Q2 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
3.7
3.1
4.7
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
3.2
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
4.1
4.5
4.4
1.2
0.9
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
0.6
-0.1
20.9
2.2
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
6.6
4.4
4.5
3.3
6.7
6.9
8.1
1.6
7.8
5.7
3.5
9.8
6.2
-0.3
1.8
6.1
5.2
3.1
10.6
5.2
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
6.9
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
7.3
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
3.8
4.3
3.2
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
2.5
-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
-3.6
-4.8
-1.9
-2.3
-2.1
-3.8
-1.3
-0.8
0.7
-3.6
-7.3
-3.6
-3.1
3.5
-5.0
6.1
-4.7
-14.4
-14.2
-11.1
-27.3
-4.9
-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
-11.5
-1.7
-17.3
-13.1
-23.6
-17.8
2021
6.7
4.8
9.2
7.3
7.1
9.3
8.0
8.3
8.7
-0.1
17.6
7.0
8.8
3.2
3.8
14.3
3.1
-0.8
23.6
8.3
9.8
12.4
3.8
3.6
-0.3
10.2
18.6
2.8
5.8
7.4
2.8
6.8
1.6
7.3
1.2
9.1
7.2
10.7
0.6
15.2
12.9
9.3
33.8
16.7
29.9
2022
2.9
2.2
3.7
1.0
1.3
-2.4
2.8
2.7
2.7
-1.4
8.1
2.9
3.0
-0.5
3.9
7.8
2.3
6.8
2.5
-7.4
9.7
3.9
3.3
2.9
0.2
2.3
9.7
2.4
6.4
8.0
1.2
6.2
7.6
6.4
4.9
3.3
1.3
21.7
4.8
5.7
1.1
8.6
11.1
11.5
-0.3
2023
2.4
1.1
3.8
0.3
0.6
-3.1
3.5
3.7
3.2
2.1
10.0
2.3
6.9
1.1
4.4
-8.7
1.2
5.5
-0.2
10.8
8.1
-0.6
1.3
1.4
-0.2
1.1
4.9
0.6
0.9
2.9
-2.0
-1.2
-0.8
7.4
8.4
8.0
8.9
5.3
4.2
3.1
-3.0
15.6
-1.9
-8.9
-5.7
2024f
2.5
1.5
3.7
2.2
2.4
0.4
3.5
3.7
3.5
2.0
7.0
2.5
2.5
0.4
5.7
1.3
-1.1
5.6
2.1
3.7
6.9
0.5
0.9
1.0
-2.0
-0.3
1.9
0.2
0.1
1.0
-1.9
0.2
-1.0
4.4
6.2
2.9
0.7
10.0
4.0
2.9
2.3
7.5
-14.7
0.8
2.0
2025f
2.7
1.8
3.7
2.1
2.0
3.7
3.3
3.1
2.7
1.9
7.2
4.3
3.3
2.3
5.7
6.0
4.8
4.8
3.4
3.5
10.6
2.8
1.5
1.4
0.8
2.0
0.7
2.9
2.2
1.8
2.3
4.1
1.1
5.0
8.7
1.2
3.7
10.0
6.0
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
40
Economics ● Global
Q2 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
3.5
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
0.2
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
6.4
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
4.9
3.5
6.8
3.0
2.9
3.6
6.8
8.7
9.9
3.8
11.9
4.7
5.1
4.0
6.5
0.2
3.4
1.9
8.3
3.7
11.8
3.0
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
0.0
-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
-7.0
-10.2
-3.1
-12.4
-13.1
-9.0
-3.6
-1.3
3.6
-11.6
-9.1
-6.2
-9.9
-1.7
-8.4
1.2
-19.7
-8.6
-0.2
-7.1
-16.1
-13.5
-9.2
-9.2
-10.0
-17.1
-14.3
-20.1
-9.2
-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
12.7
9.1
17.5
5.7
6.3
2.7
19.1
25.1
28.0
11.9
31.8
11.7
-2.2
11.1
18.0
15.2
11.1
18.5
9.2
16.9
8.0
-2.5
10.4
10.9
9.5
10.7
14.1
13.5
8.2
4.9
12.8
10.8
6.8
8.8
12.3
3.3
25.1
1.0
9.1
12.0
4.4
7.2
42.0
32.3
28.0
2022
6.3
6.7
5.8
6.3
7.0
3.2
5.0
7.4
6.9
5.3
13.3
2.0
2.5
3.4
16.2
1.8
6.1
14.5
3.0
-12.5
10.9
0.2
7.2
7.1
3.4
7.4
10.2
15.2
7.6
9.0
5.1
6.6
9.1
3.0
6.7
-13.9
9.9
19.7
7.4
9.6
5.7
9.0
13.3
39.2
4.0
2023 2024f
-0.5
2.5
0.9
1.3
-2.1
4.0
3.3
2.1
2.7
2.1
5.7
2.4
-1.3
4.9
-2.7
4.6
-4.6
4.3
3.0
4.3
1.5
7.0
0.2
5.2
6.8
3.1
3.1
6.4
1.3
3.3
-4.3
4.3
2.1
1.0
-7.9
1.8
2.4
6.9
-6.5
6.9
1.3
7.9
9.6
5.2
-0.5
0.6
-0.9
0.5
-1.7
-1.4
1.5
2.6
0.5
2.9
2.4
1.5
1.1
1.0
-1.4
-0.6
2.7
2.3
3.7
1.9
5.2
3.3
-2.4
1.0
-1.9
3.9
-1.1
1.7
-2.7
2.8
-6.5
-4.0
3.5
2.3
-1.1
1.6
9.1
3.9
-1.3
-0.5
-24.3
14.5
-11.7
0.5
-3.7
0.3
2025f
3.4
2.6
4.4
1.3
1.1
2.3
4.3
4.2
3.8
3.1
6.4
4.6
3.3
3.9
6.6
4.0
3.8
4.5
5.5
4.0
8.9
4.0
3.0
3.1
1.6
4.8
3.0
3.9
2.3
1.5
3.9
2.3
2.4
3.6
6.8
1.6
4.5
3.5
2.2
4.5
5.7
3.5
6.8
-0.5
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.
41
Economics ● Global
Q2 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
3.5
6.3
0.2
4.8
7.5
-2.5
5.2
2.8
-0.4
7.6
3.1
1.5
1.1
1.5
-1.0
-0.6
1.3
2.7
3.8
1.3
-2.0
3.2
3.2
3.2
2.5
5.9
3.3
0.3
-0.5
-3.0
2.8
0.0
0.0
0.4
2015
1.8
0.2
3.0
-1.3
-1.4
-0.5
3.6
4.2
6.1
-1.1
3.3
1.9
3.3
-0.3
4.8
-1.1
0.2
4.5
-5.1
-1.6
5.2
1.5
2.2
2.7
0.9
1.4
1.0
3.3
0.5
0.7
0.4
2.3
-3.5
2.3
4.4
-0.8
5.7
5.3
-0.2
-3.1
-8.2
1.6
0.0
0.0
0.5
2016
1.9
-0.4
3.7
-2.0
-2.2
0.1
4.3
4.6
6.0
0.0
4.6
3.2
2.9
2.2
4.0
2.8
1.8
4.1
3.7
-0.4
6.8
1.6
1.1
1.6
1.5
0.4
2.1
1.9
-0.5
-1.4
4.0
2.6
-4.8
2.6
3.2
2.2
3.6
2.7
0.7
-2.6
-6.4
0.6
0.0
0.0
-0.8
2017
3.5
2.2
4.5
1.5
1.3
3.7
5.1
5.5
6.6
3.1
4.4
3.8
1.5
2.5
4.3
5.0
1.7
4.4
10.4
0.4
8.0
1.4
2.8
2.8
3.1
2.3
3.7
3.1
2.5
1.8
5.2
4.7
0.4
3.3
6.9
2.1
8.9
-2.1
-0.7
1.1
2.5
-0.3
2.9
-1.0
-1.1
2018
3.3
2.3
4.1
3.2
3.2
3.5
4.4
4.7
6.2
0.6
3.8
3.6
4.3
1.5
4.5
3.4
3.0
3.2
7.1
1.3
5.1
2.1
1.6
0.9
0.9
0.7
0.8
0.4
4.1
4.3
5.4
3.1
1.6
2.4
5.8
2.9
1.8
0.4
1.0
0.4
1.1
0.5
-5.1
3.1
3.6
2019
1.1
-0.6
2.3
-0.6
-0.7
0.1
2.5
2.8
5.7
-2.7
-0.8
1.4
2.6
0.3
4.0
1.0
-4.4
2.4
-1.5
0.4
3.8
1.0
-0.3
-0.8
-2.3
0.5
-1.2
0.6
1.3
0.5
3.1
2.2
3.3
1.3
4.3
3.4
-0.6
-1.9
-1.1
-1.9
-1.0
-2.3
-6.3
1.2
-0.4
2020
-4.2
-6.8
-2.3
-7.2
-7.2
-7.5
-2.4
-1.9
2.8
-10.4
-8.5
-3.8
-1.0
-0.3
-10.1
8.8
-8.7
-4.1
7.5
-5.9
-9.8
-4.4
-5.7
-7.4
-7.6
-10.8
-11.0
-9.5
0.1
2.1
-3.8
-5.2
-3.1
-2.6
-2.1
-2.1
1.7
-5.9
-12.5
-6.6
-4.4
-9.0
-7.9
-10.0
-0.9
2021
7.7
5.9
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
4.2
8.0
8.8
3.6
5.3
11.7
7.3
5.4
2.5
18.8
7.4
3.2
9.8
14.8
6.3
19.7
1.1
6.2
7.1
3.9
7.8
16.0
10.4
2.3
2022
3.2
2.1
4.1
3.4
3.4
3.9
2.9
3.5
3.6
-0.2
5.3
1.1
-0.7
1.4
1.3
-1.8
-1.6
6.7
2.7
0.2
4.9
-5.2
1.4
2.1
-1.0
0.1
0.4
2.8
-1.0
-3.3
6.8
2.3
-0.2
5.2
11.0
0.8
5.8
13.2
-0.3
3.1
-0.7
7.2
4.3
7.4
-2.9
2023
1.2
-0.7
2.5
0.1
0.2
-0.6
2.8
4.1
4.6
-1.3
5.7
-1.3
0.5
-2.7
3.4
-12.3
-4.9
0.9
-4.3
3.8
1.3
-5.2
-1.6
-2.2
-1.6
0.4
-2.5
-0.7
0.7
1.2
-2.3
1.3
-0.3
0.3
-1.7
3.2
1.9
-6.8
-0.5
1.1
1.0
3.9
-1.8
-2.0
-0.6
2024f
2.2
-0.1
3.8
0.0
-0.1
1.0
4.2
4.6
5.4
1.0
4.5
3.0
1.3
3.7
4.1
3.2
2.0
2.4
4.5
2.4
1.5
-1.1
-0.6
-1.1
-2.6
0.2
-0.3
0.8
0.8
0.9
-0.2
0.6
1.8
1.8
4.2
2.3
1.7
-1.0
1.7
1.2
2.7
2.8
-7.7
1.0
-0.7
2025f
3.1
1.4
4.3
1.2
1.1
1.9
4.3
4.8
5.3
1.3
5.2
2.7
2.0
2.1
3.2
2.8
2.3
3.6
4.0
2.4
3.0
2.1
1.7
1.7
2.1
0.6
1.7
1.8
1.7
1.3
2.2
2.0
3.5
2.7
5.9
1.3
2.6
4.0
1.3
2.2
2.0
3.4
2.1
1.1
-0.9
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.
42
Economics ● Global
Q2 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
1.8
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
6.1
1.5
2.0
3.8
34.1
12.1
12.5
86.6
4.0
17.9
9.7
10.8
72.1
8.8
10.9
2023
9.2
4.4
13.2
4.4
4.5
3.4
4.8
5.3
6.1
1.2
3.8
3.9
3.8
5.8
2.4
0.3
1.6
5.4
3.0
5.0
4.3
5.3
5.1
4.0
4.3
3.1
5.4
5.8
7.1
1.8
3.5
5.4
44.4
12.7
13.9
112.9
5.3
23.5
9.9
10.8
111.6
13.5
7.7
2024f
8.3
3.5
12.2
3.7
3.8
2.5
5.3
5.6
6.3
1.6
4.5
3.8
3.2
6.5
2.3
6.4
2.5
3.0
3.2
5.6
3.9
3.8
3.8
3.9
2.9
3.6
3.8
3.7
4.0
1.7
3.2
5.3
30.6
10.7
12.1
72.1
5.3
29.1
6.0
8.1
184.3
9.9
4.3
2025f
5.9
3.1
8.1
3.5
3.6
2.3
5.4
5.8
6.7
1.1
4.5
3.4
3.3
6.7
2.2
7.2
2.9
2.6
3.5
4.0
3.4
3.2
3.1
2.6
2.3
3.1
3.1
3.4
3.9
1.4
2.8
4.0
18.7
9.2
8.8
40.0
5.5
10.4
5.6
6.5
45.4
5.2
3.5
Source: HSBC estimates. Note: *Wage data is minimum daily wage rate. Global and regional aggregates are calculated using GDP PPP (USD) weights
43
Economics ● Global
Q2 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
-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
-5.3
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
2015
-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
2016
-3.0
-3.2
-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
-1.5
-2.9
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
2017
-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
-1.4
-2.9
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
Source: HSBC estimates. Note: Global and regional aggregates are calculated using GDP PPP (USD) weights
44
2018
-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
-2.1
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
2019
-4.4
-4.6
-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
2020
-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
-7.9
-7.1
-4.3
-9.0
-9.7
-10.1
-10.9
-15.1
-2.2
-1.3
-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
2021
-11.6
-12.3
-3.6
-3.9
-4.4
-3.1
-6.6
-6.7
-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
-3.1
-5.4
-1.5
-0.5
9.1
-1.5
-1.8
0.4
-2.7
-2.2
-5.1
-4.1
-4.3
-2.9
-4.5
-4.4
-7.7
2022
-5.2
-5.5
-1.3
-3.1
-3.9
-2.8
-4.5
-6.4
-3.1
-1.4
-5.4
-2.4
2.2
-3.8
-5.6
-2.0
-4.4
-7.3
-2.7
-3.4
-3.6
-2.5
-4.8
-8.0
-4.7
-2.6
-5.0
-0.4
0.3
10.6
-1.5
-3.7
-2.2
-0.9
2.5
-4.6
-3.4
-4.6
-3.2
-3.8
-1.5
1.1
2023
-5.8
-6.3
0.0
-3.6
-4.6
-3.8
-6.1
-5.8
-2.3
0.9
-3.6
-1.7
1.0
-4.0
-5.0
-0.4
-3.4
-6.2
-2.4
-3.4
-3.7
-2.1
-5.2
-7.2
-4.0
-2.6
-5.8
-0.2
0.5
10.9
-3.6
-5.8
-1.9
-5.2
-2.0
-5.2
-5.7
-8.9
-3.3
-4.4
-4.3
-2.4
2024f
-6.4
-6.8
-1.3
-3.0
-3.7
-3.0
-4.3
-5.1
-2.3
0.4
-3.4
-2.5
0.8
-3.4
-4.3
-0.4
-1.5
-5.1
-2.5
-2.6
-2.8
-0.9
-4.6
-5.0
-3.4
-2.0
-5.1
-0.1
0.3
10.0
-4.5
-5.1
-3.5
-6.5
-3.2
-5.1
-5.1
-6.6
-4.9
-2.4
-5.3
-1.9
2025f
-5.8
-6.2
-1.2
-2.7
-3.3
-3.0
-1.9
-4.6
-2.2
-0.7
-3.0
-2.8
0.9
-3.4
-3.5
-0.3
0.2
-4.0
-1.5
-2.2
-2.3
-0.5
-4.0
-3.5
-3.0
-1.9
-4.4
-0.3
0.3
10.0
-3.3
-4.4
-2.5
-3.7
-2.9
-5.0
-4.4
-6.3
-3.7
-2.0
-4.0
-1.5
Economics ● Global
Q2 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
3.5
2.3
7.2
-1.0
1.9
1.7
7.6
7.9
6.9
4.2
10.5
1.5
-2.9
2.8
-5.0
10.5
-4.8
-3.2
-4.1
-1.9
-1.6
-5.2
-3.5
2015 2016 2017
-2.3
-2.2
-2.0
-2.2
-2.1
-1.9
-3.5
-3.1
-2.8
3.1
2.7
2.6
1.9
1.5
1.1
2.6
1.7
1.5
3.1
3.8
4.2
-1.1
-0.6
-1.8
3.7
4.0
3.7
-4.6
-3.3
-2.6
7.2
6.5
4.6
-2.0
-1.8
-1.6
13.6
13.1
14.0
6.9
10.5
9.6
3.0
2.4
2.8
18.7
17.8
18.2
3.3
4.0
4.6
2.4
-0.4
-0.7
-2.7
-2.0
-2.8
4.1 -103.9 -64.6
2.7
3.1
3.2
8.6
8.6
7.8
-0.4
-0.6
-0.8
1.4
2.6
2.7
2.0
3.2
2.8
8.6 -453.7 -290.8
9.6 -673.8 -429.8
8.9
7.3
5.3
3.2
2.2
2.8
7.9
4.0
5.6
-0.7
-1.1
-0.5
-1.3
-1.0
-1.1
5.0
1.8
2.1
-3.7
-3.8
-5.5
-7.9
-3.7
1.7
-4.3
-2.7
-2.4
-3.2
-2.2
-2.1
-3.0
-1.4
-1.1
-2.7
-2.3
-1.9
-2.7
-2.7
-4.8
-6.3
-4.4
-3.2
-2.7
-2.6
-2.8
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
16.0
3.7
-2.6
-4.2
11.7
2.9
7.9
-0.8
2.6
1.9
41.1
58.0
5.6
2.5
8.9
2.9
-1.9
7.1
-3.5
8.6
-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
16.0
5.9
-0.8
-2.8
3.9
2.5
8.2
0.6
3.3
2.2
8.6
10.5
4.1
5.3
3.8
2.2
-0.2
3.8
0.7
4.6
-2.6
-2.4
-3.5
-0.4
-0.9
-4.6
-5.2
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
14.5
4.2
4.2
16.6
7.0
3.2
-1.2
4.4
1.9
7.1
-1.7
3.9
0.6
12.7
17.4
0.5
5.9
1.1
-0.3
2.4
2.4
-4.9
-3.5
1.9
-0.5
-1.9
2.0
0.7
-3.4
-1.9
2021
-3.2
-3.5
0.0
2.8
1.5
2.0
3.9
-1.2
4.0
2.9
4.7
0.3
15.3
-2.0
3.9
19.8
11.8
-1.5
-5.6
3.2
3.1
7.3
0.4
3.1
0.8
3.5
0.7
6.9
7.1
15.0
3.2
-1.3
6.5
-0.9
4.8
3.6
-2.1
-2.8
-0.6
1.4
-5.6
-7.3
2022
-3.5
-3.8
-0.4
2.3
1.1
2.2
1.8
-2.0
2.7
1.1
1.5
1.0
13.3
-3.2
3.1
18.0
10.2
-4.5
-8.5
1.1
-0.9
3.7
-2.0
-1.2
0.6
7.6
5.5
9.4
5.4
27.0
4.4
-2.4
10.4
-5.5
13.7
-0.5
-2.6
-2.5
-1.2
-0.7
-6.2
-8.6
2023
-2.9
-3.0
-0.6
2.2
1.1
1.5
3.6
-0.6
3.1
1.2
2.1
-0.1
13.9
1.3
1.2
19.8
9.3
-2.6
-6.9
1.1
0.8
6.8
-1.2
0.2
2.5
2.1
-2.9
8.7
6.8
27.0
0.5
1.6
2.5
-4.1
3.8
-1.6
-1.5
-1.3
-0.3
-3.4
-2.6
-3.5
2024f
-2.8
-3.0
-0.2
2.4
1.3
1.9
3.2
-1.0
3.2
1.1
3.0
-0.8
14.9
2.5
2.5
19.2
6.4
-2.4
-5.3
1.1
0.9
6.3
-0.5
0.9
2.2
2.0
-3.0
8.5
7.4
26.0
0.2
1.3
1.7
-2.8
2.0
-2.8
-1.2
-1.2
-0.7
0.7
-2.4
-3.8
2025f
-2.8
-3.0
-0.2
2.3
1.2
1.7
3.3
-1.2
3.2
0.7
3.2
-1.1
14.3
3.0
2.7
18.2
7.9
-2.1
-4.1
1.1
0.9
6.2
-0.6
1.1
1.8
1.9
-3.1
8.4
7.0
26.0
0.1
0.3
1.3
-2.1
2.1
-3.0
-1.4
-1.7
-0.6
0.5
-2.7
-4.0
Source: HSBC estimates. Note: *Based on Indian fiscal year (April – March). Global and regional aggregates are calculated using GDP PPP (USD) weights
45
Economics ● Global
Q2 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
290.1
314.4
211.5
-27.6
37.6
21.2
-24.2
-154.6
50.5
26.2
53.7
59.5
-15.6
57.5
-45.9
80.3
-16.9
-165.6
-101.7
-25.9
-9.2
-19.8
-9.0
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
278.8
317.0
259.8
-10.3
26.2
23.8
-38.2
-148.0
61.3
17.4
31.1
-38.2
-6.1
67.7
-32.1
-52.6
-15.0
-130.1
-54.8
-32.3
-17.6
-18.7
-6.6
Source: HSBC estimates. Note: *Based on Indian fiscal year (April – March).
46
2016
-443.5
-396.2
-47.3
595.6
369.5
191.3
192.6
-14.4
226.1
-41.5
97.9
-17.0
71.3
43.4
7.2
57.0
12.7
-1.2
-3.8
276.7
360.1
270.2
-13.9
48.4
38.2
-83.4
-160.8
50.8
11.7
14.9
-46.0
-4.7
24.4
-32.5
-24.5
-8.7
-84.8
-24.5
-26.1
-15.1
-12.6
-6.5
2017
-414.0
-367.6
-46.4
574.8
345.5
188.7
205.6
-48.7
229.3
-35.8
75.2
-16.2
83.1
44.0
8.9
62.4
15.6
-2.1
-5.8
378.5
394.9
256.0
-20.7
54.4
37.9
-16.4
-89.5
37.0
14.0
22.1
-16.7
-6.0
33.3
-47.1
12.1
-9.0
-93.0
-22.0
-22.2
-31.2
-9.9
-7.6
2018
-480.9
-439.8
-41.0
322.9
144.2
24.1
177.3
-57.3
178.8
-31.6
77.5
-30.6
70.9
28.5
8.0
60.1
13.5
-8.9
-8.6
362.9
382.1
267.6
-23.1
52.7
25.8
-19.1
-114.2
40.9
14.6
39.5
137.6
-11.4
114.9
-27.1
73.0
-11.7
-131.8
-51.5
-26.0
-27.1
-14.0
-13.3
2019
-475.8
-441.8
-34.1
475.1
251.0
102.9
172.7
-24.7
224.1
4.9
59.7
-30.3
65.7
38.3
12.8
60.6
21.3
-3.0
-5.7
319.7
323.8
283.8
15.5
65.9
29.2
-4.1
-79.9
29.7
30.4
15.7
97.4
-1.4
65.0
5.3
38.5
-10.0
-103.6
-65.0
-5.7
-3.5
-14.8
-14.5
2020
-630.6
-597.1
-33.4
746.2
421.3
248.8
148.6
23.9
324.9
30.1
75.9
-4.4
97.6
20.9
14.1
57.9
24.1
11.6
-2.8
187.6
230.0
240.2
-42.7
74.5
8.2
-42.4
-82.7
2.8
33.3
4.2
-3.6
14.6
36.0
-35.5
-25.5
6.9
-17.2
-28.2
22.5
2.7
-9.3
-5.0
2021
-831.2
-831.4
0.3
879.3
509.5
352.9
195.4
-38.8
369.8
48.7
85.2
3.5
118.3
-10.3
14.5
85.9
43.7
-5.9
-13.8
556.4
401.0
265.0
11.4
65.3
10.9
155.4
-14.6
55.8
43.7
70.5
161.2
-8.8
120.3
-7.2
41.7
15.1
-89.0
-46.4
-8.3
6.6
-18.0
-23.0
2022
-979.1
-971.6
-7.5
656.5
413.9
401.9
79.1
-67.1
242.6
18.4
25.8
13.2
100.9
-15.7
12.5
89.5
36.5
-18.3
-20.4
58.4
-107.7
145.1
-53.8
-24.3
8.3
166.1
-92.6
77.7
33.0
148.0
322.0
-16.6
237.8
-48.8
151.5
-2.0
-118.1
-48.3
-18.0
-4.3
-21.4
-26.2
2023
-832.0
-818.8
-13.2
652.7
376.0
264.2
148.2
-21.8
276.7
21.2
35.5
-1.6
105.3
6.6
5.0
99.0
35.4
-11.2
-16.7
258.9
98.0
308.6
-37.6
3.4
39.4
160.9
-97.8
76.1
33.5
149.0
52.0
12.8
50.2
-45.1
40.1
-6.0
-77.7
-28.6
-5.4
-22.1
-9.7
-11.9
2024f
-866.1
-861.7
-4.5
751.6
434.4
347.0
136.3
-38.3
317.3
21.5
53.7
-11.0
119.5
13.1
10.1
103.4
25.5
-11.5
-13.7
257.3
110.0
280.9
-15.4
19.4
35.0
147.4
-105.1
78.4
34.0
140.0
25.6
11.3
30.5
-32.1
22.3
-10.8
-64.2
-28.0
-11.6
4.0
-9.9
-12.6
2025f
-901.1
-895.8
-5.3
774.2
445.3
342.8
156.5
-49.8
328.9
13.7
62.6
-17.2
121.7
17.2
11.5
103.1
32.7
-11.2
-11.2
250.5
113.2
285.1
-17.3
25.9
33.9
137.3
-115.1
78.4
34.0
140.0
17.3
3.2
23.5
-25.8
24.6
-11.9
-81.9
-43.6
-10.7
2.9
-12.0
-14.5
Economics ● Global
Q2 2024
This page has been left blank intentionally
47
Economics ● Global
Q2 2024
North America
US
Ryan Wang
US Economist
HSBC Securities (USA) Inc.
Ryan.Wang@us.hsbc.com
+1 212 525 3181
Supply-side tailwinds
Real GDP growth remained strong over the course of 2023. At the March FOMC press
conference, Fed Chair Jerome Powell said that economic growth and job creation had been
accompanied by an increase in the supply of workers, reflecting higher prime-age labour force
participation and an ongoing strong pace of immigration. The boost to labour supply may
continue to support economic momentum in 2024, though we anticipate a deceleration in GDP
growth. In Q4/Q4 terms, we expect real GDP growth of 1.6% in 2024 and 1.6% in 2025. In
annual average terms, we forecast GDP growth of 2.3% in 2024 and 1.5% in 2025.
The labour market has continued to show solid momentum over the past year, even as
imbalances between labour demand and labour supply have continued to show signs of gradual
cooling. The “jobs-worker gap” – measured as the number of available jobs minus the number
of available workers – has fallen from a peak of over 6 million in March 2022 to below 3 million
in recent months. In February, the 6-month average increase in nonfarm payrolls was 231,000,
still a robust pace of job creation. We expect employment growth to continue but at a gradually
slower pace. The unemployment rate may drift a bit higher, from 3.8% in Q4 2023, up to 4.1%
by Q4 2024 and 4.2% by Q4 2025.
Core PCE inflation is likely to be an important factor in the timing of any decision by FOMC
policymakers to reduce policy rates. We look for y-o-y core PCE inflation to fall to nearly 2.5%
over the months ahead, while additional downward progress in the second half of this year may
be uneven. We forecast y-o-y core PCE inflation at 2.9% in Q4 2024, and 2.6% in Q4 2025. The
y-o-y rate for the goods component of core PCE inflation has already fallen closer to 0%.
However, the services component of core PCE inflation remains stubbornly elevated, both for
rental inflation and for other services categories. February was the tenth consecutive month that
rents as measured in the CPI increased either 0.4% m-o-m or 0.5% m-o-m, highlighting that any
deceleration in housing services inflation is occurring quite gradually (see US inflation briefing
(Feb): Stubborn core, 13 March 2024).
Real GDP growth remained strong over the
four quarters of 2023
%
5
US: Real GDP
Forecast
4
4
3
3
2
2
%
8
5
4
3
3
2
2
1
1
(1)
(1)
0
% q-o-q annualized
Source: Bureau of Economic Analysis, HSBC forecasts
Source: HSBC with data from INEGI
2025
% y-o-y
6
4
0
2024
7
5
0
2023
%
8
Forecast
6
1
2022
US: Core PCE price index
7
1
2021
48
%
5
Core PCE inflation a key indicator for FOMC
policymakers
0
2021
2022
2023
2024
% 1-month annualized
Source: Bureau of Economic Analysis, HSBC forecasts
2025
% year-on-year
Economics ● Global
Q2 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 policy meeting on 20 March (see FOMC Multi-Asset Reaction: Still
contemplating cuts, 20 March 2024). In its policy statement, the Committee repeated that the
risks to its employment and inflation goals were “moving into better balance” but that it did “not
expect it will be appropriate to reduce the target range until it has gained greater confidence that
inflation is moving sustainably toward 2 percent.” 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 3.754.00% at end-2025. In the March press conference, Chair Powell noted that the policymakers
had discussed the topic of balance sheet run-off and said that it would be appropriate to slow
the pace of run-off “fairly soon.” We expect a decision to slow the pace of quantitative tightening
(QT) to be reached at one of the next several FOMC meetings scheduled for 1 May, 12 June,
and 31 July. Even after this reduction in pace, however, we expect QT to continue at least into
the first half of 2025.
Risks
A lack of futher downward progress on core PCE inflation could lead FOMC policymakers to
keep policy rates higher for longer than financial markets currently anticipate. Stubbornly
elevated inflation could lead to a postponenment of the timing of any initial or subsequent move
to reduce the federal funds target range.
Household credit card delinquency rates have been on rising trend since early 2022, likely
reflecting in part the impact of high price levels on household budgets. A persistent rise in
household deliquencies could eventually lead to a downturn in consumer spending, with
negative spillovers for the broader economy.
Key forecasts
% Year
GDP (% year)
GDP
GDP (Q4/Q4, % year)
Consumer spending
Government consumption
Investment
Stockbuilding (% GDP)
Domestic demand
Exports
Imports
Industrial production (% year)
Unemployment (%)
Wage growth (% year)
Consumer prices (% year)
Current account (USDbn)
Current account (% GDP)
Budget balance (% GDP)
Gross external debt (% GDP)
Gross government debt (% GDP)
Policy rate (%)*
2023
2.5
3.1
2.2
4.0
0.6
-0.3
1.9
2.7
-1.6
0.2
3.6
4.5
4.1
-818.8
-3.0
-6.3
93.0
104.0
5.375
2024f
2.3
1.6
2.1
3.1
2.4
0.0
2.6
2.1
1.5
-0.1
3.9
3.8
3.4
-861.7
-3.0
-6.8
95.9
108.2
4.625
2025f
1.5
1.6
1.4
1.9
2.0
-0.1
1.9
1.1
1.3
1.1
4.2
3.6
3.0
-895.8
-3.0
-6.2
96.9
109.1
3.875
Q1 24f
2.9
1.6
1.7
2.6
2.6
-0.2
1.8
2.2
3.2
-0.3
3.8
4.0
3.2
-214.4
-3.0
5.375
Q2 24f
2.9
1.8
2.1
2.1
1.4
-0.3
1.8
0.6
-0.1
-0.2
3.9
3.9
3.6
-214.6
-3.0
5.125
Q3 24f
2.0
1.4
1.4
2.0
1.8
-0.2
1.4
0.9
0.9
-0.4
4.0
3.7
3.4
-215.6
-3.0
4.875
Q4 24f
1.6
1.4
1.3
1.9
1.8
-0.1
1.4
1.2
1.3
0.3
4.1
3.7
3.5
-217.1
-3.0
4.625
Q1 25f
1.5
1.4
1.3
1.8
2.1
-0.1
1.5
1.1
1.4
1.0
4.1
3.7
3.2
-219.7
-3.0
4.375
Q2 25f
1.4
1.5
1.4
1.8
2.2
0.0
1.6
1.2
1.6
1.1
4.2
3.6
2.9
-222.5
-3.0
4.125
Note: *Period end.
Source: Refintiv Datastream, Bloomberg, HSBC estimates
49
Economics ● Global
Q2 2024
North America
Canada
David Watt
Chief Economist
HSBC Securities (Canada) Inc.
david.g.watt@hsbc.ca
+1 416 868 8130
Conditions for monetary policy pivot slow to fall into place
Economic momentum has slowed in response to 475bp of rate hikes since March 2022, with
domestic demand having cooled and helping to reduce the rate of inflation. Over the past three
quarters, the average contribution to annualised quarterly GDP growth from domestic demand
dropped to 0.1ppt from 1.0ppt in Q4 2022. Even so, the economy has demonstrated some resilience,
particularly in the labour market, where wage growth remains elevated. While inflation is expected to
return to the 2% target, progress may be slow, and success is not assured.
As economic growth decelerated, labour demand cooled, with labour slack increasing as job growth
is no longer keeping pace with the rise in supply, reflecting a record population increase in 2023. The
unemployment rate increased from 5.0% in January 2023 to 5.8% by February 2024.
GDP growth is expected to slow to 0.8% in 2024, from 1.1% in 2023, with the unemployment
rate to rise to 6.5% in late 2024. The economic slowdown is expected to be primarily due to
household consumption growth decelerating to 0.7% from 1.7% in 2023, due to past rate hikes
and a softer job market. That said, consumption spending has also shown some resilience,
surprising to the high side in Q4 2023, as lingering supply chain disruptions eased, and
supported by still elevated y-o-y wage growth of between 4% and 5%.
Nonetheless, tighter financial conditions are expected to weigh on economic activity in the
coming quarters. For example, higher interest rates and lower corporate profits are weighing on
business investment which declined sharply in H2 2023, approaching 20-year lows as a share
of GDP, levels last observed during the pandemic. A weaker corporate environment is also a
key factor that is expected to weigh on employment and wage growth.
Though inflation declined to 2.9% y-o-y in January 2024, and despite a more moderate economic
outlook, it is expected to remain around 3% to around mid-year, and to only reach 2% in late 2025.
Necessary conditions for the Bank of Canada to begin to lower the policy rate, notably sustained
downward pressure on core inflation, are not expected to be in place until mid-2024. The Bank may
also remain cautious about easing its monetary policy stance too early or too quickly.
With interest rates expected to decline by 100bp to 4.0% in the second half of 2024, we look for
economic growth to rebound modestly to 2.0% in 2025.
Rate increases have slowed domestic
demand weighing on the rate of inflation
ppt
3q ma
Final domestic demand contribution
to q-o-q ann. real GDP grow th
ppt
3q ma
Source: Statistics Canada
50
Dec-23
Sep-23
Jun-23
Mar-23
Dec-22
Sep-22
Jun-22
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Mar-22
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Higher rates and weaker profits weighed
heavily on non-residential investment
% GDP Non residential inv estment (including IPP) % GDP
15
15
14
14
13
13
12
12
11
11
10
10
9
1990 1995 2000 2005 2010 2015 2020
9
Source: Statistics Canada Note: IPP refers to Individual Pension Plan
Economics ● Global
Q2 2024
Policy issues
The Bank of Canada’s policy rate is expected to remain at 5.0% until the 5 June policy meeting. At
that time, we look for an initial 25bp rate cut. Overall, we look for a cumulative 100bp of rate cuts
before year end. This scenario is predicated on broad economic and underlying inflation trends falling
into place to provide more convincing evidence that inflation is on a trajectory toward 2%. We think
this evidence will mount in the next few months. We continue to think that the Bank’s Governing
Council will be wary about reducing the policy rate prematurely. In particular, we think that the
Governing Council will not wish to stimulate the housing market. Regarding fiscal policy, the federal
budget due to 21 April will be under scrutiny, particularly the balance between demand-side and
supply-side measures. Given the Bank of Canada’s efforts to slow domestic demand to ease
inflationary pressures, there is little need for demand-side fiscal measures. There is a greater need
for supply-side measures. First, there needs to be a better balance between immigration and housing
policy. However, progress on these issues will require cooperation among all levels of government.
Second, Canada’s weak productivity performance, and the downward momentum in per capita
measures of real GDP, real consumption, and real disposable income highlights significant business
investment challenges. Meanwhile, there is a need to boost investment to maintain progress toward
reducing greenhouse gas emissions and to successfully hit emission reduction targets. There is also
a need for infrastructure investments to support both housing and business investment.
Risks
There are global and domestic risks to the economic outlook. The disruption to shipping through the
Suez Canal and the low water level in the Panama Canal have heightened the risk of supply chain
disruptions. This poses an upside risk to the outlook for inflation. However, unless firms attempt to
pass through rising costs to consumers, the Bank of Canada might not raise the policy rate further.
That said, renewed upward pressures on inflation might decrease the possibility of inflation getting
back to target. This could lead the Bank of Canada to raise the policy rate further in order to ensure
that inflation falls all the way to 2%. Domestically, the main risk is that the labour market weakens
more than expected. This would be a significant downside risk to domestic income that could lead to
a sharp increase in financial distress in the household sector. This would pose a downside risk the
economic outlook and could prompt a more aggressive easing cycle from the Bank of Canada.
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 (%)*
2023
1.1
1.7
1.5
-3.1
1.4
0.5
5.7
1.0
-0.6
5.4
3.4
3.9
-13.2
-0.6
0.0
143.7
98.5
1.32
5.00
2024f
0.8
0.9
1.8
0.4
1.0
1.0
2.4
1.5
1.0
6.1
2.5
2.5
-4.5
-0.2
-1.3
142.9
96.2
1.30
4.00
2025f
2.0
1.8
2.0
3.7
0.7
2.3
2.3
2.2
1.9
6.2
2.3
2.2
-5.3
-0.2
-1.2
135.1
93.4
3.00
Q1 24f
0.5
0.9
1.2
2.0
2.2
1.2
1.5
1.3
1.9
1.8
5.8
3.2
2.9
-1.4
-0.3
1.35
5.00
Q2 24f
0.4
0.4
0.8
2.2
2.2
0.9
1.4
2.2
2.3
1.9
6.0
2.6
2.8
-1.3
-0.2
1.33
4.75
Q3 24f
1.0
1.8
1.3
2.2
2.8
0.9
1.8
2.7
2.4
2.0
6.3
2.1
2.2
-1.0
-0.2
1.31
4.25
Q4 24f
1.2
1.9
1.6
2.0
3.4
0.9
2.1
2.5
2.4
2.1
6.5
2.4
2.2
-0.7
-0.1
1.30
4.00
Q1 25f
1.6
2.2
1.8
2.0
3.9
0.8
2.3
2.2
2.1
1.9
6.4
2.8
2.3
-1.0
-0.2
1.30
3.75
Q2 25f
2.0
2.3
2.1
2.0
4.1
0.8
2.5
2.0
2.1
1.8
6.3
2.4
2.3
-1.2
-0.2
1.30
3.50
Note: *Period end. Source: HSBC estimates
51
Economics ● Global
Q2 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
How to achieve “around 5%” growth
The NPC set the GDP growth target at “around 5%” for 2024, more ambitious than last year, taking
into account a higher base (see China NPC 2024, 5 March). We think it is achievable and expect
GDP growth to reach 4.9%, but it will require more policy support (see Will the dragon roar? 8
January). Fortunately, the necessary policy tailwinds appear to be on the way: fiscal support is
punchier than the headline figures suggest. We estimate a 1.3ppt of GDP fiscal impulse, pushing
the broad deficit to 8.3% of GDP (see China NPC Budget, 6 March). With monetary easing
surprising the market twice already (50bp RRR cut and 25bp cut in the 5-year LPR), Governor Pan
suggested more room for RRR cuts. Perhaps more reassuring, Beijing has pledged stronger
coordination of fiscal, monetary, employment, industrial, and regional policies (CCTV, 7 March).
The drivers for domestic growth have continued to gain momentum. Record trips and travel
spending during the Lunar New Year holidays have pushed above pre-pandemic levels, up 19%
and 8%, respectively, compared to 2019 (see China’s holiday wrap-up, 19 February). Moreover,
consumption has broadened out beyond services and towards durable goods purchases like autos
and electronics. This will be supported by recent policies aimed at promoting consumer goods
upgrading, according to the Head of the National Development and Reform Commission (NDRC)
(CCTV, 7 March). We think consumption strength will continue, rising 7% y-o-y in real terms.
At the same press conference, the Head of the NDRC also said China will promote large-scale
upgrading and replacement of aging equipment (estimated to be on an annual scale of RMB5trn),
which will support industrial production and manufacturing investment. The emphasis on “new
productive forces” implies continued policy support to emerging strategic sectors. Altogether, we
expect this to lift manufacturing investment to 8% y-o-y.
However, the property sector remains the key headwind: new home sales continue to be depressed,
falling c30% y-o-y in January and February in value terms, though the relatively outperforming
second-hand home sales may offer some hope, following policy loosening. The shift towards a dualtrack housing model is under way. We anticipate a quicker equilibrium in the private housing market
with fewer restrictions. Additionally, increasing the provision of social housing can enhance housing
affordability and absorb the surplus in private housing, thereby contributing to an eventual housing
market stabilisation (Propping up property, 8 February). In our view, a top down, holistic plan will
accelerate such a process. Overall, we expect a mild decline in property investment this year (c-5%).
Activity is firming up in a more broad-based
fashion…
% y -o-y
Activ ity
% y -o-y
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
Industrial
Service Fixed asset Retail sales
production production investment (in value
(in volume
index
(in value
terms)
terms)
(in volume
terms)
terms)
2019 FY
2022 FY
2023 FY
2024 Jan-Feb
Source: Wind, HSBC
52
…but the property sector continues to
remain a drag
% Yr, 3mma Mainland China property sector % Yr, 3mma
50
50
25
25
0
0
-25
-25
-50
-50
2015
Source: CEIC, HSBC
2017
2019
2021
2023
Floor Space under Construction
Floor Space of Newly-started Buildings
Floor Space of Buildings Completed
Real estate FAI
Economics ● Global
Q2 2024
Policy issues
Fiscal policy is punchier. While the headline figures of 3.0% of GDP for the official fiscal deficit,
RMB1trn of ultra-long dated special treasury bonds and RMB3.9trn of special local government bond
quota are roughly on par with 2023 levels, a closer look reveals a strong fiscal impulse of 1.3ppt. The
broad-based fiscal deficit, the ‘dry powder’ of the government including funds transferred from other
government budget accounts and stabilisation funds, will reach 8.3% of GDP, the second highest
level in recent years (see China NPC Budget, 6 March). China has also institutionalised issuance of
ultra-long term special treasury bonds for this year and the upcoming years, as we predicted last
October (see China policy watch, 30 October). This serves multiple purposes including providing a
near-term buffer to the economy via government spending, shifting more spending responsibilities to
the central government and paving the way for a structural transition (Xinhua, 6 March).
Monetary policy will continue to be accommodative, following two surprising moves in January and
February. Speaking at the NPC press conference, PBoC Governor Pan Gongsheng noted there are
still abundant monetary tools and suggested further RRR cuts. We expect another 50bp RRR cut this
year, while 20bp of policy rate cuts are likely in H2 2024 and another 20bp in H1 2025, following a
likely Fed pivot which HSBC Economist Ryan Wang expects to begin in June.
Meanwhile, inflation may see gradual improvements in 2H24, leading to a modest pickup in CPI
inflation to 0.5% in 2024. Food prices are expected to exert less downward pressure, particularly as
pork prices begin to increase later this year. Moreover, robust service consumption is anticipated to
provide additional support to the CPI. PPI, on the other hand, is expected to stay low in the early part
of the year, with a return to positive growth in 2H24. Continued weakness in the property sector is
weighing on prices, while a lower industrial capacity utilization rate (75.1% in 2023 vs. 76.7% in
2017-2019), and hence fierce price competition, in certain sectors remains a concern.
Risks
We see risks as balanced. The property sector is still the key downside risk. The sector’s drag on
GDP growth will likely be less than the previous two years, but the consequential impact on
consumer confidence via the wealth effect will take time to ease. The global demand slowdown could
also weigh on growth. Geopolitically, the upcoming US elections will likely be the key touchpoint.
Upside risks are likely to stem from larger stimuli and better coordinated policy implementation, which
could result in a faster-than-expected improvement in consumer and business sentiment.
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)
RMB/USD*
Policy rate*
2023
5.2
4.0
4.7
5.8
10.0
3.2
3.2
-4.6
-5.5
4.6
6.1
0.2
264.2
1.5
-3.8
14.9
7.10
3.45
2024f
4.9
4.3
4.9
4.8
7.0
5.9
3.5
4.3
4.6
5.4
6.3
0.7
347.0
1.9
-3.0
15.2
7.10
3.25
2025f
4.5
3.9
4.5
4.5
7.2
4.4
2.7
3.8
4.0
5.3
6.7
1.5
342.8
1.7
-3.0
14.7
3.05
Q1 24f
4.2
1.4
3.0
4.2
4.2
3.0
2.4
6.4
0.0
79.2
1.9
-0.8
7.20
3.45
Q2 24f
6.1
1.1
6.1
6.2
6.0
4.4
5.7
6.0
0.7
84.0
1.8
-2.4
7.15
3.45
Q3 24f
4.5
1.0
4.0
4.4
4.6
5.0
5.8
4.9
0.8
95.1
2.0
-3.4
7.10
3.35
Q4 24f
4.6
1.1
3.9
4.7
4.5
4.6
4.4
4.5
1.5
88.7
1.7
-4.9
7.10
3.25
Q1 25f
4.4
1.1
3.8
4.4
4.6
1.9
4.8
4.7
1.6
55.7
1.3
-0.8
7.10
3.15
Q2 25f
4.3
1.0
4.0
4.3
4.5
3.2
3.8
5.2
1.3
86.2
1.8
-2.4
7.10
3.05
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
53
Economics ● Global
Q2 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
One-and-done for now
Following strong preliminary results in this year’s Shunto spring wage negotiations, the Bank of
Japan (BoJ) finally exited negative interest rate policy (NIRP) in the March meeting, marking not just
Japan’s, but the world’s departure from negative rates. However, while market participants are trying
to look further ahead in terms of additional policy changes, we believe such considerations to be
premature, given weak fundamentals such as still-stagnant labour productivity growth. With
policymakers’ reflation bias after years of deflation, we therefore expect the BoJ to normalise very
gradually, leaving the policy rate unchanged in 2024 and then only hiking by 10bp in both Q1 25 and
Q3 25 for a total of 20bp in 2025.
Domestic consumption remains very weak, with revised Cabinet Office estimates for Q4 23 GDP
showing a sequential contraction in consumer spending in Japan for three consecutive quarters due in
part to persistent negative real wage growth. While higher expected nominal wage growth and one-off
income tax cuts in the middle of this year will likely buttress consumption from the lows, the extent to
which spending can materially rebound remains in doubt. Meanwhile, a structural uplift in capital
expenditure is expected to continue as businesses invest in digitalisation initiatives as well as measures
to help alleviate increasingly acute labour shortages.
Externally, a normalisation in the auto supply chain and the weak yen have helped buoy car exports.
While the tragedy of the Noto Peninsula earthquake as well as production disruptions due to automaker
scandals (NHK, 26 February 2024) will weigh on the external sector in the first quarter of 2024, trade is
expected to remain relatively resilient overall. Reconstruction will also help to buttress growth, and so
we expect Japan to grow at 0.6% in 2024 (0.8% previously). Meanwhile for 2025, we continue to expect
above-potential growth at 1.1% in 2025.
On prices, we are seeing structural changes in firms’ behaviour, such as rising services prices set
among businesses. The momentum in services inflation for consumers has also held up, both
suggesting pass-through of rising labour costs. For instance, two major parcel delivery companies are
expected to raise delivery services fees to accommodate regulatory changes in the logistics industry in
April (NHK, 12 January 2024). We therefore continue to expect elevated inflation in Japan, although we
revise down our expectations to 2.3% in 2024 (2.6% previously) and 1.9% in 2025 (2.0% previously) on
the back of a moderation in commodity and goods price expectations.
Current real rate environment is much more
stimulating than before
Japan scheduled earnings
%
10.0
% Yr
3.0
8.0
2.5
2.5
6.0
2.0
2.0
4.0
1.5
1.5
2.0
2.0
1.0
1.0
0.0
0.0
0.5
0.5
-2.0
-2.0
0.0
0.0
-4.0
-4.0
-0.5
-0.5
-6.0
1991 1996 2001 2006 2011 2016 2021
Nominal rate
Real rate
-6.0
%
10.0
Japan policy rate
8.0
6.0
4.0
Source: CEIC, HSBC. NB: TONA rate as nominal rate, while real series is core-core cpi
(excluding fresh food and energy) deflated and adjusted for consumption tax changes
54
Underlying pay growth has already seen a
level shift
% Yr
3.0
-1.0
-1.0
2016 2017 2018 2019 2020 2021 2022 2023 2024
Scheduled cash earnings for full-time employees
Alternative series comparing same survey base
Source: Bloomberg, MHLW, CEIC, HSBC
Economics ● Global
Q2 2024
Policy issues
While the government’s initial general account expenditure for fiscal year 2024 is set to decline to
JPY112.6trn from JPY114.4trn initially set for fiscal year 2023, expenditure is still notably higher than
pre-pandemic levels. As the BoJ normalises its ultra-loose and unconventional monetary policy, the
increase in debt servicing costs, albeit already partly accounted for in government estimates, will also
influence the government’s fiscal position. In this sense, the management of the Japanese central
bank’s massive balance sheet, which also consists of non-traditional assets like ETFs, will be in
focus in the months ahead. This will go hand in hand with the comprehensive monetary policy review
currently under way, with the second workshop expected in May later this year.
The other point of contention is the outlook for energy subsidies. As of 18 March, gasoline,
electricity, and gas subsidies are due to be removed or reduced from April onwards. Already,
Prime Minister Kishida has mentioned that he is considering extending gasoline subsidies further
(Yomiuri, 18 March 2024). Whether energy subsidies are extended yet again and at what size will
have implications for household spending, and, subsequently, for the BoJ’s outlook on activity and
price developments.
Risks
Although in its nascent stages, structural changes in the labour market and firm behaviour could
accelerate productivity growth, raising the likelihood of Japan achieving the price stability target.
That said, the BoJ will be in no rush to move given the challenges the economy has faced during
the lost decades. There is also much lingering uncertainty with respect to the external environment,
such as the continued resilience of the US economy and the evolving geopolitical landscape. All in
all, this would mean that rate hikes beyond zero would be very limited in both pace and scale.
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 (%)*
2023
1.9
0.6
0.9
2.1
0.4
0.9
3.0
-1.3
-1.3
2.6
1.2
3.3
148.2
3.6
-6.1
107.0
211.5
141
-0.10
2024f
0.6
-0.4
0.6
2.0
0.0
0.1
4.3
1.2
1.0
2.5
1.6
2.3
136.3
3.2
-4.3
106.6
203.9
136
0.10
2025f
1.1
0.7
0.6
1.9
0.0
1.0
3.1
2.4
1.3
2.5
1.1
1.9
156.5
3.3
-1.9
105.1
192.8
0.30
Q1 24f
0.4
0.1
-1.4
0.3
1.1
0.0
-1.2
7.0
-1.5
0.4
2.5
1.5
2.6
33.2
3.2
146
0.10
Q2 24f
-0.2
0.3
-0.6
0.7
1.9
0.0
-0.3
4.1
2.8
0.1
2.4
1.6
2.5
33.3
3.2
143
0.10
Q3 24f
0.9
0.3
-0.1
0.6
2.8
0.0
0.7
4.0
2.4
2.1
2.5
1.7
2.3
32.8
3.0
140
0.10
Q4 24f
1.1
0.3
0.4
0.9
2.3
0.0
1.0
2.2
1.3
1.3
2.5
1.8
1.7
37.1
3.3
136
0.10
Q1 25f
1.3
0.3
0.7
0.7
2.0
0.0
1.0
3.4
2.4
2.1
2.5
1.5
2.1
39.4
3.4
136
0.20
Q2 25f
1.2
0.3
0.8
0.5
1.9
0.0
1.0
3.1
2.4
1.3
2.5
1.1
2.0
39.2
3.3
136
0.20
Source: CEIC, Cabinet Office, MoF, BoJ, HSBC
Note: *Period end **Data on fiscal year basis
55
Economics ● Global
Q2 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
Priya Mehrishi
Associate
Bangalore
Glorious growth
December quarter GDP growth came in at a stellar 8.4%, which was higher than expected. We
think these numbers need to be looked at carefully. A closer examination reveals the following:
GVA, which adds up production (across agriculture, industry and services) did not show the
same exuberance as GDP. GVA growth for the quarter was in line with our expectation of 6.5%;
and, in fact, was slightly lower than the growth in the previous quarter (7.7% y-o-y). In the past
we have found GVA to be a better indicator of growth than GDP, correlating better with high
frequency activity data. GDP growth outpacing GVA by a substantial margin could be led by
policy changes. We know that GDP = GVA + indirect taxes – subsidies. We find that a 69% fall
in the fertiliser subsidy bill created the large wedge between GDP and GVA.
But even if growth momentum softened a bit in the December quarter, we are not worried. Data over
January to March suggest that the growth momentum has bounced back up. PMI manufacturing and
services have risen, and corporate margins remain higher than the long-term-average. We expect
FY25 and FY26 GDP to growth at a faster clip than we were expecting last quarter.
Investment continues to grow much faster than private consumption. Details show that much of
the rise in investment is driven by ‘dwellings and buildings’, in line with other data which points
towards a housing boom. Private consumption growth, as per GDP estimates, has been
surprisingly tepid. Our suspicion is that it is not getting captured properly and will be revised up
a notch in subsequent revisions. After all, some other indicators of consumption aren’t faring too
badly. Consumer goods imports, non-mortgage personal loans, and services demand, are
growing quickly. And even though rural demand was hit by the El Niño weather condition, rural
incomes got some support from a rapidly growing construction sector.
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 growth has been strong
Foreign investment intentions in futuristic
sectors are rising
India: Trends in real growth
% Yr
10
% Yr
10
8.4
8.2
8
6.2
6
4
6
4.3
Dec-22
4
Mar-23
GVA
Source: CEIC, HSBC
56
8
8.1
Jun-23
GDP
Sep-23
Dec-23
Core GVA
India's foreign investment intentions
Cost of announced projects
INR bn
3000
INR bn
3000
2500
2500
2000
2000
1500
1500
1000
1000
500
500
0
2015
0
2017
2019
Renewables
Data centre
Semiconductors
Source: CEIC, HSBC
2021
2023
EV & battery
Hydrogen
Economics ● Global
Q2 2024
Policy issues
While India is rising on the world stage - gaining global market share in goods and services
trade, and bond inflows, triggered by the JPMorgan bond inclusion, rising rapidly - FDI inflows
have, counter-intuitively, fallen sharply. India may be at an interesting crossroads, where
pandemic-led FDI flows in sectors such as computer services and drugs and pharmaceuticals
have slowed, but investment intentions reveal meaningful interest in futuristic sectors such as
renewables, semiconductors and AI. Partnerships are evolving as well. FDI interlinkages with
sovereign wealth funds, the Middle East, and the US are rising sharply, even if FDI from China
to India is not. In short, investment frontiers are shifting. Being new, these sectors may take
more time than normal to materialise. And when they do, a new wave of FDI will likely come in,
keeping the rupee well-funded.
In good news, core inflation has finally started falling after a long wait, but food inflation remains
uncertain in an El Niño year. We expect inflation to average 4.5% in FY25, lower than 5.4% in
the previous year, but still above the 4% target. With growth momentum being strong, we
believe the RBI is in no great rush to ease policy rates before the Fed. We expect a light easing
cycle of two 25bp repo rate cuts this year from June onwards (in line with our Fed call of first
rate cut in June), taking the repo rate from 6.5% now to 6% by year-end.
On the fiscal front, the government delivered on the need of the day, which was to responsibly
bring down the fiscal deficit at a time when state fiscal deficits are rising, such that, over time,
India leaves enough resources to fund private sector capex. As a result, gross market borrowing
will be markedly lower in FY25 (also helped by the use of GST compensation funds to make
some repayments).
Risks
Adverse weather events such as heatwaves and uneven rains could stoke inflation. Higher import
tariffs and investment restrictions could weaken India’s interlinkages with the world. A lack of product
market reforms could keep the benefits of higher growth from becoming widespread.
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 (%)*
2023
7.7
7.6
3.8
3.1
10.0
1.0
5.9
1.5
10.9
5.7
5.4
-21.8
-0.6
-5.8
17.9
85.3
83.2
6.50
2024f
6.3
6.5
6.0
4.1
7.0
1.0
6.2
7.0
8.0
4.5
4.5
-38.3
-1.0
-5.1
17.1
85.1
82.8
6.00
2025f
6.6
6.7
7.4
4.4
7.2
1.0
7.1
6.4
7.5
5.2
5.0
-49.8
-1.2
-4.6
16.2
83.7
6.00
Q1 24f
6.1
1.0
6.1
4.0
3.0
9.5
0.8
6.0
3.5
8.0
4.4
5.0
5.8
0.6
82.8
6.50
Q2 24f
5.9
4.4
5.9
5.0
5.0
7.0
1.1
5.7
6.5
6.0
3.7
4.9
-7.3
-0.8
82.8
6.25
Q3 24f
6.5
0.1
6.5
5.5
4.0
6.5
1.2
5.7
6.5
8.0
4.1
3.4
-9.4
-1.0
82.8
6.00
Q4 24f
6.8
1.1
6.8
6.5
4.0
7.5
1.1
6.6
7.0
9.0
4.9
4.9
-13.6
-1.4
82.8
6.00
Q1 25f
6.7
0.9
6.7
7.0
3.5
7.0
0.8
6.6
8.0
9.0
5.2
4.6
-8.0
-0.8
82.8
6.00
Q2 25f
6.6
4.3
6.6
6.5
5.2
6.8
1.1
6.5
6.0
7.0
4.8
4.9
-11.2
-1.1
82.8
6.00
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
57
Economics ● Global
Q2 2024
Asia Pacific
Australia
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
Productivity problems push up prices
Growth has slowed markedly and was sluggish in the second half of 2023, although it was still
positive. The key driver of the slowdown has been a weakening in growth of consumer
spending, particularly on non-discretionary items. This has reflected weak growth in real
household disposable incomes, which in turn has been weighed upon by still elevated inflation,
rising taxes and rising net interest payments by households.
Providing a positive offset, the economy has been supported by strong inward migration, which
has driven population growth.
As a result, even though per capita GDP fell in 2023 and we forecast it to fall again in 2024,
overall GDP has risen modestly and we expect it to continue to grow in 2024. That said, we see
population growth slowing down in 2024, which is the key reason we see GDP growth slowing
from 2.1% in 2023 to 1.5% in 2024 (unchanged from our forecasts a quarter ago).
The slowdown in growth, combined with the weakening in global goods prices, has seen
inflation continue to head towards the RBA’s 2-3% target band. However, this has occurred only
gradually and the key components still holding inflation above the target are domestic,
particularly services prices. Underlying inflation fell to 4.2% in Q4 2023, down from its peak of
6.8% in late 2022, but still well above the 2.5% mid-point of the RBA’s target band. Amongst the
components that are holding up inflation are items for which supply-side constraints are set to
make that inflation persist, including rents, electricity and insurance costs.
In addition, despite a pick-up in wages growth, which had been driven by an exceptionally tight
jobs market, productivity growth has been very weak. This has been lifting unit labour costs at a
rate that is well in excess of what is consistent with the RBA’s 2-3% inflation target band. Firms
have been able to pass through these rising unit labour costs to final prices, which is also
supporting still elevated inflation.
We expect inflation to fall only slowly and to still be above the top of the RBA’s target band by
end-2024, reaching its mid-point only in late 2025/early 2026. We expect this to keep the RBA
on hold through 2024, although there is some risk of a cut in the final quarter of 2024.
Inflation is falling only slowly …
Australian labour market
% Yr
20
6
6
15
15
5
5
10
10
5
5
Australia underlying inflation
RBA Target Band
4
4
% Yr
20
3
3
2
2
0
0
1
1
-5
-5
0
1993 1997 2001 2005 2009 2013 2017 2021
0
-10
1995
% y-o-y
6-month annualised
Source: ABS; HSBC estimates. Note: Inflation is average of trimmed mean and
weighted median (annual)
58
… as unit labour cost growth is strong
%
7
%
7
-10
2000 2005 2010
GDP per hour
Source: ABS; HSBC estimates
2015 2020
Unit labour costs
Economics ● Global
Q2 2024
Policy issues
The primary concern for the RBA remains that inflation is still too high and falling only slowly,
rather than that growth is too weak. Although growth has slowed, aggregate demand is still
likely to be exceeding aggregate supply, with the economy still operating close to, or beyond, its
sustainable capacity. The RBA has stated for some time that its approach was to seek to
maintain as close to full employment as possible, while still getting inflation to head to its target
over time. To achieve this, the RBA lifted its cash rate by less than many other key central
banks. As a result, inflation is coming down only slowly and it is our expectation that the RBA
will be one of the last developed economy central banks to start easing.
On fiscal policy, personal income tax cuts are set to be delivered in July 2024 that are likely to
support consumer spending and to slow the pace of decline in inflation. We expect these tax
cuts, combined with a gradual fall in inflation, to support some pick-up in consumer spending in
the second half of 2024, following only weak growth in the first half of the year. We see a risk
that more fiscal spending measures are announced in the May budget, ahead of an election that
is likely to be in early 2025, further supporting price pressures in the economy.
Weak productivity is a key challenge facing policymakers, which is also adding to sticky
inflation. A reform agenda aimed at lifting productivity is largely missing from the policy
discussion, but an improvement in the supply-side is clearly needed.
Risks
We see balanced risks to the outlook. On the upside, productivity could improve, allowing more
growth and continued disinflation and the RBA to ease its policy setting earlier than our central
case. On the downside, the supply-side of the economy could prove to be stubbornly weak,
meaning a longer period of sub-par growth is needed to return inflation 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 (%)*
2023
2.1
1.1
1.7
6.9
-0.1
1.3
6.8
3.3
0.5
3.7
3.9
5.6
21.2
1.2
0.9
19.4
0.68
4.35
2024f
1.5
0.7
2.0
2.5
-0.4
1.1
3.1
1.2
1.3
4.3
3.8
3.4
21.5
1.1
0.4
18.4
0.68
4.35
2025f
1.9
1.5
1.9
3.3
-0.4
2.0
3.3
4.2
2.0
4.9
3.4
2.8
13.7
0.7
-0.7
19.5
3.75
Q1 24f
1.3
0.3
0.2
2.8
4.2
-0.4
0.6
4.7
1.4
0.5
4.0
4.1
3.6
6.1
1.3
0.66
4.35
Q2 24f
1.2
0.4
0.4
2.5
2.0
-0.4
1.4
1.3
0.7
0.6
4.2
4.3
3.5
4.7
1.0
0.66
4.35
Q3 24f
1.5
0.6
1.0
1.5
1.2
-0.4
0.9
2.4
-1.1
1.9
4.4
3.4
3.2
5.2
1.1
0.67
4.35
Q4 24f
1.9
0.6
1.3
1.4
2.7
-0.4
1.7
4.1
3.9
2.0
4.6
3.2
3.2
5.5
1.1
0.68
4.35
Q1 25f
2.0
0.4
1.4
1.7
3.0
-0.4
1.9
4.1
4.3
2.0
4.8
3.5
3.0
4.4
0.9
0.68
4.00
Q2 25f
2.0
0.5
1.5
2.0
3.3
-0.4
2.1
3.5
4.1
2.0
4.9
3.5
2.9
3.7
0.7
0.68
4.00
Source: HSBC estimates
Note: *Period end
59
Economics ● Global
Q2 2024
Asia Pacific
South Korea
Jin Choi
Economist, Korea & Taiwan
The Hongkong and Shanghai
Banking Corporation Limited
jin.h.j.choi@hsbc.com.hk
+852 2996 6597
Lingering divergence between growth drivers
We expect Korea’s growth recovery to continue at a gradual pace over 2024, for an average growth
of 2.0% (vs. 1.4% in 2023). The 10bp upgrade comes as we see a continued exports recovery
ahead, even though we maintain our relatively cautious view regarding the strength and
sustainability of the support coming from the memory upcycle. Here, despite the AI-related demand
for high-end memory chips, we may need to wait for the overall electronics cycle to turn around for
a more sustainable and broad-based recovery for the overall semiconductor sector. Indeed, the
recovery in DRAM spot prices – the indicator we closely monitor to gauge the extent of excess
demand in the memory sector – has been showing signs of stalling lately, corroborating our view.
However, we also acknowledge that overall global demand could turn out to be better than we had
earlier expected for this year: We think the US’s growth resilience and broadening of mainland
China’s growth recovery could provide further support to global trade and Korea’s overall export
momentum, especially in the latter half of this year.
The expected healthy headline GDP growth this year, however, could mask a lingering divergence of
growth drivers within. Indeed, under the exports-led growth recovery in recent quarters lies continued
weakness in domestic demand. Private consumption has remained subdued over the past three
quarters amidst the Bank of Korea (BoK)’s restrictive monetary policy. As it is, the monthly consumer
sentiment and domestic consumption indices have shown some signs of recovery lately. This
suggests that the worst is likely behind us, with real wages recovering thanks to continued
disinflation. However, we expect the overall recovery momentum to be limited before the BoK starts
to loosen its monetary policy. Similarly, we expect the overall capex momentum to remain weak. The
elevated interest rates will likely continue to suppress construction activity, outweighing the rebound
we see for facilities capex driven by the exports recovery.
The good news is that Korea’s disinflation has continued amidst the softening in private consumption
and the government’s efforts to contain inflationary pressures. In turn, underlying sequential
momentum in core inflation has remained largely favourable since late last year. We continue to
expect inflation to average 2.6% for 2024, unchanged from three months ago.
Underneath the steady GDP recovery of
late lies domestic demand weakness
We continue to expect the Bank of Korea
to start easing in Q3 2024
Index
120
Index
120
% y-o-y
7
115
115
6
6
110
110
5
5
105
105
4
4
100
100
3
3
95
95
2
2
90
90
1
85
85
0
2019
Korea GDP (4Q19=100, SA )
2020
Real GDP
GFCF
Source: CEIC, HSBC
60
2021
2022
2023
Private consumption
Exports
Korea inflation vs. policy rate
%
7
1
BoK's inflation target
2020
2021
2022
BoK policy rate (RHS)
Core CPI
2023
2024
0
2025
Headline CPI
Source: CEIC, HSBC estimates; Note: coloured squares denote HSBC forecasts
(quarterly averages for inflation and quarter-end values for policy rates
Economics ● Global
Q2 2024
Policy issues
We continue to see Q3 2024 as the most likely timing for the BoK to start its gradual easing
cycle. This is when we expect the BoK will likely have witnessed monthly headline inflation slow
below the 2.5% level and core inflation come down near the 2% level – the levels which we
think could give the BoK ample amount of confidence that Korea’s inflation is indeed converging
towards its 2% target. We expect the BoK’s subsequent easing cycle to be gradual, with a 25bp
cut in each of the following quarter bringing the policy rate down to 2.25% by Q3 25. Over the
easing cycle, the BoK will closely watch the rate cuts’ impact on household leverage. An
excessive pick-up in leverage, especially if tied to rapid price gains in the housing market, could
slow the BoK’s policy easing. Lastly, we note that market expectations of the timing of the US
Fed’s first rate cut have moved materially from March to June or possibly later this year (vs.
HSBC’s expectations of June). However, we reiterate our view that the BoK’s first rate cut need
not happen after the Fed, absent excessive volatility in the FX market posing an upward
inflationary pressure through import inflation.
Meanwhile, the result of the upcoming legislative election on 10 April will likely help shape
Korea’s fiscal policy for the coming years. As it is, the current Yoon administration’s overall
stance on fiscal prudence remains in place: the 2024 budget features an unimpressive 2.8%
growth in total expenditure, which could help contain inflationary pressures. A formal adoption of
a stringent fiscal rule is also pending in the National Assembly, where the opposition Democratic
Party of Korea currently holds the absolute majority. In this regard, the result of the election
could work to either add or reduce policy traction to such endeavours.
Risks
We see balanced risks for Korea’s growth. The extent of the recovery in global trade this year,
to be affected by the resilience in US growth and the trajectory of mainland China’s growth
recovery, could nudge Korea’s exports and facilities capex recovery in either direction.
Domestically, changing expectations and business sentiment around the upcoming BoK’s
monetary policy normalisation could impact private consumption and construction capex. In this
regard, we also watch for risks around our inflation forecast, including global oil prices and
domestic energy policies (extension of fuel tax cut and adjustment in electricity and gas fees).
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 (%)*
2023
1.4
1.8
1.3
1.1
0.7
1.4
3.1
3.1
-2.7
2.7
3.8
3.6
35.5
2.1
-3.6
38.8
51.4
1288
3.50
2024f
2.0
1.5
1.3
0.4
0.8
1.0
6.4
4.1
3.7
2.9
3.2
2.6
53.7
3.0
-3.4
37.5
51.2
1270
3.00
2025f
2.3
2.5
2.1
2.3
0.8
2.4
3.9
4.9
2.1
2.9
3.3
2.0
62.6
3.2
-3.0
35.8
52.0
2.25
Q1 24f
2.2
0.3
0.7
-0.8
-0.6
1.1
0.0
7.0
0.8
4.1
3.0
3.3
2.8
7.1
1.7
1300
3.50
Q2 24f
1.9
0.3
1.3
1.9
-0.2
-0.5
0.7
8.8
5.8
5.3
2.9
3.2
2.5
8.9
2.0
1290
3.50
Q3 24f
1.9
0.6
1.7
2.2
0.0
1.5
1.1
6.3
4.8
3.6
2.9
3.3
2.6
18.6
4.0
1280
3.25
Q4 24f
1.9
0.7
2.1
2.2
2.1
1.0
2.3
3.8
5.0
2.0
2.9
3.2
2.3
19.0
3.9
1270
3.00
Q1 25f
2.3
0.7
2.4
2.2
2.3
1.2
2.4
4.0
5.2
2.1
2.9
3.3
2.4
8.5
1.9
1270
2.75
Q2 25f
2.5
0.6
2.6
2.1
2.5
-0.4
2.6
4.1
5.2
2.2
2.9
3.3
2.1
10.8
2.3
1270
2.50
Source: HSBC estimates Note: * refers to managed fiscal balance (excluding social security funds)
61
Economics ● Global
Q2 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
Priya Mehrishi
Associate
Bangalore
The tide is turning
Following the elections on 14 February, General Election Commission (KPU) announced on 20
March that Prabowo Subianto has won an outright majority, garnering 58.6% of votes, and is set to
be Indonesia’s next president. All eyes are now on the key people and policies the new government
champions. The continued presence of technocrats in key ministerial posts would signal a desire to
push ahead with reforms, and the final legislative count will determine the parliamentary muscle
power behind potential reforms.
Mr Subianto has spoken at length about continuing Jokowi’s reforms – embarking on downstreaming 2.0, and continuing the infra build-out. However, we believe there will be challenges along
the way: for instance, slower global demand for nickel EV batteries, lowering Indonesia’s carbon
footprint, and restructuring certain SOEs. Prabowo has outlined plans to upgrade defense systems
and enhance social welfare schemes (in particular a new free lunch programme at schools). The
challenge here would be to keep a lid on the fiscal deficit, and hold on to Indonesia’s well-maintained
macro stability over the next five years.
We do believe that a decade of reforms has put in place several buffers which would help keep the
house in order, at least in the short-run. For instance, better infrastructure and lower logistics costs
will likely keep a lid on core inflation, as has been clear in recent months. Supply-side reforms could
help control the rise in food inflation. And rising exports of processed metals will likely keep the
external deficits manageable.
Growth is likely to be higher in the post-elections period, led by: (1) a positive fiscal impulse; (2) the
realisation of FDI inflows waiting on the side-lines for election related uncertainties to end; and (3) a
recent rise in capacity utilisation and credit growth. The latter, in particular, has been rising across the
board, and may get a shot in the arm when Bank Indonesia embarks on monetary policy easing.
We expect GDP growth to come in higher in 2024 (5.2% versus 5% in 2023).
Moving to the medium term, we believe 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 chai: from ores to processed metals and EVs. This is likely to benefit further
from strengthening economic interlinkages with China and stronger trade volumes within the ASEAN
region. In fact, we forecast that potential growth will accelerate by 0.5ppt over the medium term,
rising from 5.3% in the period before the pandemic to 5.8% by 2028.
Credit growth is rising
% 3m//3m
saar
15
Down-streaming has led to a higher export
of metals
Indonesia real credit
12
12
9
9
6
6
3
3
0
0
Mar-23
Jun-23
Total credit
Investment
Source: CEIC, HSBC
62
% 3m/3m
saar
15
Sep-23
Dec-23
Working capital
Consumption
Indonesia monthly exports
Raw ore and processed metal
USDmn,
3mma
3000
USDmn,
3mma
3000
2500
2500
2000
2000
1500
1500
1000
1000
500
500
0
0
2013
2015
Raw ore
Source: CEIC, HSBC
2017
2019
2021
2023
Processed iron/steel
Economics ● Global
Q2 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 this year, 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 prices have shot up further in recent weeks. 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 and palm oil prices, the current account has swung into a small deficit (of 0.1%
of GDP in 2023, from a 1% surplus in 2022). Better domestic growth prospects could pressure it
further. We forecast that the current account deficit will average 0.8% of GDP in 2024.
Encouragingly, on the fiscal front, buoyant tax revenues and controlled expenditure kept a lid on
the deficit in 2023, which came in at 1.7% of GDP, lower than the budget estimate of 2.3%. We
forecast the fiscal deficit to inch up to 2.5% in 2024.
Overall, we expect the twin deficits to widen in 2024, though just a shade, and for inflation to come in
lower than the previous year, but a bit higher than the new inflation target.
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 food inflation. Macro stability under the new government will be important
for sustaining 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 external debt (% GDP)
Gross government debt (% GDP)
IDR/USD*
Policy rate (%)*
2023
5.0
4.8
2.9
4.4
1.0
5.1
1.3
-1.4
3.4
5.6
5.8
3.7
-1.6
-0.1
-1.7
29.7
39.0
15397
6.00
2024f
5.2
5.6
4.5
5.7
1.1
5.6
3.3
6.0
4.1
5.4
6.5
2.9
-11.0
-0.8
-2.5
29.2
39.2
15400
5.00
2025f
5.3
5.6
5.6
5.7
1.0
5.6
6.6
8.3
3.2
5.4
6.7
3.0
-17.2
-1.1
-2.8
28.9
39.4
5.00
Q1 24f
5.0
1.4
5.5
4.0
5.6
2.0
5.2
1.0
5.0
4.3
2.6
-3.1
-0.9
15550
6.00
Q2 24f
5.1
1.6
5.6
5.5
5.5
2.0
5.7
4.0
6.0
4.1
2.8
-2.4
-0.7
15500
5.75
Q3 24f
5.2
1.0
5.6
6.0
6.0
0.9
6.0
4.0
6.0
4.1
3.1
-2.5
-0.7
15450
5.50
Q4 24f
5.4
1.3
5.6
3.0
5.8
-0.5
5.4
4.0
7.0
3.8
3.0
-3.0
-0.8
15400
5.00
Q1 25f
5.0
1.0
5.4
7.6
5.5
1.9
5.5
6.5
7.0
3.3
3.2
-3.8
-1.0
15400
5.00
Q2 25f
5.2
1.8
5.4
4.5
6.5
1.9
5.6
6.5
8.0
3.3
3.1
-3.2
-0.8
15400
5.00
Source: HSBC estimates Note: *Period end
63
Economics ● Global
Q2 2024
Asia Pacific
Taiwan
Jin Choi
Economist, Korea & Taiwan
The Hongkong and Shanghai
Banking Corporation Limited
jin.h.j.choi@hsbc.com.hk
+852 2996 6597
Closely watching the pace of disinflation
Taiwan’s GDP growth continued to accelerate in Q4 23, registering a healthy 2.3% q-o-q sa (vs.
1.9% in 3Q23). However, details show that much of the acceleration came from a steep decline in
imports (-2.0%), as both domestic production and exports softened in the quarter. Overall momentum
for domestic demand also came in softer, on the back of private consumption’s continued
deceleration. Such broad-based sequential softening suggests that Taiwan’s growth momentum
would be rather muted in the near term. However, base effects will help inflate annual growth
numbers, and we see Taiwan’s average GDP growth pick up to 3.2% for 2024 (vs. 1.3% in 2023).
In detail, we maintain our relatively conservative view regarding the strength of Taiwan’s exports
recovery in the near term. So far, most of the cyclical recovery in Taiwan’s exports has been
solely driven by the information, communication & audio-video products segment – which has
benefitted from healthy demand for AI-related servers, especially coming from the US. However,
while the momentum has held up over Jan-Feb 2024, we are yet to see this spread out to other
types of tech exports. Indeed, our estimates suggest that export volumes for Taiwan’s more
traditional electronic parts – mostly semiconductors – were sequentially down over the same
two months, weighing on the overall export recovery. This is in line with the still-subdued global
demand for both consumer and industrial electronics, which is also evident in Taiwan’s elevated
inventory levels domestically. This suggests that we will likely need to wait for global demand to
start picking up in the latter half of this year, for Taiwan’s exports recovery to broaden out and
benefit the overall economy.
Meanwhile on the domestic demand front, monthly proxies for goods and services consumption
have continued to show signs of softening, as the economy has moved past the post-Covid
catch-up phase. However, the magnitude of the Central Bank of the Republic of China (CBC)’s
monetary policy tightening has been relatively limited over this cycle, suggesting that overall
private consumption will likely still hold up at respectable levels this year. On capex, we expect
the recovery to be somewhat shallow over the coming quarters, given our view of a relatively
gradual pace of export recovery ahead.
Elevated domestic inventories reflect stillsubdued global demand for electronics …
… while pace of private consumption
growth is expected to normalise
Index
200
Index
200
Index
115
180
180
110
110
160
160
105
105
140
140
100
100
120
120
95
95
100
100
90
90
80
80
2018
Taiwan inventory-shipment ratio
(2019=100, sa, 3mma)
2019
2020
2021
2022
2023
Electronic parts & components
Computers, electronic & optical products
Source: CEIC, HSBC; Note: seasonal adjustment is done by HSBC
64
Taiwan consumption (4Q19=100, sa)
Index
115
85
85
2013
2015
2017
2019
2021
2023
Private consumption: actual
Private consumption: trend growth*
Source: CEIC, HSBC; Note: based on real GDP data; *trend growth calculated from
2015-2019
Economics ● Global
Q2 2024
Policy issues
Though relatively benign overall, Taiwan’s inflation has been very slow on its way down from the
Q2 22 peak. Specifically, headline inflation has remained elevated above the CBC’s comfort
zone of 0-2% for almost three years now, leading to an additional 12.5bp policy rate hike from
the CBC earlier this month. Specifically, the CBC expressed its concerns around the scheduled
electricity fee hike in April and flagged the risk of inflation expectations being un-anchored.
Looking ahead, we expect the CBC to keep the policy rate on hold at the current 2.0%
throughout 2024. This is given our view that Taiwan’s inflation is likely to still average 2.2% for
2024, above the CBC’s comfort zone. However, we also think the broad picture of gradual
disinflation remains in place, as private consumption is expected to normalise over the coming
quarters. Import prices have also been declining in the recent months, implying limited upward
cost pressures in the near term. In turn, we expect the CBC to bring two 12.5bp policy rate cuts
over 1Q-2Q25, bringing the policy rate down to 1.75%.
Risks
We see balanced risks around Taiwan’s growth trajectory. A faster transmission of the AI and
other emerging technologies to the broader electronics industry could provide upside risks to
our growth forecasts. On the other hand, a more prominent growth slowdown in the US given
the lagged impact from the Fed’s policy tightening so far, or a less impressive growth recovery
in mainland China due to lingering issues in the property market, could pose downside risks.
Domestically, we think the pace of disinflation will be the key factor to monitor. Specifically, we
watch out for the risk that potential volatility in global commodity prices and domestic fresh food
prices, along with the scheduled electricity fee hikes in April, could lead to a reacceleration in
inflation. In such a scenario, the CBC could bring additional rate hikes in order to tame inflation
expectations, weighing on the domestic demand recovery.
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 (%)*
2023
1.3
8.3
0.9
-8.7
-0.4
1.3
-4.3
-5.7
-12.3
3.5
2.4
2.5
105.3
13.9
1.0
27.3
29.6
30.7
1.875
2024f
3.2
2.3
2.1
1.3
-0.2
2.3
4.3
2.8
3.2
3.4
2.3
2.2
119.5
14.9
0.8
26.4
29.3
30.2
2.000
2025f
2.9
2.4
2.0
6.0
0.1
3.7
4.0
5.8
2.8
3.3
2.2
1.8
121.7
14.3
0.9
25.6
29.4
1.750
Q1 24f
6.0
-0.2
3.8
1.9
-4.6
-0.1
1.0
6.6
-1.4
5.7
3.4
2.4
2.4
24.0
12.5
31.4
2.000
Q2 24f
4.2
0.1
2.4
2.0
-1.3
0.2
2.4
5.4
2.4
4.1
3.4
2.4
2.5
27.8
14.3
31.0
2.000
Q3 24f
2.5
0.3
1.7
2.3
3.1
-0.4
2.8
2.9
3.2
2.4
3.4
2.3
2.2
34.2
16.6
30.6
2.000
Q4 24f
0.8
0.6
1.6
2.0
8.2
-0.5
2.9
2.8
7.0
0.7
3.4
2.2
1.8
33.5
15.9
30.2
2.000
Q1 25f
1.8
0.8
1.8
2.0
5.3
0.4
3.3
3.4
6.7
1.7
3.3
2.2
1.9
23.0
11.3
30.2
1.875
Q2 25f
2.7
0.9
2.2
2.0
6.8
0.5
3.7
4.0
6.2
2.5
3.3
2.2
1.7
27.9
13.4
30.2
1.750
Source: HSBC estimates
Note: * Period end
65
Economics ● Global
Q2 2024
Asia Pacific
Thailand
Aris Dacanay
Economist, ASEAN
The Hongkong and Shanghai
Banking Corporation Limited
aris.dacanay@hsbc.com.hk
+852 3945 1247
Can’t catch a break
The Thai economy doesn’t seem to be able to catch a break. Q4 2023 GDP significantly surprised to
the downside, falling 0.6% q-o-q sa as public investment fell off a cliff. Due to the long formation of
the new government, the FY2024 budget (which should have started in Q3 2023) has been delayed
for 6 months and counting. And without a legislated budget, the new administration hasn’t been able
to spend on new projects, leading to a 50% drop in government capex. Thailand’s export engine also
continued to sputter amidst increasing competition from mainland Chinese imports (particularly in
steel) and weak global goods demand, all while Thailand’s major electronics export, hard disk drives,
enters the end of its ‘life cycle’. There were, however, a few green shoots. Tourism numbers
continued to improve, albeit gradually, while private demand was stable, if not improving.
Nonetheless, these green shoots weren’t enough to offset the drag in public spending.
Meanwhile, uncertainty lingers in Thailand’s policy space. The legality of the proposed Digital Wallet
scheme has been put into question, leading to market uncertainty as to whether the THB500bn fiscal
stimulus will even see the light of day (Thailand’s growth outlook, 1 February 2024). In search of
short-term ways to stimulate growth, the new administration advocated for the Bank of Thailand
(BoT) to loosen its monetary stance (Bangkok Post, 20 February 2024). The BoT, however, raised
the need to keep its stance unchanged due to macro-prudential concerns; as of Q3 2023, household
debt was as high as 87% of GDP, half of which is uncollateralised (World Bank, December 2024).
Consequently, both slow growth and policy uncertainty have been well reflected in the
underperformance of Thailand’s financial markets. The SET continues to fall while foreign bond
and equity flows have mostly been net negative since February 2023. Meanwhile, policy uncertainty
could rise again from May 2024, when the Senate loses its right to vote for the Prime Minister.
Nonetheless, we don’t believe the Thai economy is stuck in a ditch. Tourism continues to improve,
more so with the visa-free schemes across ASEAN incentivizing intra-ASEAN travel. Growth should
also be resuscitated once the FY2024 budget gets passed and public spending is backloaded. A
new source of growth may also be sparked when Thailand’s EV (electric vehicle) production starts in
2024 (Thailand’s EV transition, 6 March 2024). Without the digital wallet scheme, we expect growth
in 2024 to improve, albeit still below potential, to 2.7%. With the stimulus, growth may rise to 3.4%.
Foreign portfolio flows have mostly been
net negative since February 2023
USD mn
4,000
Thailand foreign holdings
USD mn
4000
Over the past years, household debt
increased when the policy rate was cut
% of GDP
100
%
6
Thailand household debt
GFC
2011 flood
5
80
2,000
2000
COVID-19
60
0
0
-2,000
-4,000
Jan-22
-2000
-4000
Jul-22
Jan-23
Change in equity holding
Jul-23
Jan-24
Change in bond holding
Source: Bank of Thailand, Bloomberg, HSBC. February bonds data is n/a.
66
4
3
40
2
20
1
0
2003 2006 2009 2012 2015 2018 2021
0
Policy rate (RHS)
Source: CEIC, HSBC.
Household debt
Economics ● Global
Q2 2024
Policy issues
We continue to expect the BoT to keep its policy rate unchanged at 2.50% throughout 2024 and
2025. Although GDP is mired with varying short-term or structural headwinds, the BoT Governor is of
the view that the policy rate had been too low for too long, leading to long-term macroeconomic
imbalances such as high household debt (Nikkei, 7 February 2024). Keeping the policy rate on hold
will help rein in household debt to more sustainable levels.
The past decade shows this relationship. Back in 2011, Thailand was in an economic crisis as a
massive flood ravished the country. To stimulate the economy, both monetary and fiscal policies
were employed. But when the dust settled, none of these policies were normalised. Instead, they
were loosened further in the next 8 years. With low interest rates and robust demand, credit was
used to boost the economy and household debt rose faster than GDP. So given the upside risk of a
fiscal stimulus (i.e. Digital Wallet scheme), we expect the BoT to keep its monetary canons on hold to
mitigate the risk of bumping up household debt even further.
International guidelines suggest that household debt becomes detrimental to long-term sustainability
when it is above 80% of GDP levels (BIS, 2017). This was also cited by the BoT Governor in a
speech where he highlighted his intention to bring household debt down (BoT, 5 September 2023).
And even if inflation has been negative for 5 consecutive months already, we do not think this will be
of substantial consideration when determining monetary policy. Inflation has been negative due to
the various subsidies and price controls in place to help boost consumption, and less so due to a
slump in demand. As a result, the CPI as an indicator may now have a weaker ability to gauge
whether the economy is overheating, or in Thailand’s case currently, overcooling.
Risks
Although the manufacturing sector has yet to see its trough, tourism continues to show consistent
improvement month-by-month, albeit slowly. But if the tourism recovery flinches like it did back in
August 2023 (due to concerns on safety), Thailand’s growth outlook may turn south. This should
especially be the case if the FY2024 budget gets delayed even further. The risk of the political
landscape changing in May 2024 may also lead to a delay in the FY2025 budget.
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 (%)*
2023
1.9
7.1
-4.6
1.2
-0.1
3.7
2.1
-2.2
-4.9
1.0
0.3
1.2
6.6
1.3
-4.0
39.2
62.4
34.1
2.50
2024f
2.7
3.5
2.1
-1.1
0.9
2.1
1.0
3.8
2.0
1.0
6.4
0.8
13.1
2.5
-3.4
39.0
64.6
34.2
2.50
2025f
3.1
3.3
3.8
4.8
0.8
3.7
3.8
4.8
2.3
1.1
7.2
1.9
17.2
3.0
-3.4
36.0
65.4
2.50
Q1 24f
2.1
1.9
6.5
-2.0
-4.7
0.9
2.3
1.3
1.3
1.7
0.9
7.0
-0.8
2.5
1.9
35.4
2.50
Q2 24f
2.5
0.6
3.2
1.1
-0.1
0.8
2.1
0.4
1.8
3.2
1.0
4.5
0.8
0.3
0.2
35.2
2.50
Q3 24f
2.8
0.9
1.8
4.6
-1.8
1.4
1.4
0.8
7.1
1.2
1.1
6.0
1.1
4.9
3.7
34.8
2.50
Q4 24f
3.4
0.0
2.5
4.6
2.3
0.7
2.8
1.3
5.1
2.0
1.1
8.0
2.0
5.4
3.8
34.2
2.50
Q1 25f
2.7
1.1
3.1
5.2
6.0
0.8
4.1
3.0
5.1
1.8
1.1
9.5
2.4
3.8
2.7
34.2
2.50
Q2 25f
2.5
0.5
3.3
3.8
4.4
0.7
3.6
3.3
4.9
2.1
1.1
9.5
2.0
0.7
0.5
34.2
2.50
*Period end. Source: HSBC estimates
67
Economics ● Global
Q2 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
Tech, tourism and targeted subsidies
Similar to regional peers, Malaysia’s economic growth slowed to 3.7% due to a severe downturn in
the global trade cycle in 2023. What could move the needle in terms of growth? Undoubtedly, a
pickup in the global electronics cycle is a key one for tech-reliant economies. But there may be a
delay in the transmission impact on Malaysia’s economy: after all, the tech production and export
downturn hit Malaysia about two quarters after some other economies in the region (see: Malaysia in
2024, 1 February).
Still, we believe Malaysia should remain a main beneficiary of the recovery in the tech cycle. It is one
of only two countries in ASEAN (the other is Singapore) to have foundries specialised in chip testing
and assembly. While its tech manufacturing is largely labour-intensive, its impressive gains in lowerto mid-end chips provides optimism for a stronger rebound when the trade tide turns (see: ASEAN
Electronics: 2024 outlook, 11 January).
In addition, the tourism sector is likely to provide a much-needed boost to growth. While Malaysia is
not dependent on tourism to the extent of peers such as Thailand, contributions from related sectors
to the economy are fairly sizeable. Although ASEAN tourism has seen a tepid recovery so far, there
are perhaps upside risks to Malaysia’s tourism outlook. In particular, a visa-free scheme for mainland
Chinese tourists, effective from 1 December 2023, is a potential game-changer. While ASEAN
broadly saw tourists return to 70% of pre-pandemic’s levels in 2023, Malaysia leads the region in
seeing a return of mainland Chinese tourists (around 45%). Recall that in 2019, tourism receipts
accounted for over 6% of Malaysia’s GDP, above Asia’s average of around 4%.
All in all, we maintain our GDP growth forecast at 4.5% for 2024, accounting for a gradual turnaround
in the trade cycle and additional boost from the tourism sector.
Meanwhile, inflation has been well contained. Headline inflation cooled from 2.5% on average in
2023 to only 1.5% y-o-y in January, 2024. Quite positively, the impact from elevated 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, as well as a weaker currency. We slightly cut
our 2024 inflation forecast to 2.2% (prev: 2.4%), but we caution on upside risks to inflation, given the
uncertainty surrounding exact timing of subsidy rationalisation.
Malaysia’s external sector is only starting to
see a turnaround, with electronics lagging
% Yr, 3mma
50
% Yr, 3mma
150
Malaysia exports
40
120
30
90
20
60
10
30
0
0
-10
-30
-20
-60
2018
2019
2020
2021
Total Exports
Palm Oil & pdts. (RHS)
Source: CEIC, HSBC
68
2022
2023
2024
E&E products
LNG (RHS)
Core inflation continues to ease at a steady
pace, giving BNM room to hold
%
3.50
3.25
3.00
2.75
2.50
2.25
2.00
1.75
1.50
1.25
1.00
% 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 2024
Malaysia policy rate vs. core inflation
Policy Rate
Source: CEIC, HSBC
Core CPI (RHS)
Economics ● Global
Q2 2024
Policy issues
How the 2024 budget will be implemented continues to garner much attention in Malaysia. All eyes
are now on when subsidies will become more targeted, a move that officials have signalled that
could start as early as 2Q24 (Malaymail, 19 January). However, PADU, a centralised system to
implement subsidy rationalisation, is now facing a low take-up rate of only 14% ahead of the
registration deadline on 31 March (The Star, 12 March). This raises concerns around timely
execution, which may impact the inflation trajectory.
In addition, the hike in the services tax by 2ppt to 8%, effective from 1 March, is another measure to
expand the fiscal coffers, enabling Malaysia to embark on its long-anticipated fiscal consolidation.
The fiscal deficit in 2024 is expected to improve to 4.3% of GDP, from 5% in 2023, but it is worth
noting that it will be achieved more through raising revenue rather than cutting expenditure per se.
On the monetary front, BNM kept its policy rate steady at 3% for the first two meetings in 2024 (see:
Keeping a neutral tone, 7 March). The tone in the recent March statement remains the same as that
in January, with a continued neutral tone on both growth and inflation. Indeed, there are few
reasons to sound hawkish, as growth is still at a nascent stage of recovery, and inflation remains
largely benign. Similarly, BNM’s tone on inflation also remained the same as the January one. The
broad disinflation trend continues, though upside risks to inflation linger from the above-mentioned
fiscal policies.
Despite no reason to sound hawkish, there is also little reason to sound dovish, given FX concerns.
The topic has garnered increased attention, after MYR fell to its weakest level against the USD since
the Asian Financial Crisis, prompting Prime Minister Anwar Ibrahim to express his concerns and vow
to look into it at the end of February (Nikkei, 23 February). Subsequently, officials have stepped up
their remarks on MYR, and encouraged repatriation and conversion of foreign investment income by
GLCs and GLICs.
Risks
Malaysia’s external sector has not yet fully benefitted from the upturn in the global electronics cycle,
raising some questions on potential downside risks to growth. That said, we believe it is wellpositioned as a beneficiary, thanks to consistent FDI flows. Meanwhile, inflation has eased notably
but upside risks from any policy decisions around subsidy rationalisations warrant a close watch.
While the inflation trajectory remains a key consideration in BNM’s decisions, a weak MYR and
dwindling FX reserves also matter.
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 (%)*
2023
2024f
2025f
Q1 24f
Q2 24f
Q3 24f
Q4 24f
Q1 25f
Q2 25f
3.7
4.7
3.9
5.5
1.2
4.5
-7.9
-7.6
0.9
3.4
1.6
2.5
5.0
1.2
-5.0
68.2
81.8
4.59
3.00
4.5
4.4
3.5
5.6
1.0
4.3
1.8
1.3
2.4
3.3
2.5
2.2
10.1
2.5
-4.3
67.4
78.4
4.55
3.00
4.6
4.3
2.7
4.8
0.8
4.0
4.5
3.6
3.6
3.3
2.9
2.3
11.5
2.7
-3.5
66.6
75.3
2.75
3.8
1.3
4.2
5.8
5.9
1.3
5.4
-3.4
-1.5
2.7
1.9
1.6
1.9
1.9
4.65
3.00
4.4
1.4
4.5
4.5
6.0
2.1
4.8
0.1
0.5
2.2
2.5
2.0
2.5
2.6
4.62
3.00
4.7
1.3
4.4
2.9
5.7
0.2
3.5
4.3
2.4
1.6
2.7
2.4
2.8
2.7
4.58
3.00
4.9
1.0
4.3
1.6
4.9
0.7
3.7
5.7
3.8
3.0
2.9
2.6
2.9
2.7
4.55
3.00
4.8
1.0
4.1
2.5
4.8
0.6
3.3
6.7
4.2
3.2
2.9
2.5
3.0
2.8
4.55
2.75
4.7
1.3
4.3
3.2
5.2
2.0
4.3
4.7
4.1
3.4
2.7
2.4
3.1
2.9
4.55
2.75
Source: HSBC estimates
Note: *Period end; ^Government debt includes all debt and liabilities such as government guarantees
69
Economics ● Global
Q2 2024
Asia Pacific
Singapore
Yun Liu
ASEAN Economist
The Hongkong and Shanghai
Banking Corporation Limited
yun.liu@hsbc.com.hk
+852 2822 4297
Madhurima Nag
Associate
Bangalore
Swiftnomics meets Singnomics
After enjoying three years of surging trade, a severe downturn in the trade cycle, whose severity
exceeded that of the last one in 2018-19, significantly weighed on Singapore’s growth in 2023.
Despite successfully avoiding a technical recession, growth moderated to only 1.1%. However, green
shoots in trade have already emerged since 4Q23 – a trend that Singapore has been waiting for
anxiously (see: Singapore in 2024, 19 January).
After four quarters of contraction, the manufacturing sector finally returned to long-anticipated growth
in Q4 23, albeit still mild. Not surprisingly, this is largely thanks to the nascent recovery in the tech
cycle, led by advanced AI-related memory chips. Indeed, electronics production has clearly heated
up in recent months across tech-reliant economies. Similar to the last cycle, the recovery is not only
due to rekindling demand, but also a price uptick in the memory space. Singapore produces around
10% of the world’s 3D NAND chips, thanks to Micron’s USD15bn investment in the past 20 years. In
addition, Singapore also possesses sizeable shares in global processor and amplifier chips.
But Singapore’s growth is not limited to just the trade recovery. It is busy making ‘concert economics’
its new growth driver. International big names such as Coldplay, Ed Sheeran and Taylor Swift have
performed, and more are lined up for the rest of the year (see: Singapore Economics Comment, 22
February). The Lion City has traditionally been more a magnet for business travel, but these largescale global music events are a boon for Singapore’s travel-related services that could add up to
10% of its GDP.
All in all, we maintain our growth forecasts at 2.4% for 2024, expecting an ongoing recovery in travelrelated services and a modest turn in the tech-led global trade cycle.
In addition, disinflation continues to be the dominant theme. Despite the implementation of the
remaining 1ppt hike in GST, Singapore started 2024 with lower-than-expected core inflation from
4.2% on average in 2023 to 3.1% y-o-y in January 2024. But this is mainly due to Lunar New Yearrelated distortions, particularly impacting food inflation. In particular, energy inflation is not dissipating.
Recall that the Monetary Authority of Singapore (MAS)-style core inflation includes energy CPI. The
impact of an electricity tariff hike usually takes a quarter to be reflected in CPI, and there will be
more hikes in the coming months. All in all, we maintain our average core inflation forecast of 3.1%
for 2024.
The decline in non-oil domestic exports
(NODX) has eased of late, led by electronics
Headline inflation is decelerating faster
than core inflation, which remains sticky
% Yr, 3mma
40
% Yr, 3mma
8
% Yr, 3mma
80
Singapore NODX
20
40
0
0
-20
-40
-40
-80
2014
2016
2018
IC
Source: CEIC, HSBC
70
2020
2022
2024
Singapore inflation
% Yr, 3mma
8
6
6
4
4
2
2
0
0
-2
2013
-2
2015
2017
Headline
PC (RHS)
Source: CEIC, HSBC
2019
2021
2023
Core
Economics ● Global
Q2 2024
Policy issues
The January meeting marked the MAS’ first meeting after shifting from a quarterly to a monthly
schedule. It is also the first meeting after the appointment of Mr. Chia Der Jiun, the new Managing
Director. As widely expected, the MAS kept all monetary settings unchanged. While the decision
was not a surprise, the MAS’ tone signalled no hints of easing in the near-term. Therefore, we have
changed our call from easing in April to a long pause over our forecast horizon through 2025 (see:
MAS Review: Why rush? On hold for longer, 29 January).
The most evident constraint remains lingering core inflation – the key variable for the MAS. Despite
a downside surprise in January’s inflation prints, Lunar New Year-related distortions mainly played a
role. There are still more imminent upside risks to core inflation, including the remaining 1ppt GST
hike (to 9%), an electricity hike in Q1 24, a water electricity hike in Q2 and a carbon tax hike from
SGD5/tonne to SGD25/tonne. On top of all this, the labour market remains tight, despite initial signs
of cooling. The MAS is well aware of the negative consequences of premature easing, and more
evidence needs to be shown that inflation is indeed cooling to its comfort zone of slightly below 2%.
But based on our inflation trajectory, we only expect to see that in Q2 25. Therefore, the MAS is in
no rush to loosen its monetary settings, given sticky core inflation and recovering growth prospects.
While keeping its monetary policy unchanged, fiscal policy has come to provide partial support (see:
Eyeing the long-term, 16 February). The FY2024 budget includes near-term relief measures worth
SGD1.9bn to offset cost-of-living pressures. But as before, the support will continue to be targeted
in nature, including more cash handouts, U-Save rebates and S&CC rebates. In addition, unlocking
Singapore’s medium- to long-term priorities is at the core of the budget, with an extensive coverage
encompassing the green transition, education, pension, healthcare and R&D. Overall, Singapore is
budgeted to turn from a small fiscal deficit of SGD3.6bn (0.5% of GDP) to a marginal surplus of
SGD0.8bn (0.1% of GDP) in FY2024.
Risks
There are both upside risks to growth and inflation. If the global tech cycle sees a sharper-thanexpected and sustained rebound this year, Singapore will be one of the main beneficiaries.
Meanwhile, it is still too early to call a victory on inflation. If core inflation becomes sticker-thanexpected, this could prompt the MAS to tilt back to its hawkish stance, though this is not our
central case. In addition, the Red Sea disruptions warrant a close watch, though the impact to
Singapore’s trade and inflation is limited (see: ASEAN Perspectives, 8 March).
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*
2023
1.1
3.8
2.6
-0.2
-1.3
-2.0
2.4
1.0
-4.3
2.0
5.4
4.8
99.0
19.8
-0.4
373.9
170.8
1.32
2024f
2.4
3.0
2.1
2.1
0.0
4.4
6.9
9.6
4.5
2.1
3.0
2.8
103.4
19.2
-0.4
350.6
168.6
1.31
2025f
2.6
2.6
2.4
3.4
-0.4
2.3
5.5
5.9
4.0
2.2
2.6
2.1
103.1
18.2
-0.3
334.1
164.9
-
Q1 24f
3.0
0.4
3.5
0.8
0.9
-0.5
3.5
9.8
12.3
4.5
3.0
19.6
15.2
-6.1
1.33
Q2 24f
2.8
0.3
3.0
3.0
3.6
0.1
5.7
9.9
14.8
6.0
3.0
28.0
20.9
6.2
1.32
Q3 24f
2.5
0.5
3.2
1.3
2.0
0.4
4.2
7.5
9.6
5.7
2.7
25.4
18.9
2.4
1.31
Q4 24f
1.7
0.5
2.4
3.5
1.9
-0.1
4.0
0.9
2.5
1.8
2.5
30.3
21.6
-2.8
1.31
Q1 25f
2.1
0.7
2.7
3.7
4.1
0.2
4.4
1.4
2.3
2.8
2.7
19.4
14.2
-6.1
1.31
Q2 25f
1.7
0.0
2.5
2.7
2.5
-1.3
0.4
4.3
4.2
3.2
2.2
29.3
20.8
6.2
1.31
*Period end, **Refers to primary balance, which excludes contributions from sovereign wealth
Source: HSBC estimates, Refinitiv Datastream
71
Economics ● Global
Q2 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
Resilient in the face of headwinds
Hong Kong’s economy continues to face headwinds, but growth should stabilise at 2.8% in 2024 and
2025 (unchanged). We see domestic demand still being supported by consumption, while ongoing
fiscal policy support and constructive growth in mainland China will underpin growth. More resilience
for investment and the property side may come through in H2, while an easing of the global demand
drag and eventual turnaround may start by year-end.
Consumption drove growth last year, rising by 7% in real terms and returning to 2019 levels. We
think there’s still room for it to remain resilient, although a high base and lack of consumption
coupons this year may soften the overall pace. Labour market strength with a still low unemployment
rate (2.9%) and continued improvement in real wage growth since Q4 2022 should provide support.
Meanwhile, weak global demand was the key drag on growth, and may continue to face uncertainty
this year amid tight monetary conditions in other economies. Nonetheless, as global goods trade
may be modestly better (HSBC: 1.8% in 2024 vs. -0.7% in 2023e, see Trade in 2024, 9 Jan), the net
drag on growth will lessen given base effects and a likely eventual turnaround. As the trade related
sector accounts for c20% of GDP, even a reduced drag can go a long way towards supporting
economic growth. Relatedly, tourism recovery in Hong Kong should continue to improve, with a
recovery in arrivals to c80% of average 2018 levels this year (Feb: 74%).
There should be more resilience in investment and property in H2. Residential property prices
continued to slide, falling c11% y-o-y in February based on Centaline data. The removal of property
cooling measures and easing of macroprudential measures announced with the Hong Kong Budget
(28 Feb) were more aggressive than expected. Property sales received a boost over the first
weekend after they were removed (Bloomberg, 5 March). More support for the sector is likely to
come with the Fed pivot, which HSBC expects to start in June, which will in turn help lower mortgage
rates. Increased population inflows can also support housing demand.
Hong Kong remains financially stable with ample official reserve assets at USD425bn (end-Feb). The
aggregate balance has been stable at cHKD45bn since May, while an additional HKD1.25trn of
Exchange Fund Bills and Notes also supports the monetary base. Meanwhile, a more solidified
mainland China recovery alongside stronger financial linkages with mainland China (see Greater Bay
Area Insight, 22 Feb) should also help Hong Kong’s financial services sector to rebound this year.
A steady pace of growth at 2.8% is likely in
the coming years
ppt. cont.
15
Hong Kong GDP
10
10
5
5
0
0
-5
-5
-10
-10
-15
2015
2017
2019
Net exports
Govt consumption
Private consumption
Source: CEIC, HSBC
72
% Yr
15
-15
2021
2023
Change in inventories
Investment
GDP (RHS)
Property sector should see better
stabilisation this year
% Yr
60
50
40
30
20
10
0
-10
-20
-30
2005
Hong Kong property price
2008
Source: CEIC, HSBC.
2011 2014 2017 2020 2023
Retail property price
Office property price
Residential property price
% Yr
60
50
40
30
20
10
0
-10
-20
-30
Economics ● Global
Q2 2024
Policy issues
The Financial Secretary (FS) unveiled another year of deficit spending in the 2024/2025 Budget,
with the deficit reaching 1.5% of GDP, as we expected (see Hong Kong Budget, 28 February).
The key measures included the full removal of property cooling measures as well as easing of
macroprudential measures to help stabilise the property sector. However, the FS emphasized
that fiscal consolidation would be on the way and called for marginal reductions in government
expenditures and raising of revenues through some additional taxes and bond issuance. The
government expects the fiscal balance to return to a surplus of 0.2% of GDP in 2025.
We think Hong Kong remains on a fiscally sustainable path and fiscal reserves should replenish
alongside an improvement in the macro environment. Nonetheless, given the slowdown in
revenues from land premiums, which historically made up about 20% of government revenues, and
a still to be stabilised property sector, we see further need to diversify the economy and in turn the
fiscal base. On this front, there were measures aimed at boosting longer-term growth drivers by
encouraging more development in green finance, technology and innovation as well as in fintech.
Meanwhile, monetary conditions remain tight, but should begin to ease in H2 this year. Under
the currency board system, Hong Kong's policy rate moves in tandem with the US Federal
Funds rate. Thus, we maintain our Hong Kong policy rate call for 75bp of cuts this year starting
in June, alongside the Fed’s expected pivot. A further 75bp of cuts is expected in 2025, taking
the Hong Kong 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 stem from prolonged property
sector weakness, spillovers from escalation in geopolitical or trade tensions, or more mutedthan-expected growth in mainland China. Upside risks can 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 (%)**,***
2023
3.2
7.3
-4.3
10.8
-1.0
6.0
-6.5
-5.3
3.8
3.0
3.0
2.1
35.4
9.3
-3.4
6.3
7.81
5.75
2024f
2.8
3.2
1.8
3.7
-1.7
2.5
6.9
6.8
2.4
2.8
3.2
2.3
25.5
6.4
-1.5
9.1
7.80
5.00
2025f
2.8
4.2
2.8
3.5
-1.4
4.2
4.0
4.8
2.4
2.8
3.5
2.2
32.7
7.9
0.2
11.5
4.25
Q1 24f
0.7
1.2
3.2
0.5
3.0
-5.0
-1.0
10.0
9.0
2.6
2.1
4.4
4.6
7.80
5.75
Q2 24f
2.9
1.3
2.9
1.0
1.2
-0.1
4.8
7.2
8.3
2.0
2.6
5.7
6.0
7.80
5.50
Q3 24f
3.5
0.7
3.0
3.0
5.5
-0.4
2.6
6.8
6.4
2.4
2.7
8.5
8.2
7.80
5.25
Q4 24f
3.8
0.8
3.8
3.0
5.0
-1.3
3.4
4.0
3.8
2.6
1.9
6.9
6.5
7.80
5.00
Q1 25f
3.5
0.9
4.4
3.0
4.0
-3.2
6.1
3.1
4.5
2.7
2.3
6.9
6.9
7.80
4.75
Q2 25f
2.9
0.5
4.2
3.0
3.1
0.1
4.1
4.6
5.3
2.3
2.2
5.3
5.4
7.80
4.50
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.
73
Economics ● Global
Q2 2024
Asia Pacific
Philippines
Aris Dacanay
Economist, ASEAN
The Hongkong and Shanghai
Banking Corporation Limited
aris.dacanay@hsbc.com.hk
+852 3945 1247
Goldilocks time?
The Philippine economy last year saw the most severe inflation rate and the most aggressive
monetary tightening cycle in ASEAN. And yet, the archipelago broke expectations and became the
fastest growing ASEAN economy with full-year growth coming in at 5.6%, all while the Philippine
government successfully consolidated its fiscal resources and brought debt-to-GDP down. Yes,
being a consumption-driven economy, the Philippines was more insulated from the global headwinds
relative to its ASEAN peers. But it was more than that. In December 2023, the country achieved its
lowest unemployment rate in history at 3.1%. In absolute figures, there were 5.7 million more people
working than what the demographic trend would suggest, with many young and tech-savvy Filipinos
finding ways to make extra income through the country’s burgeoning informal sector.
So, if the economy broke expectations during the hard times, what more can it do during the better
times? Thanks to the government’s timely supply-side measures on food and the central bank’s tight
monetary stance (CPI revision, 5 January 2024), we expect full-year headline CPI to slide to 3.6% in
2024, which is within the central bank’s 2-4% target band and a far cry from last year’s 6.0%. This will
also give the Bangko Sentral ng Pilipinas (BSP) room to loosen the monetary reins in 2H 2024,
which, in turn, can improve private investment by year-end. With lower inflation, more jobs, and the
lower cost of borrowing, consumption in the Philippines will likely lift the archipelago to be one of the
top performing economies in ASEAN for 2024 with a growth rate of 5.8% (previously 5.3%).
However, it won’t be all smooth sailing and we still expect the Philippine economy, like elsewhere in
ASEAN, to grow below its potential. The lagged effect of higher policy rates will likely keep some
investment plans on the sideline as investors eagerly wait for the BSP to begin cutting rates. We also
expect some jitters amongst market players once headline CPI breaches the upper-bound range of
the BSP’s 2-4% target band in Q2 2024, even if the rise is widely known to be caused by base
effects. The February upside surprise in CPI was a testament that these base effects can hit hard.
But base effects naturally dissipate, and we expect this ‘inflation breach’ to only be short and
temporary. We expect headline inflation to return to well within the BSP’s 2-4% target band as early
as Q3 2024, when the Fed will likely have started its easing cycle. And both these conditions will
likely give the BSP room to do its first 25bp rate cut to 6.25% in Q3 2024 (previously Q2 2024).
Supporting growth is the resilient labour
market, with employment exceeding trend
We expect headline CPI to flare up in 2Q
2024 and exceed the BSP 2-4% target band
Millions
55
% Yr
10
Millions
55
Philippines inflation
% Yr
10
50
50
8
8
45
45
6
6
40
40
4
4
35
35
2
2
30
Jan-10 Jun-12 Nov-14 Apr-17 Sep-19 Feb-22
Labor force
LF trend
Employment
Emp. trend
30
0
Source: CEIC, HSBC
74
Philippines labour market
0
18
19
20 21
BSP target
Food
22
23
24
Source: CEIC, HSBC. Grey area represents HSBC forecasts
25
Core
Headline
Economics ● Global
Q2 2024
Policy issues
With the current account deficit still wide, and with the real policy rate differential between the Fed
and the BSP still narrow, we think the downside risk of the BSP cutting ahead of the Fed is almost
negligible. Doing so may lead to volatility in the Peso and fan FX-induced inflation. And with growth
remaining robust, the BSP has the luxury of time to keep the monetary reins tight until all is clear in
terms of the Fed and inflation.
That said, we expect the Fed to begin its easing cycle as early as June this year. But is the
Philippines all clear on the inflation front? Not necessarily. Although inflation is largely expected to
breach the BSP’s 2-4% target band in Q2 2024 merely due to base effects, high rice prices have
turned out to be stickier than expected. In fact, rice CPI rose 23% y-o-y in February, the fastest rise
since February 2009. With the grain being the heaviest component of the Philippines’ CPI basket,
we expect the BSP to maximize the luxury of high growth by keeping monetary policy unchanged at
6.50% until the unfavourable base effects fully dissipate and inflation stays well within target. We
push our first 25bp rate cut forecast to 3Q 2024 (prev. 2Q 2024) and then expect the BSP to catch
up with the Fed in 4Q 2024 by cutting its policy rate by 50bps (prev. 25bps). This means our yearend policy rate forecast is kept unchanged at 5.75%.
We also expect the BSP to delay its intended RRR (Reserve Requirement Ratio) to 3Q 2024 (prev.
2Q 2024), which is roughly the same period when we think the BSP will begin its much-awaited
easing cycle. We expect the cut to be 100bps in total, bringing the RRR to 8.5%.
Risks
Apart from elevated rice prices, a large upside risk in the Philippines’ inflation outlook is wages.
Currently, legislators are mulling over a PHP100 across-the-board wage hike to help restore the
purchasing power of workers. For minimum wage workers, this would be equivalent to a 16% rise in
their wages. Although this can boost consumption in the Philippines in the short run, this steep wage
hike risks fanning inflation. We previously estimated that an 8% rise in minimum wages can increase
inflation by as much as 1.2ppt. Since this proposed wage hike is much larger in size, the inflation
impact may be large enough for the BSP to delay its intended easing cycle to 2025.
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 (%)*
2023
5.6
5.6
0.4
8.1
-0.2
4.8
1.3
1.6
1.3
4.2
5.0
6.0
-11.2
-2.6
-6.2
26.9
61.6
55.4
6.50
2024f
5.8
5.8
2.6
6.9
-0.2
5.7
7.9
6.4
1.5
3.9
5.6
3.6
-11.5
-2.4
-5.1
25.6
60.5
55.2
5.75
2025f
6.1
6.0
4.7
10.6
-0.2
6.9
8.9
10.1
3.0
4.0
4.0
3.8
-11.2
-2.1
-4.0
24.1
58.3
5.00
Q1 24f
5.9
1.2
5.4
-0.8
5.8
-0.2
4.0
11.1
4.5
2.2
4.1
7.0
3.3
-4.4
-4.0
-3.9
55.8
6.50
Q2 24f
6.3
1.2
6.1
7.0
5.7
-0.6
6.0
8.9
5.4
1.2
4.1
5.5
4.2
-4.5
-3.8
-3.7
55.6
6.50
Q3 24f
5.8
1.8
6.0
-0.8
8.6
-0.4
6.2
4.7
6.6
0.6
4.1
5.0
3.7
-2.2
-1.9
-6.1
55.4
6.25
Q4 24f
5.2
1.1
5.8
4.6
7.7
0.4
6.3
7.3
9.1
1.8
3.1
5.0
3.4
-0.4
-0.3
-6.4
55.2
5.75
Q1 25f
6.3
2.1
5.8
4.7
9.1
-0.1
6.4
9.1
9.4
3.6
4.0
4.0
3.8
-4.6
-3.8
-2.9
55.2
5.50
Q2 25f
6.5
1.5
5.8
4.7
10.8
-0.5
6.9
9.5
9.8
1.5
4.0
4.0
3.8
-4.4
-3.4
-2.5
55.2
5.25
*Period end
Source: HSBC estimates
75
Economics ● Global
Q2 2024
Asia Pacific
New Zealand
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
Gradual disinflation continues
The high inflation issue facing the New Zealand economy has shown more signs of easing. This
has partly been in response to a contraction in GDP, following the RBNZ’s hefty 525bp of cash
rate hikes. Nonetheless, inflation is still above the RBNZ’s 1-3% target.
Both annual headline and core inflation continued to fall in 4Q23, to 4.7% y-o-y and 4.5% y-o-y,
respectively. The bulk of the disinflation has, so far, been in tradables inflation, while domestic
(non-tradables) inflation has proven sticky, supported by the services components. However,
somewhat reassuringly for the central bank, surveyed measures of inflation expectations across
the 1 to 10 year horizons have fallen closer to the RBNZ’s target.
In Q4 2023, GDP fell by 0.1% q-o-q and 0.3% y-o-y. Although household consumption rose in
the quarter, it was still subdued, partly reflecting that household budgets have been squeezed
by higher borrowing costs and inflation itself. Investment, particularly residential construction,
has also been subdued.
The weakness in growth has come despite the migration-led surge in population growth,
meaning the fall in per-capita GDP has been sharper. In Q4 2023, net migration helped boost
population growth to 2.8% y-o-y. Strong inward migration has boosted demand for housing, with
housing prices having stabilised and rent inflation lifting.
Despite weak GDP growth, the labour market has remained remarkably resilient, with
employment growth running at a still solid 2.4% y-o-y in Q4 2023. Labour demand has been met
by increasing labour supply, in part due to strong inward migration, which has seen the
unemployment rate rise from its trough of 3.2% to 4.0%, which has also helped to see wages
growth begin to ease.
We forecast inflation to continue to track lower through 2024, reaching the top edge of the
RBNZ’s 1-3% target band in Q3 2024. We see growth picking up from its trough, supported by
population growth. We expect inflation to fall from 5.7% in 2023, to 3.4% in 2024 (previously
3.6%) and 2.8% in 2025 (unchanged). We forecast GDP growth to recover from 0.6% in 2023,
to 1.2% in 2024 (previously 1.9%) and 1.9% in 2025 (unchanged).
The economy is disinflating
% Yr
8
Inflation expectations have fallen
% Yr
8
New Zealand inflation
6
6
4
4
2
2
0
0
RBNZ target
Source: Statistics New Zealand; RBNZ; HSBC.
76
CPI
2024
2021
2018
2015
2012
2009
2006
2003
2000
1997
1994
-2
1991
-2
Core CPI
% Yr
6
% Yr
New Zealand inflation expectation
6
5
5
4
4
3
3
2
2
1
1
0
1991
0
1996
2001
2006
1-year ahead expectations
10-year ahead expectations
Source: RBNZ; HSBC.
2011
2016
2021
2-year ahead expectations
5-year ahead expectations
Economics ● Global
Q2 2024
Policy issues
The RBNZ has been one of the more hawkish central banks, lifting its cash rate by 525bp to
5.50% in May 2023. Despite holding its cash rate steady since then, the RBNZ has continued to
highlight that further tightening may be needed in response to too-high inflation. Notably, in
February 2024, the RBNZ noted it’s ‘asymmetric risk tolerance’ – it has a low tolerance for any
upside surprises on inflation from here. As such, the risk of further cash rate hikes cannot be
fully discounted. However, our central case has the RBNZ on hold with its first cut in Q4 2024.
Fiscal policy is likely to be in focus in 2024, following the election of the new coalition
government in late 2023. The government released its ‘mini-Budget’ in the Half-Year Update in
December 2023. However, the forecasts incorporated little of the new Government’s fiscal
policies outlined in their 100-day action plan. In addition to fiscal announcements, the
government recently announced a minimum wage rise of 2% y-o-y, significantly below the 7.1%
rise last year, which should help to support the RBNZ’s efforts to slow inflation further.
The Treasury’s Fiscal Impulse indicator shows a slightly more expansionary impact of fiscal
policy on growth over the entire forecast horizon. Likewise, the latest forecasts project the
budget remaining in deficit until the 2026/27 fiscal year, with net debt remaining elevated. The
recent high-inflation challenge has overshadowed New Zealand’s many structural challenges,
including low productivity growth, external imbalances, and a lack of infrastructure.
Risks
Our central case has growth recovering but to still below-trend rates, with the risks to the growth
outlook balanced. On the downside, tight monetary conditions may continue to weigh on
consumption and cool the labour market. On the upside, population growth and growing
expectations of interest rate cuts may support growth and the housing market.
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 (%)*
2023
0.6
0.3
-1.1
-0.6
0.7
-1.2
9.6
-0.2
-5.2
3.7
4.3
5.7
-16.7
-6.9
-2.4
18.0
0.63
5.50
2024f
1.2
1.1
-1.1
0.5
0.8
-0.5
5.2
-1.2
-1.1
4.3
3.9
3.4
-13.7
-5.3
-2.5
23.4
0.64
5.25
2025f
1.9
2.8
-1.8
2.8
0.8
2.0
4.0
3.9
2.1
4.7
3.4
2.8
-11.2
-4.1
-1.5
23.5
4.25
Q1 24f
0.5
0.4
-0.4
1.7
-2.3
-1.9
-2.1
7.1
-3.9
-2.9
4.1
4.2
4.2
-3.7
-6.0
0.62
5.50
Q2 24f
0.6
0.6
0.5
-1.9
-2.4
-1.9
-0.7
2.8
-2.0
-3.3
4.2
4.1
3.8
-3.5
-5.5
0.62
5.50
Q3 24f
1.5
0.5
1.9
-1.2
2.9
-1.9
-1.1
6.5
-1.0
0.4
4.4
3.8
2.7
-3.3
-5.1
0.63
5.50
Q4 24f
2.3
0.7
2.4
-2.8
3.9
-1.9
1.8
4.4
2.5
1.4
4.6
3.5
2.9
-3.1
-4.7
0.64
5.25
Q1 25f
2.3
0.4
2.5
-2.9
3.7
-1.8
1.8
4.7
2.8
1.6
4.8
3.5
2.8
-2.9
-4.3
0.64
5.00
Q2 25f
2.0
0.3
2.8
-2.7
3.2
-1.8
1.9
4.1
3.5
2.0
4.8
3.4
2.8
-2.8
-4.1
0.64
4.75
Source: HSBC estimates
Note: *Period end
77
Economics ● Global
Q2 2024
Eurozone
Eurozone
Simon Wells
Chief European Economist
HSBC Bank plc
simon.wells@hsbcib.com
+44 20 7991 6718
At the cutting edge
The eurozone economy stagnated in 2023. With no growth again in Q4, the level of GDP was just
0.1% higher than in Q3 2022. In better news, having stabilised in Q3 last year, leading indicators
have improved through 2024 so far. The widely watched composite PMI troughed in October and
picked up in February, with the services sector expanding for the first time since last July. Improved
business sentiment likely reflects inflation falling sharply and lifting real-terms income growth (given
that wage growth is declining more slowly) as well as the falls in effective interest through Q4 in
anticipation of monetary policy easing. So while we expect GDP growth of just 0.1% q-o-q in Q1, it
should build gradually through the year. We expect this to be led by household spending, supported
by modest net trade contributions as the global trade cycle picks up. We see growth of 0.5% in
2024 building to 1.3% in 2025 (both unchanged from three months ago).
Despite output stagnation, the labour market has remained relatively strong. Employment
growth picked up slightly to 0.3% q-o-q in Q4, while in January the unemployment rate dipped
0.1pp to a new low of 6.4%. Survey data continue to point to net hiring in the service sector.
Although the labour market therefore remains tight, with inflation coming down, wage growth
should have peaked. Growth in the ECB’s measure of employee compensation slowed again in
Q4, but at 4.5% it remained well above pre-pandemic levels. The combination of rising wages
and employment, alongside stagnating output, means that unit labour costs (ULCs) are still far
too high to be consistent with a 2% inflation target. The fall in wage growth means the pressure
on ULCs did moderate, though with productivity still falling, they were only a touch below 6%.
The medium-term outlook for inflation – and therefore monetary policy – will depend on how
quickly ULC growth moderates and the extent to which firms can absorb extra costs by
compressing margins. While some costs may be taken as a hit to profits following a postpandemic margin rebuild, we think the persistent backdrop of weak productivity growth and
sticky wages means ULCs will remain elevated. In turn, we think core inflation will decline
gradually over the course of 2024, remaining above 2%. And with most of the energy-driven
falls in headline inflation behind us, we expect headline inflation to average 2.6% this year.
However, with inflation now heading back close to target in the second half of 2025, we think
rate cuts are imminent.
78
Leading indicators improved through Q1…
… and while wage growth slowed last
year, unit labour cost growth is still high
Source: Macrobond, HCOB/S&P Global PMIs
Source: Macrobond, ECB, Eurostat, HSBC calculations
Economics ● Global
Q2 2024
Policy issues
The key ECB policy rate has been on hold at 4.0% since September, but all the signs are that it will
be cut in June. The March 2024 ECB forecast showed nudged down the near-term growth and
inflation projections – with core inflation now forecast to average 2.0% in 2026. While policymakers
want to see a few more data outturns for wages and inflation to be sure, unless these surprise
significantly, a 25bp cut in June seems likely. ECB president, Christine Lagarde, has said that the
ECB will remain “data dependant” after the first rise and cannot commit to a path for policy rates.
Given our own inflation forecast and the fact transmission may not be as forceful as the ECB thinks, it
may take a cautious approach. So after the June move, our central case remains that we then see
25bps every other meeting until the key deposit rate reaches 2.5% in September 2024, which should
put it close to neutral. However, a substantial risk remains that it chooses to front-load cuts, with a
25bp reduction in July too. More dovish members of the GC may have got on board with waiting until
June in the hope that it could lead to a faster pace of rate cuts once they begin.
On 13 March, the ECB announced the results of its operational framework review. The new
framework will aim to ensure ample reserves in the banking system, keeping market interest rates
close to the ECB’s deposit rate (which will remain the key policy rate). Initially, reserves will be
supplied via one-week and three-month market refinancing operations (MROs) at a rate 15bps
higher than the deposit rate. The ECB hopes this will both incentivise private money market
transactions and also keep market rates volatility very low. In future, it will hold a structural bond
portfolio to provide reserves to take some of the strain off the MROs, but this will be introduced “at a
later stage” (see ‘ECB framework review’, 13 March).
Risks
The risks surrounding the inflation outlook remain two-sided. Inflation could fall faster is food
prices continue to fall and/or unemployment rises. But there is also the risk that wage growth
proves stickier and/or geo-politics cause a re-acceleration of shipping or fuel costs. Concerns
about debt and fiscal policy is also a risk, given the wider-than-expected deficits in France and
Italy in particular.
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 (%)*
2023
0.5
0.6
0.7
1.4
0.6
0.4
-0.9
-1.4
-2.2
6.5
5.1
5.4
98.0
0.8
-3.7
90.7
1.10
4.50
4.00
2024f
0.5
0.9
0.9
1.0
0.4
0.8
0.5
1.1
-1.1
6.7
3.8
2.5
110.0
0.9
-2.8
90.6
1.05
3.40
3.25
2025f
1.3
1.5
-0.1
1.4
0.4
1.1
3.1
3.0
1.7
6.7
3.1
2.1
113.2
0.9
-2.3
90.2
2.65
2.50
Q1 24f
0.2
0.1
0.7
1.7
1.3
0.4
1.0
-1.9
-0.4
-3.6
6.5
3.9
2.7
16.7
0.5
1.09
4.50
4.00
Q2 24f
0.2
0.2
0.9
1.4
1.1
0.4
0.4
-0.2
0.2
-1.7
6.6
4.2
2.5
30.1
0.9
1.07
4.25
3.75
Q3 24f
0.6
0.3
1.0
0.7
1.2
0.4
0.8
1.7
2.3
0.3
6.7
3.6
2.2
48.6
1.5
1.06
3.65
3.50
Q4 24f
0.9
0.3
1.3
0.0
0.4
0.4
0.8
2.4
2.3
0.8
6.8
3.5
2.4
16.1
0.5
1.05
3.40
3.25
Q1 25f
1.1
0.4
1.5
-0.1
0.8
0.4
1.0
2.8
2.6
2.0
6.8
3.3
2.2
17.4
0.5
1.05
3.15
3.00
Q2 25f
1.2
0.3
1.6
-0.1
1.2
0.4
1.1
3.0
2.9
1.8
6.7
3.2
2.2
25.3
0.8
1.05
2.90
2.75
Note: *Period end
Source: Refinitiv Datastream, HSBC estimates
79
Economics ● Global
Q2 2024
Eurozone
Germany
Simon Wells
Chief European Economist
HSBC Bank plc
simon.wells@hsbcib.com
+44 20 7991 6718
Long wait for recovery
The German economy fell back into contraction (-0.3% q-o-q) in Q4, as a rise in private consumption
failed to offset drags from investment and foreign demand. Alongside industrial production, new
orders, retail sales, and exports all ended 2023 on a weak note. Additionally, large-scale strikes at
the start of 2024 have prompted us to revise our Q1 forecast down to a 0.1% contraction, placing
Germany in a mild technical recession.
Private consumption showed signs of improvement in Q4, driven by sustained real wage growth
(2.7% y-o-y in Q4). However, a preference for precautionary savings (the GfK savings propensity
index is hovering around its GFC peak) coupled with a gradual deterioration in the labour market are
anticipated to limit the upside potential for growth until the latter half of the year. We project the
unemployment rate to average just under 6% in 2024, with a gradual improvement starting in H2 as
the economic recovery gains traction. Amid lags in the transmission of monetary policy, high policy
uncertainty, and weak foreign demand, business investment plummeted in Q4 and is likely to face
another challenging year. Nearly two fifths of German manufacturers are grappling with an acute
demand shortage as reported by the ifo institute. Order backlogs built up over the past few years
have since dwindled and ifo export order expectations in February remained well below the Q4
average. Similarly, few growth impulses are expected to come from the construction sector in 2024,
given last year’s 30% decline in building permits and a continuing high number of project
cancellations. After three years of contraction, total construction is projected to decline for two more
(2024: -3.8%; 2025: -0.8%). Both manufacturing and construction, require a reversal in financing
conditions. Additionally, the former is also reliant on activity upticks in key export destinations
mainland China and USA, which may materialise in H2 2024. In 2024, exports are expected to
record another noticeable decline due to a statistical underhang from a weak Q4 2023, before
embarking onto a moderate expansion course in late 2024 as world trade gradually revives. A pickup in imports driven by a domestic demand recovery should ensure another roughly neutral growth
contribution from net exports in 2024.
So after a slight decline in economic activity at the start of the year, putting Germany into a technical
recession, growth should pick up in the second half of the year. But another full-year contraction in
German GDP is likely; we have pushed down the 2024 GDP estimate from -0.1% to -0.2%. The
2025 growth projection remains unchanged at +0.9% y-o-y.
80
1. Real wage growth poses upside
potential for private consumption…
2. …but policy uncertainty is holding it and
investment back
Source: Macrobond & HSBC
Source: Macrobond & HSBC
Economics ● Global
Q2 2024
Policy issues
In early February 2024, the German parliament approved the 2024 budget, following from a ruling by
the constitutional court in November 2023 that prohibited the shift of unused funds for tackling the
COVID-19 pandemic into a special climate and transformation fund (KTF). As the government
cannot claim yet another extraordinary emergency situation without a firm legal basis, it intends to
comply to the debt brake in 2024-25, marking the end of four years of suspension. Fiscal challenges
however persist, as there is limited room for new spending under the debt brake.
To nevertheless address some of German firms’ lost competitiveness, the government has proposed
an off-budget fund through the draft “Growth Opportunities Act” which was ratified by the Bundesrat
in late March. It includes corporate tax cuts, though the proposed size was reduced in February,
from EUR7bn to EUR3bn (or 0.07% of GDP). Consequently, the modest corporate tax relief
programme will provide little growth impetus.
In early March, Finance Minister Christian Lindner presented plans to invest (a debt-financed)
EUR200bn in capital markets by 2035 to support the country’s statutory pension system – which
already takes up almost a quarter of the state budget. EUR12bn in debt will be raised in 2024, with
subsequent annual increases of 3%, augmented by proceeds from the sale of state holdings. From
2036, an average of EUR10bn in proceeds is expected to be taken out to subsidise the statutory
pension system and to ensure pension payments remain at 48% of the average wage. The
government would need to cover any shortfalls. There is no impact on the debt brake from this
propose measure, as new debt is matched by capital accumulation, but the small size of expected
proceeds is unlikely to prevent further hikes in pension contributions for the working population.
Risks
Domestically, recent negotiated pay deals accompanied by a falling annual inflation rate pose an
upside risk to the private consumption forecast should consumer confidence recover more quickly
than expected. Moreover, a clarification of the three-way coalition’s fiscal policy direction would
reduce uncertainty, which has recently risen well above the European average. This could provide a
more conducive environment for investment. Externally, a resurgence in protectionism or major trade
conflicts would endanger the expected growth stimulus from the recovery in foreign demand.
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 (%)*
2023
-0.1
-0.6
-1.5
-0.2
6.9
-0.7
-1.7
-3.0
-1.6
5.7
4.0
6.1
308.6
6.8
-2.1
64.8
1.10
4.50
4.00
2024f
-0.2
0.8
-0.1
-2.0
6.1
-0.2
-1.4
-1.6
-2.6
5.9
3.9
2.4
280.9
6.3
-0.9
63.6
1.05
3.40
3.25
2025f
0.9
1.5
-0.9
0.8
6.0
0.8
1.6
1.5
2.1
5.8
2.6
2.4
285.1
6.2
-0.5
62.2
2.65
2.50
Q1 24
-0.4
-0.1
0.6
0.9
-2.2
1.5
-0.1
-3.0
-2.8
-6.0
5.9
4.1
2.7
77.8
6.8
1.09
4.50
4.00
Q2 24f
-0.4
0.0
0.6
0.7
-2.4
1.5
-0.7
-2.0
-2.8
-4.2
6.0
4.5
2.4
68.5
5.9
1.07
4.25
3.75
Q3 24f
-0.3
0.1
0.9
-0.8
-2.6
1.5
-0.3
-1.1
-1.2
-1.2
5.9
3.5
2.1
66.3
5.7
1.06
3.65
3.50
Q4 24f
0.1
0.2
1.1
-1.4
-0.7
1.5
0.1
0.6
0.6
1.2
5.9
3.7
2.5
72.5
6.5
1.05
3.40
3.25
Q1 25f
0.5
0.3
1.3
-1.1
0.2
1.5
0.5
1.0
0.9
2.2
5.8
3.0
2.5
76.7
6.5
1.05
3.15
3.00
Q2 25f
0.8
0.3
1.5
-1.1
0.5
1.5
0.7
1.3
1.2
2.1
5.8
3.4
2.3
63.5
5.4
1.05
2.90
2.75
Note: *Period end
Source: Refinitiv Datastream, HSBC estimates
81
Economics ● Global
Q2 2024
Eurozone
France
Chantana Sam
Economist
HSBC Continental Europe
chantana.sam@hsbc.fr
+331 4070 7795
Rising uncertainty surrounding fiscal policy
French GDP remained sluggish at the end of 2023, in line with the recent trend of economic
stagnation. Indeed, GDP edged up by 0.1% q-o-q in Q4 after being flat in Q3. Domestic demand
was still subdued, with investment (-0.9% q-o-q) being especially weak. Investment spending fell
both for businesses (-0.9%) and for households (-1.4%), reflecting the impact of tighter credit
conditions. Consumer spending was flat in Q4 and did not continue the rebound seen in the
previous quarter (0.5% q-o-q). In particular, consumption on goods fell back (-0.6% q-o-q after
0.6%), signalling that high inflation was still a drag on the consumer. In contrast, net trade provided
a positive contribution to GDP growth but it was mainly due to weak imports (-2.3% q-o-q).
GDP growth should remain subdued in the first quarter of 2024, according to latest economic
indicators. Hard data have been especially disappointing, with consumer spending in goods and
industrial production falling respectively by 0.3% m-o-m and 1.1% m-o-m in January. Soft data
have been more mixed but have hardly been strong. Business climate surveys have trodden
water, remaining a bit below their long-term historical averages. INSEE consumer confidence has
tended to improve but at 89 in February, it was still 11pts below its long-term average of 100.
We still expect consumer spending to recover this year. Granted, wage growth has started to ease
and should continue to soften in the coming quarters. However, the decline in inflation is set to be
faster, leading real disposable income to improve. That being said, the recovery in consumption
should remain quite gradual. The labour market has clearly cooled off, with employment growth
stalling and the unemployment rate starting to edge up. Meanwhile, investment should remain
weak. Business surveys point to lower investment intentions and the housing market has not yet
bottomed out, both in terms of prices and sales. Besides, the government announced in February
EUR10bn of additional public savings, which will hit in particular credits on home renovation.
All in all, we revise down our GDP growth forecast to 0.7% in 2024 (instead of 0.9%) as we take
into account the tighter fiscal environment and the latest set of relatively disappointing data. Our
forecast for 2025 remains little changed (1.3% instead of 1.2%).
Domestic demand remained sluggish in Q4
23, with investment being especially weak
Households' purchasing power is set to
improve this year, due to lower inflation
pts, contribution
to quarterly growth
1.0
% Yr
10
France: GDP
% q-o-q
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
Q1 23
Q2 23
Stockbuilding
Investment
Consumer spending
Source: INSEE, HSBC.
82
Q3 23
Q4 23
Net trade
Public spending
GDP (RHS)
France: Households' disposable income
HSBC
Forecasts
8
% Yr
10
8
6
6
4
4
2
2
0
0
-2
2010 2012 2014 2016 2018 2020 2022 2024
Gross disposable income
-2
Deflator
Real disposable income
Source: INSEE, HSBC forecasts.
Economics ● Global
Q2 2024
Policy issues
News on the fiscal situation have not been good for the government in recent weeks. First, in
February, the government revised down its GDP growth assumption for 2024 to 1.0% instead of
1.4%, because of the disappointing economic indicators. As a result, it announced EUR10bn of
additional public savings and confirmed that it was still targeting a reduction of the public deficit to
4.4% of GDP for this year. Around half of savings will come from cuts in operational budgets of
ministries. The other half will come from lower fiscal support on various programs, including tax
credits for home renovation, financing on training programs and targeted subsidies on energy.
Second, Finance Minister Bruno Le Maire said on 6 March that the fiscal deficit for 2023 will be
‘significantly’ above the target of 4.9% of GDP, due to lower fiscal revenues. The outcome will not
be known before the end of March but it could imply a higher risk of slippage for 2024.
Against this backdrop, the government left the door open to further public spending cuts this
summer if necessary, via an amended 2024 budget law this time (the cuts announced in
February will be implemented by decrees). In our view, it is likely that such measures will be
required. Indeed, the government’s growth assumption of 1.0% for this year remains a bit too
high in our view. Moreover, the government also announced various measures raising public
expenditures in the recent period, including higher support for Ukraine and for French farmers.
The fiscal outlook will be even more challenging in 2025 as the government will have to find at
least EUR20bn of additional public savings. According to media, it will considerer cuts to health
expenditures and another round of tightening on unemployment benefits.
Risks
Our central scenario is subject to several downside risks. The recovery in consumption could
disappoint if the labour market deteriorates more sharply than we expect or if the households’
savings rate remains persistently elevated. This savings rate was still at 17.9% in Q4 2023,
above the pre-pandemic historical average (14.7% in the 2000-2019 period).
Besides, pressure on French sovereign bonds (OATs) cannot be ruled out, given the higher
uncertainty on the fiscal front. So far, the OAT-Bund 10yr spread has not significantly reacted to
latest fiscal developments but the situation could change in case of further news of fiscal
slippage. The reaction from rating agencies will also be a key development to monitor.
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 (%)*
2023
0.9
0.7
0.5
1.1
0.6
0.4
1.5
-0.1
0.4
7.4
4.3
5.7
-37.6
-1.2
-5.2
233.5
110.3
1.10
4.50
4.00
2024f
0.7
0.9
0.9
-0.3
0.1
0.1
2.6
0.7
0.2
7.6
2.9
2.4
-15.4
-0.5
-4.6
227.5
111.2
1.05
3.40
3.25
Note: *Period end. Source: Refinitiv Datastream, HSBC estimates
2025f
1.3
1.2
0.9
2.0
0.1
1.3
4.8
4.8
0.6
7.9
2.3
2.2
-17.3
-0.6
-4.0
221.0
111.9
2.65
2.50
Q1 24
0.8
0.1
0.7
0.9
-0.6
0.1
0.0
2.7
0.2
0.5
7.4
3.1
3.1
-3.6
-0.5
1.09
4.50
4.00
Q2 24f
0.3
0.2
0.9
0.9
-0.7
0.1
-0.4
1.0
-1.3
0.1
7.6
2.9
2.4
-3.9
-0.5
1.07
4.25
3.75
Q3 24f
0.7
0.3
0.7
1.0
-0.5
0.1
-0.1
2.7
0.2
0.1
7.7
2.8
2.1
-3.9
-0.5
1.06
3.65
3.50
Q4 24f
0.9
0.3
1.0
0.9
0.8
0.1
0.9
3.9
3.6
0.3
7.8
2.8
2.2
-4.0
-0.5
1.05
3.40
3.25
Q1 25f
1.1
0.3
1.1
1.0
1.5
0.1
1.2
4.5
4.4
0.8
7.8
2.5
2.3
-4.1
-0.5
1.05
3.15
3.00
Q2 25f
1.3
0.3
1.2
1.0
2.0
0.1
1.3
4.7
4.7
0.6
7.9
2.3
2.2
-4.3
-0.5
1.05
2.90
2.75
83
Economics ● Global
Q2 2024
Eurozone
Italy
Fabio Balboni
Senior Economist
HSBC Bank plc
Fabio.balboni@hsbc.com
+44 20 7992 0374
Life after the Superbonus
GDP growth surprised a tad to the upside in Q4, with GDP rising 0.2% q-o-q (consensus: 0.0%),
HSBC: 0.1% q-o-q) and up 0.6% y-o-y. The detail of growth was less encouraging, though. The
good news is that exports performed well for the second month in a row (+1.2% q-o-q) and that
inventories did not recover after the plunge in Q3 2024, leaving some hopes of a rebound ahead
as firms re-build their stock levels. However, consumption dropped sharply (-1.4% q-o-q),
somewhat surprisingly given real wage growth has turned positive. Rapidly rising wages (+7.1%
y-o-y in December) and low inflation (0.9% in January) should be supportive for domestic
consumption going forward, also as confidence is recovering.
Crucially, though, the final Q4 2023 GDP print confirmed our initial suspicion that the driver was
the ‘Superbonus’ housing tax credit. Residential construction investment added 0.3ppt to growth
(which otherwise would have been negative) owing to EUR20bn of Superbonus-related
investment (worth 1% of GDP, as construction firms rushed to do meet the qualifying criteria
before the measure was scrapped in January). With residential construction investment now
70% above its 2019 levels, a payback ahead seems all but certain. We expect it to knock about
1ppt off GDP across 2024 and 2025. The impact should be more evident from Q2 2024, given
the tail-end of the Superbonus is still being felt (nearly EUR10bn of investment in January).
Italy’s Recovery and Resilience Plan (RRP), using NGEU funds, should pick up the baton as the
main growth driver. Implementation so far has been slow. A think tank (Openpolis) recently
estimated (based on official data) that Italy spent less than 10% of what it had planned to do last
year. 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. The European Commission
(EC) approved Italy’s proposed amendments to its RRP (taking the total to EUR194.5bn and
with some EUR22bn of new projects) which should help speed up implementation (even though
some targets were pushed further out in the future). Meanwhile, activity surveys have improved
and Italian firms remain constructive relative to their investment intentions (see Italy outlook, 23
Jan 2024). And while the momentum remains fairly downbeat for the manufacturing sector – and
energy-intensive firms in particular – an expected pick-up of the global trade cycle should help.
Overall, we have nudged 0.1ppt up this year’s growth forecast (to 0.6%) and left 2025 at 0.8%,
with the Superbonus payback offset by RRP implementation and the ECB loosening policy.
Italy’s updated Recovery and Resilience
Plan sees a back loading of targets
Index
(Q4 19 = 100)
200
EURbn
30
27
24
21
18
15
12
9
6
3
0
50
Dec-20
Dec-21
Residential constr.
Machinery and equip.
Source: ISTAT, HSBC
Dec-22
Dec-23
Non-resid. Constr.
Transport
Loans
Grants
Jun-26
75
Jun-25
75
Dec-25
100
Jun-24
100
Dec-24
125
Jun-23
150
125
EURbn
30
27
24
21
18
15
12
9
6
3
0
Planned
Dec-23
150
Pre-instalment
Jun-22
175
Italy: NGEU disbursements
Dec-22
175
50
Dec-19
84
Index
(Q4 19 = 100)
200
Dec-21
Italy: Investment
Jun 21
The ‘Superbonus’ tax credit has boosted
housing investment to unsustainable levels
Previous (Grants + Loans)
Source: HSBC calculations based on European Commission, ISTAT.
Economics ● Global
Q2 2024
Policy issues
Last year’s high Superbonus take-up made Italy’s fiscal deficit balloon, reaching 7.2% of GDP,
from 5.3% expected by the government only a couple of months before. This does not
necessarily mean a higher deficit also in 2024 – until last year the Superbonus was accounted
on an accrual basis, so when the investment was undertaken, but from this year it should be
accounted for on a cash basis, so when the foregone tax revenues incur – even though the tailend of the projects started by December and yet to be completed (another EUR15bn were spent
in January and February) could be felt. But for sure, it will matter for Italy’s future cash deficits,
adding some EUR40bn to Italy’s (already high) future borrowing requirements. Last year, Italy’s
cash borrowing needs topped nearly EUR110bn, over EUR40bn higher than in 2022. This year,
after two months, they are pretty much in line with last year, at EUR21.5bn. This will also make
it even harder to reduce Italy’s debt-to-GDP ratio (as debt is defined on a cash basis). Even on
the latest official growth assumptions (1.2% for 2024), the debt-to-GDP 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. With the new EU fiscal
rules requiring Italy’s debt to fall by at least 1% of GDP per year, this could become an issue.
In 2025, the new EU fiscal rules should require a primary fiscal adjustment in the region of 0.4%
of GDP (some EUR8bn). The government will also likely want to find an additional EUR10-12bn
to confirm a one-off cut to labour taxes this year. So, the 2025 budget negotiations kicking off in
the autumn could prove challenging. And the need for the market to absorb some EUR150bn of
extra Italian sovereign bonds this year and next could also cause some concerns. At least,
Italy’s solid retail issuance so far (the latest BTP Valore in March tapped EUR18.3bn) is helping.
Risks
Italy’s updated RRP should help speed up implementation, providing an upside risk to growth.
However, it is also substantially less ambitious in the near term, with EUR10bn less of
disbursements expected this year and pushed out to 2026. 173 targets have now been left for the
last review (to be met by June 2026), nearly half the total remaining (387), creating some risks.
The Italian political situation has been unusually calm by Italian standards since the inception of
Giorgia Meloni’s government in September 2022, but the recent loss by the government coalition
in the Sardinia election has created some tensions, making the European Elections in June an
important test for the ruling parties, particularly ahead of likely tough 2025 budget negotiations.
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 (%)*
2023
1.0
1.2
1.2
4.9
-0.3
0.8
0.5
-0.2
-2.5
7.7
3.1
5.9
3.4
0.2
-7.2
137.3
1.10
4.50
4.00
2024f
0.6
0.1
0.7
1.9
-0.1
0.2
2.9
1.7
-0.3
7.4
3.6
1.3
19.4
0.9
-5.0
137.7
1.05
3.40
3.25
2025f
0.8
1.0
0.0
0.7
0.0
0.9
3.0
3.4
1.7
7.2
3.1
1.9
25.9
1.1
-3.5
138.0
2.65
2.50
Q1 24
0.3
0.1
-0.1
0.4
3.3
-1.1
0.7
2.0
0.3
-1.7
7.5
4.0
1.1
-4.6
-0.8
1.09
4.50
4.00
Q2 24f
0.7
0.2
-0.1
1.1
2.9
-1.0
0.8
3.6
0.1
-0.3
7.5
3.6
1.3
5.9
1.0
1.07
4.25
3.75
Q3 24f
0.7
0.2
-0.5
1.0
2.0
-0.9
0.3
3.1
2.9
0.0
7.4
3.5
1.3
13.2
2.3
1.06
3.65
3.50
Q4 24f
0.7
0.2
1.1
0.3
-0.4
-0.8
0.6
2.6
3.6
0.9
7.3
3.4
1.6
4.8
0.8
1.05
3.40
3.25
Q1 25f
0.7
0.1
1.0
0.1
-0.4
-0.8
0.5
2.8
3.2
1.4
7.3
3.3
1.7
-2.7
-0.5
1.05
3.15
3.00
Q2 25f
0.7
0.2
1.0
0.0
0.4
-0.8
0.7
2.9
3.4
1.7
7.2
3.2
1.9
7.4
1.3
1.05
2.90
2.75
Note: *Period end
Source: Refinitiv Datastream, HSBC estimates
85
Economics ● Global
Q2 2024
Eurozone
Spain
Fabio Balboni
Senior Economist
HSBC Bank plc
Fabio.balboni@hsbc.com
+44 20 7992 0374
Still going strong … perhaps too strong?
Growth keeps surprising to the upside in Spain. GDP rose by 0.6% q-o-q in Q4 2023,
comfortably beating consensus (0.2% q-o-q) and our own (0.1% q-o-q) expectations. Spain’s
GDP therefore increased 2.5% last year and is now 3% above pre-pandemic levels. Domestic
demand was the main driver of growth in Q4 2023, with private consumption posting the fourth
positive print in a row (+0.3% q-o-q) while government consumption surged 1.4% q-o-q. Over
the past six quarters, government consumption has increased by a remarkable 7.5%, and is
13% above pre-pandemic levels. Public sector employment is up 10% since the end of 2019.
Otherwise, investment contracted 2% q-o-q, and is still 5% below pre-pandemic levels, which is
surprising and also somewhat puzzling given Spain’s large NGEU funds allocation (see below).
Meanwhile, Spain’s exports are still doing well, increasing by 2.9% q-o-q in Q4 2023, and are up
8% from 2019.
There are signs of activity picking up even further at the start of 2024. The February PMIs rose
sharply both in manufacturing and services, with the latter surging from 52.1 to 54.7, the highest
since last May. The labour market also seems to be gathering pace, with strong job creation
both in January and February. As we discussed in a note following our latest trip to Madrid
(Spain’s gains, 5 Mar 2024), large immigration flows – from Latin America, in particular – explain
a large chunk of Spain’s growth outperformance (Spain’s foreign population increased by nearly
1m last year). The GDP per capita performance looks less impressive, though, due to lacklustre
productivity. Meanwhile, although the transmission of monetary tightening has been rapid, the
size of the rise in bank lending rates has been smaller than in previous tightening episodes. In a
recent report, the Bank of Spain assessed the transmission from policy rates to effective credit
conditions to be complete – lending rates to households and firms have started to ease a bit –
but the full impact on consumption and investment might not have been fully felt.
Still, the labour market resilience, limited signs of households and firms facing financial distress,
and the lengthening of the tourism season bode well for growth ahead. Furthermore, EUR80bn
of fresh NGEU loans should help fill some of the investment gaps in the economy and limit the
impact of tighter credit conditions, despite relatively slow implementation so far. So overall, we
have lifted our 2024 growth forecast from 1.2% to 1.7% and nudged 2025 0.1ppt up, to 1.6%.
Net immigration explains a good chunk of
the recent growth outperformance …
cont. ppts
2.0
Spain: population growth and
contributions by nationality
… while there has been little convergence
with the EU in per capital terms
cont. ppts
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
2016 2017 2018 2019 2020 2021 2022 2023
Spain
Source: Macrobond, Eurostat
86
Foreign
Total
Source: Macrobond, Eurostat
Economics ● Global
Q2 2024
Policy issues
Last November the socialist party leader Pedro Sánchez was re-elected Prime Minister, with the
backing of regional pro-independence parties, and after agreeing to grant amnesty to Catalan
separatists. However, after supporting the government formation, pro-independence Catalan
party Junts voted against the 2024 budget. In the past, relying on the support of regional parties
has tended to put extra pressure on spending. And with the inflation-related boost to revenues
now gone, Spain might have missed an opportunity to shrink its fiscal deficit faster, leaving a
consolidation challenge ahead (considering also EU fiscal rules coming back). Not having passed
the 2024 budget through parliament so far is leading to spending restraints, with some spending
frozen at last year’s level. And having NGEU loans to support private sector investment should
reduce pressure on the government having to do it from its own pocket.
Even though the official figures show that most NGEU funds so far have been passed on to
local administrations and providers, GDP data suggest that not much of it has actually hit the
ground in terms of investment. Spain’s fiscal watchdog Airef estimates that implementation so
far has been about half of what the government had initially planned, leading to a significant
back-loading of spending, and raising implementation risks (considering the 2026 deadline).
Risks
Inflation eased further in February, both for headline (down 0.6ppt to 2.8%) and core (0.2ppt
down to 3.4%). But while sharp falls in energy prices are helping (also allowing the government to
fully unwind previous support measures), pricing pressures remain elevated for firms particularly
in services, with solid wage growth (led by hefty rises to the minimum wage) and also recent
increases in social contributions. In a recent report, the Bank of Spain highlighted a risk that if the
labour market remains as tight as it is currently, inflation could settle above the 2% ECB target in
Spain. Meanwhile, unit labour costs have also been rising fast, well above the rest of the
eurozone, which could end up undermining Spain’s external competitiveness. Finally, recent
polls show the gap between the main opposition party, right wing Partido Popular, and PSOE
widening significantly in favour of the former. This could increase pressure on the government,
particularly heading into June’s European Parliament elections and lead to some political risk.
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 (%)*
2023
2.5
1.7
3.8
0.6
0.7
1.9
2.4
0.3
-0.7
12.1
5.4
3.4
39.4
2.5
-4.0
107.7
1.10
4.50
4.00
2024f
1.7
1.9
2.6
0.2
0.9
0.8
1.5
1.9
0.8
11.3
3.8
3.1
35.0
2.2
-3.4
106.5
1.05
3.40
3.25
2025f
1.6
1.5
0.2
2.9
0.9
1.6
3.9
3.6
1.8
10.6
3.1
2.5
33.9
1.8
-3.0
105.5
2.65
2.50
Q1 24
1.9
0.3
2.4
4.5
-0.4
0.9
1.3
-3.0
-2.0
-0.5
11.7
4.2
3.2
4.8
1.2
1.09
4.50
4.00
Q2 24f
1.8
0.4
2.3
3.3
-1.3
0.9
0.8
0.5
1.2
0.9
11.4
4.0
3.3
6.3
1.6
1.07
4.25
3.75
Q3 24f
1.8
0.4
1.5
2.0
-0.1
0.9
0.3
5.4
5.1
1.6
11.2
3.7
2.7
15.1
3.8
1.06
3.65
3.50
Q4 24f
1.5
0.3
1.5
0.6
2.8
0.9
0.7
3.2
3.3
1.4
11.1
3.5
3.3
8.8
2.2
1.05
3.40
3.25
Q1 25f
1.6
0.4
1.5
0.3
2.8
0.9
1.5
3.9
3.6
1.5
11.0
3.3
2.7
3.6
0.9
1.05
3.15
3.00
Q2 25f
1.6
0.4
1.5
0.1
2.9
0.9
1.5
3.9
3.6
1.7
10.7
3.2
2.6
4.6
1.2
1.05
2.90
2.75
Note: *Period end
Source: Refinitiv Datastream, HSBC estimates
87
Economics ● Global
Q2 2024
Other Western Europe
UK
Elizabeth Martins
Economist
HSBC Bank plc
liz.martins@hsbc.com
+44 20 7991 2170
Better times (but the bar is low)
Three months ago, we were cautiously optimistic that activity in the UK economy was “perking
up”. Broadly, the news since then has borne out our relatively upbeat stance: the services PMI
rose to an eight-month high, consumer confidence is just off its two-year high, and house price
growth is back on the rise in annual terms.
Looking ahead, rising real wages, tax cuts and still high employment – plus some modest
monetary easing to come, in our view – suggest to us that a higher pace of growth can be
sustained. Meanwhile, any normalisation in the household savings rate, which stood at c.10% in
the last reading, would drive spending growth. That said, the bar is low. GDP fell by 0.3% q-o-q in
Q4 2023, meaning the UK ended 2023 in recession. Between Q2 2022 and Q4 2023, growth
averaged 0% per quarter. Worse, GDP per capita has fallen or stagnated in each of the last seven
quarters, and real household incomes per capita remain 1.1% below their Q2 2021 peak (chart).
You don’t need a great economic performance to beat that. We are forecasting a 0.4% rise in
GDP in Q1 2024 (up from our previous forecast of 0.2%). That sounds high, but really just
offsets the fall in Q3, leaving GDP flat on Q3 2023 levels. Indeed, an alternative scenario is that
the Q1 number is lower, but Q4 growth is revised up. Still, we have slightly marked up our
forecasts from Q4 2024 onwards. With the base effects from Q4, our annual forecast for 2024 is
lower, at 0.4% (down from 0.6%). But we are revising up growth in 2025 from 0.9% to 1.1%.
Alongside this better news on growth, we have also revised down our forecast for unemployment
(chart) – following the revisions from the Office for National Statistics – and consequently, we have
revised up our forecasts for wage growth. In terms of our inflation forecast, that offsets downside
news on core and food inflation since our last forecast round, so our CPI inflation forecasts are
actually down a little for 2024, compared with our last update. We see CPI inflation ending 2024 at
2.3% and 2025 at 2.0%, with the core rate a little higher, at 2.5% and 2.1% respectively.
This should allow for some modest monetary easing from the BoE. In fact, we have revised our
Bank Rate forecasts, such that we now see the first cut in June, alongside the ECB and the
Fed. Thereafter, we see a further two cuts in 2024 – in August and November – followed by one
per quarter in 2025, taking Bank Rate to 3.50% by end-2025.
We have revised down our unemployment
forecasts, following ONS revisions
The real income picture still leaves
considerable room for improvement
%
6
4
4
2
2
0
0
-2
-2
-4
-4
2018
2019
2020
Real income
Source: ONS, HSBC forecasts
88
%
UK real HH income: % differences from 2018Q1
6
Source: OBR, ONS
2021
2022
2023
Real income per capita
Economics ● Global
Q2 2024
Policy issues
The government delivered the last full Budget of this Parliament on 6 March (see A boost to
labour or to Labour?, 7 March 2024). In that Budget, it took a further 2ppts off employee
National Insurance Contributions (NICS, a personal income tax paid by employees and
employers), in addition to the 2ppts reduction it announced in November, and said it was part of
a long-term plan to abolish the employee portion of the tax altogether. There was no bounce for
the Conservative party in the polls following this Budget, though. PM Rishi Sunak has now ruled
out a 2 May election, with Chancellor Jeremy Hunt hinting that the vote could take place in
October (Sky News, 20 March 2024). That might point to another fiscal event in September.
But the reality is that whichever party ends up in government is more likely to find itself raising
tax than cutting it, given the ‘fiscal fictions’ embedded in the forecasts. At present, the
government is forecast to just about balance the books, if growth picks up, inflation and interest
rates come down and substantial cuts are made to unprotected spending. If any of those factors
fail to materialise, then tax rises may be necessary.
Risks
The upcoming election continues to be a source of uncertainty to the UK, though polls suggest
Labour is likely to win a majority, with the main questions being around: (a) when the election
will happen; (b) how big the majority is; and (c) whether any hitherto unannounced policies will
be revealed in the manifesto to suggest meaningful risks – upside or downside – to the
economy in 2024.
In terms of growth, our base case envisages a relatively optimistic scenario in which the
economy sees disinflation, via fewer vacancies in the labour market and favourable global
circumstances, without a large rise in unemployment or fall in real wages, allowing a gradual
easing in monetary policy. If that seems too good to be true, then there are two opposing risk
scenarios: one, that wages and inflation stay higher for longer, and so too do interest rates; or,
two, that we will see a material rise in unemployment and insolvencies, necessitating a steeper
downward path for interest rates.
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 (%)*
2023
0.1
0.4
0.6
2.9
0.0
0.3
-1.4
-1.6
1.2
4.0
7.1
7.3
-97.8
-2.9
98.5
5.1
1.27
0.87
5.25
2024f
0.4
0.2
1.4
1.0
0.2
0.9
-0.6
0.7
0.9
4.3
4.0
2.2
-105.1
-3.0
98.1
4.2
1.20
0.88
4.50
2025f
1.1
1.2
0.8
1.8
0.2
1.3
1.5
1.8
1.3
4.7
3.9
2.3
-115.1
-3.1
98.6
4.1
3.50
Q1 24f
-0.1
0.4
-0.3
3.4
-0.6
0.2
1.0
-2.7
0.4
1.8
4.0
5.1
3.5
-25.6
-3.0
1.27
0.86
5.25
Q2 24f
0.1
0.2
-0.5
1.2
0.7
0.2
0.3
-1.6
-1.2
0.1
4.1
3.4
1.4
-25.9
-3.0
1.24
0.86
5.00
Q3 24f
0.5
0.3
0.6
0.3
2.4
0.2
1.0
-0.5
1.1
0.2
4.5
3.2
1.6
-26.5
-3.0
1.22
0.87
4.75
Q4 24f
1.2
0.3
1.1
0.8
1.4
0.2
1.1
2.7
2.3
1.5
4.5
4.2
2.2
-27.1
-3.0
1.20
0.88
4.50
Q1 25f
1.1
0.3
1.3
0.8
1.6
0.2
1.2
1.3
1.6
1.1
4.7
4.3
2.2
-27.8
-3.1
1.20
0.88
4.25
Q2 25f
1.1
0.3
1.3
0.8
1.7
0.2
1.3
1.4
1.8
1.4
4.7
3.9
2.5
-28.4
-3.1
1.20
0.88
4.00
Note: *Period end, **Fiscal years
Source: Refinitiv Datastream, HSBC estimates
89
Economics ● Global
Q2 2024
Other Western Europe
Switzerland
Chantana Sam
Economist
HSBC Continental Europe
chantana.sam@hsbc.fr
+33 1 4070 7795
Still no signs of inflation resurgence
Swiss inflation continued to recede at the start of the year, confounding expectations from the
Swiss National Bank (SNB) for a moderate bounce-back. Indeed, CPI fell to 1.2% y-o-y in
February, from 1.7% in December. On average, inflation was at 1.2% y-o-y in January-February
from 1.6% in Q4 2023 and markedly below the SNB forecast released last December for Q1
2024 (1.8% y-o-y). Granted, inflation on electricity and on rents picked up over that period, as
expected by the SNB. However, these developments were more than offset by receding price
pressures in other categories, in particular food and non-durable goods. The strong CHF has
remained an important driver of this trend, as reflected by the decline in inflation on imported
products (-1.0% y-o-y in January-February from -0.1% in Q4). That said, inflation on domestic
products also continued to ease (1.9% y-o-y in January-February from 2.2% in Q4). This
reflected in large part the fact that wage pressures have remained contained: annual wage
growth averaged 1.8% over the three first quarters of 2023, after a rise of 0.9% in 2022.
Meanwhile, economic activity has expanded at a moderate pace over the recent period. Swiss
GDP rose by 0.3% q-o-q in Q4 2023, the same pace than in the previous quarter. Growth has
been mainly driven by services while economic activity has remained weak in manufacturing
and construction. Looking at the breakdown by expenditure, GDP growth was supported by
public and private consumption as well as services exports. In contrast, investment has been a
drag on domestic demand, especially for equipment goods.
Leading indicators (KOF economic barometer, manufacturing PMI) point to a firmer economic
momentum in the first quarter of 2024, with some signs of improvement in manufacturing and
construction. This supports our expectations for a gradual pickup in GDP quarterly growth
during the year.
In the end, we keep our annual GDP forecasts unchanged at 1.1% in 2024 and 1.5% in 2025,
given that latest developments on economic activity have been broadly in line with our
expectations. Conversely, inflation has undershot our expectations and as a result, we revise
down our CPI forecasts to 1.3% in 2024 and 1.1% in 2025, instead of 1.7% of 1.4% previously.
Swiss inflation has continued to recede at
the start of 2024
The SNB is no longer signalling a
preference for a strong CHF
Contrib., ppt
4
Index
185
Switzerland: Inflation
3
3
2
2
1
Switzerland: exchange rate
CHF/EUR
0.90
175
0.95
165
1.00
1
155
1.05
0
0
145
1.10
-1
-1
135
1.15
-2
-2
125
1.20
2018
2019
2020 2021 2022 2023 2024
Petroleum products
Other imported goods and services
Domestic inflation
Headline inflation (RHS)
Source: Refinitiv Datastream , HSBC
90
% Yr
4
115
1.25
2017 2018 2019 2020 2021 2022 2023 2024
Swiss nominal effective exchange rate (LHS)
EUR-CHF exchange rate (RHS, inverted)
Source: Bloomberg, HSBC
Economics ● Global
Q2 2024
Policy issues
The Swiss National Bank (SNB) proved again that it was not afraid of surprising markets. At its
quarterly meeting on 21 March, the Bank announced a cut to its policy rate of 25bp to 1.50%,
while consensus expected no changes. It was the first rate cut among G10 central banks,
following the tightening cycle through 2022/2023.
The SNB justified the move by declaring that the fight against inflation over recent years has been
effective. Indeed, inflation forecasts were markedly revised down relative to December, reflecting
the latest downside surprises on CPI data but also lower assumptions on second-round effects.
Inflation is now forecast by the SNB to remain within the target range (below 2% over the medium
term, while avoiding deflation) across the entire forecast horizon, ie out to the end of 2026.
Following this surprise move, we now see two other 25bp rate cuts this year, in June and
September. Thereafter, we forecast a prolonged status quo until the end of our forecast horizon
(end-2025). Indeed, we still think that the SNB could stop cutting rates when the policy rate
reaches 1%, a level that should be close to the neutral equilibrium level.
Risks
As a small open economy, Switzerland remains highly exposed to global trade and to the
evolution of the CHF. For the time being, the Swiss economy has remained resilient against a
backdrop of weak external demand and relatively high level of CHF. Indeed, the strength of
services activity has helped to offset the relative weakness in exports and industrial production.
That said, even if the unemployment rate remains low (2.2% in February), it has started to edge
up over the recent months. A faster deterioration in the labour market in the coming months is
therefore an important downside risk to monitor, given the potential negative consequences for
domestic demand. Such deterioration could be triggered by a strong appreciation of the CHF,
due to safe haven flows for example. In such a situation, the SNB would probably cut rates
more rapidly than expected under our central scenario.
Conversely, it is also possible that the SNB stops cutting rates, if inflation bounces back and
proves to be stickier than expected. This remains a possible scenario, as second-round effects
on prices are still expected in some categories, in particular rents.
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 (%)*
2023
0.8
2.1
-0.5
-2.0
5.9
2.3
2.7
6.1
-2.3
2.0
1.8
2.1
76.1
8.7
-0.2
562.5
26.3
0.84
0.93
1.75
2024f
1.1
1.1
1.1
-1.9
6.1
0.5
2.3
1.5
-0.2
2.3
1.7
1.3
78.4
8.5
-0.1
553.4
27.0
0.89
0.93
1.00
2025f
1.5
1.3
0.5
2.3
6.1
1.5
3.9
4.2
2.2
2.4
1.4
1.1
78.4
8.4
-0.3
547.8
28.0
1.00
Q1 24f
0.6
0.3
1.0
0.9
-5.1
6.1
-1.0
1.2
-1.9
-2.8
2.2
1.7
1.3
19.7
8.5
0.87
0.95
1.50
Q2 24f
1.1
0.3
1.0
1.5
-2.4
6.1
0.3
3.1
1.8
0.3
2.3
1.7
1.4
19.5
8.5
0.88
0.94
1.25
Q3 24f
1.2
0.4
1.2
1.2
-1.2
6.1
1.7
1.9
2.9
0.6
2.3
1.7
1.4
19.7
8.5
0.88
0.93
1.00
Q4 24f
1.3
0.4
1.2
0.7
1.2
6.1
1.1
3.2
3.2
1.2
2.3
1.7
1.1
19.5
8.5
0.89
0.93
1.00
Q1 25f
1.4
0.4
1.2
0.6
1.8
6.1
1.3
3.5
3.8
1.7
2.4
1.4
1.2
19.6
8.4
0.89
0.93
1.00
Q2 25f
1.4
0.4
1.2
0.4
2.4
6.1
1.4
3.9
4.3
2.2
2.4
1.4
1.0
19.6
8.4
0.89
0.93
1.00
Note: *Period end
Source: Refinitiv Datastream, HSBC estimates
91
Economics ● Global
Q2 2024
Other Western Europe
Sweden
James Pomeroy
Economist
HSBC Bank plc
james.pomeroy@hsbc.com
+44 20 7991 6714
Showtime
Sweden’s economy has had a brutal couple of years, having been the worst performing developed
market economy with a protracted whole-economy recession and a particularly deep consumer one.
How did this happen? A combination of exposure to higher interest rates (due to high levels of debt
and variable rate mortgages), limited wage growth and punishing (food-led) inflation, coupled with
weakness in the housing market and a collapse in construction.
But now the clouds are lifting – with each of these challenges starting to recede, which should allow
the Swedish economy to roar back in the second half of 2024 and into 2025. We are revising up our
forecasts for sequential growth through that period and look for a clear acceleration in activity,
meaning whole-year 2025 growth would be 2.6%, half a percentage point higher than consensus.
It’s showtime.
Why the optimism? In simple terms, all of the reasons for our negativity over the past few years have
gone into reverse. The sharp real wage squeeze that weighed heavily on consumer demand is
abating as inflation has dropped quickly, while any move lower in interest rates feeds into Swedish
households’ pockets quicker than elsewhere. Whole sectors of the Swedish economy that have been
held back by a combination of higher interest rates (property) and the global trade cycle (industrial
output) should start to bottom out, even if we don’t get a material improvement, and the combination
of these factors should support the labour market, which has been showing some signs of weakness.
The challenge is whether this upswing brings with it a more inflationary environment again and the
Riksbank slams on the breaks by ending its easing cycle prematurely. We think that’s a possibility –
and move our end-2025 rate forecast higher, from 2% to 3%, as a result. That means we now only
expect a total of 100bps of easing from the Riksbank in this cycle. Whilst that less-supportive rate
environment may hold back growth a little in 2025, so many of these factors are coming from very
low levels. The recession through 2023 means there’s already plenty of room for catchup and it
wouldn’t take much for an uplift in some more cyclical parts of the global economy to carry our
forecast even higher for 2025.
For Sweden, the bad news looks to be fading and now it’s time to think about an upswing in the
coming quarters.
92
The very sharp drop in inflation changes
the game…
…and growth is showing signs of
bottoming already
Source: Macrobond
Source: Macrobond.
Economics ● Global
Q2 2024
Policy issues
The Riksbank has made it clearer in recent months that it is ready and willing to cut rates once it has
seen enough on the inflation front. The move lower in sequential inflation means that the annual
rates will start to drop quickly this year, and the central bank appears to be ready to ease policy to
support the recovery in activity. We still look for the first rate cut to come at the 26 June meeting,
following the ECB in terms of timing.
From there, we could paint a number of scenarios for the pace of easing. One is that the Riksbank
opts to bring rates down quickly – with 100bps or so of cuts in the first few meetings after starting its
easing cycle – but we think that is unlikely given the concerns about inflation reasserting itself if the
economy is given too much fuel too quickly. Instead, we think that rate cuts will be slow and steady
through the rest of 2024, but by early 2025 we expect the economy to have clearly turned a corner
and for the central bank to be worried about this leading to a resurgence in inflation – and so the
easing cycle may end around then.
The SEK remains the potential fly in the ointment. At close to record lows against the EUR, the
currency could be a key reason why the Riksbank either delays easing if we started to see renewed
currency weakness or opts to cut rates more slowly.
Risks
Given our more optimistic growth outlook for 2025, there is an obvious risk of this not manifesting.
However, after two years of economic contraction, risks may still be quite balanced – and we could
see the rebound take Swedish GDP back to trend over this three-year period. That would imply a
growth rate a little higher than our forecast.
On the downside, risks are mostly centred on either delayed or limited easing from the Riksbank.
Regardless of whether rates come down or not, we see the economic situation as vastly improved,
but without the additional support from lower rates to consumption and the housing market, we may
see growth a little weaker than we have pencilled in.
To the upside of that, if we get a notable productivity improvement that allows the return to growth to
not lead to a rise in inflation then we could get more rate cuts than we expect and a faster recovery in
consumer spending and housing.
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)
SEK/USD*
SEK/EUR*
Policy rate (%)*
2023
0.0
-2.5
1.8
-1.2
0.4
-2.3
3.7
-0.6
1.3
7.6
3.5
8.5
33.5
6.8
0.5
33.0
10.09
11.14
4.00
2024f
0.6
0.7
1.2
0.2
-1.0
0.3
1.9
1.5
0.6
8.1
3.2
3.1
34.0
7.4
0.3
32.0
11.24
11.80
3.25
2025f
2.6
2.1
1.4
4.1
-1.0
2.5
2.3
2.1
2.0
7.2
2.8
2.5
34.0
7.0
0.3
32.0
3.00
Q1 24f
-0.5
0.3
-0.2
1.2
-1.4
-0.3
-1.4
2.1
0.7
-0.6
8.5
3.4
4.9
10.28
11.20
4.00
Q2 24f
0.4
0.3
0.4
1.0
-1.0
-0.3
-0.7
2.9
1.0
0.2
8.2
3.3
3.0
10.65
11.40
3.75
Q3 24f
0.9
0.4
1.3
1.4
0.1
-0.3
1.5
1.0
2.3
0.9
8.0
3.2
2.1
10.94
11.60
3.50
Q4 24f
1.5
0.6
1.2
1.1
3.0
-0.3
1.7
1.7
2.0
2.0
7.8
3.1
2.3
11.24
11.80
3.25
Q1 25f
2.0
0.8
1.9
1.2
3.1
-0.3
2.1
2.1
2.2
2.0
7.6
3.0
2.4
11.24
11.80
3.00
Q2 25f
2.5
0.8
2.1
1.4
4.0
-0.3
2.4
2.2
2.0
2.0
7.3
2.9
2.5
11.24
11.80
3.00
Note: * Period end
Source: Refinitiv Datastream, HSBC estimates
93
Economics ● Global
Q2 2024
Other Western Europe
Norway
James Pomeroy
Economist
HSBC Bank plc
james.pomeroy@hsbc.com
+44 20 7991 6714
Almost boring
Norway’s economy remains on a solid track, but the data over the course of the past quarter
give little to shout about in either direction. Growth continues to slow, with the period of higher
policy rates having an impact on the overall pace of economic growth, but we haven’t seen
anything close to the deterioration that we saw in Sweden through 2023.
Our forecast for growth in 2024 has been trimmed slightly, to 1.0% (from 1.2%), on the back of
some slightly softer incoming data, and so overall growth for the year will be slightly below
trend, which we estimate for Norway to be only a touch over 1% given the large role of the state
and the extremely high level of income and quality of life that is already in place.
On the inflation front, while overall inflation continues to drop, it has been a little slower to do so
than elsewhere in Europe. Norway had higher inflation before the pandemic than much of the
rest of Europe and that means that the settling point for inflation on the way down may be
slightly higher than elsewhere.
As a result, the Norges Bank is in a bit of a bind about when to start easing. We’ve long thought
that as soon as inflation dropped low enough, we would see the other parts of the central banks’
mandate kick in and rate cuts to come to prop up growth and to protect against adverse financial
stability that would be expected to build if interest rates are held higher for longer. However, given
the more hawkish tone at the March meeting, we nudge back the timing of the first rate cut to
September, and expect the rate cutting cycle to be front-loaded to a degree, given that by this
stage we should have had rate cuts from the ECB. There is a risk that continued stickiness in
inflation makes the Norges Bank a little more reluctant to ease quite as quickly.
All in all, Norway’s economy may represent one of the most vanilla stories in the global economy in
a year of elections and uncertainty. A recession should be avoided, but growth looks set to be
muted; inflation looks set to fall slowly and the central bank is likely to ease steadily from the middle
of the year. If there are any bumps in the road, the central bank has scope to cut rates faster, while
Norway’s enviable fiscal position means that any shocks can be mitigated should the need arise.
94
Growth has slowed after returning to the
pre-pandemic trend
Core inflation is coming down, but more
slowly than in some other economies
Source: HSBC, Macrobond
Source: HSBC, Macrobond
Economics ● Global
Q2 2024
Policy issues
The Norges Bank looks set to start cutting rates in 2024, with questions remaining about exactly
when and how quickly. Whilst we see no reason at this point to move from our forecast of June
rate cuts and a relatively sharp cutting cycle to begin with, there are growing risks to that view
on both sides.
The recent slowdown on the growth side may prompt the Norges Bank to focus more on that
side of its mandate, and proceed with a sharper or earlier pace of easing than we expect. But
on the other hand, the slightly stickier inflation story and the pushing back of easing
expectations elsewhere in the world could prompt rate cuts to come a little later. The March
meeting highlighted these upside and downside risks, but gave an overall reasonably hawkish
stance on when it expects to cut rates – saying that it expects to keep rates where they are for
“some time ahead”.
As a result, we nudge back our expectation for the first rate cut to September, as by then the
Norges Bank will likely have seen rate cuts from the ECB and feel more comfortable that any
easing doesn’t bring currency weakness risks with it. We still look for an element of front-loading
in the easing cycle – but Norway’s terminal rate is probably higher than in the rest of Europe
given what we saw with interest rates before the pandemic.
Risks
The biggest risks to our view centre on the NOK and the impact that higher rates have 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/EUR**
Policy rate (%)**
2023
1.1
-0.5
3.6
-0.8
2.4
0.3
5.2
1.3
-0.3
3.6
5.4
5.5
149.0
27.0
10.9
29.0
11.22
4.50
2024f
1.0
1.4
2.9
-1.0
0.7
-0.8
3.3
0.2
1.8
3.6
5.3
3.7
140.0
26.0
10.0
30.0
11.60
4.00
2025f
1.2
1.0
2.0
1.1
0.7
1.3
2.4
2.4
3.5
3.6
4.0
2.5
140.0
26.0
10.0
31.0
3.50
Q1 24f
0.6
0.2
1.5
3.8
-3.5
0.7
1.3
2.9
-1.6
0.4
3.6
5.5
4.5
11.30
4.50
Q2 24f
0.9
0.4
1.0
3.2
-2.3
0.7
1.3
2.2
-2.0
1.4
3.6
5.4
3.8
11.40
4.50
Q3 24f
1.3
0.5
1.6
2.5
0.3
0.7
1.3
5.6
1.9
2.4
3.6
5.3
3.6
11.50
4.25
Q4 24f
1.4
0.4
1.3
2.0
1.3
0.7
1.4
2.4
2.4
3.1
3.6
5.2
3.0
11.60
4.00
Q1 25f
1.5
0.3
1.4
2.0
1.6
0.7
2.4
2.4
3.2
3.6
4.1
2.8
11.60
3.75
Q2 25f
1.4
0.2
1.3
2.0
1.2
0.7
2.4
2.4
3.4
3.6
4.0
2.6
11.60
3.50
Source: HSBC Estimates, Refinitiv Datastream
95
Economics ● Global
Q2 2024
CEEMEA
Poland
Agata Urbanska-Giner
Economist, Central and Eastern
Europe
HSBC Bank plc
agata.urbanska@hsbcib.com
+44 20 7992 2774
Wind in the sails
The Polish economy grew by a mere 0.2% y-o-y in 2023, weighed on, primarily, by a deeper than
expected contraction in domestic demand. Consumer spending fell by 1% y-o-y. While fixed
investments gained firmly, inventories took 5ppts from GDP growth – the number likely pending
revisions though ie reallocation to other growth components. The key 2022 revision that came
through was with regard to private consumption growth, lifting it from 3.0% to over 5% y-o-y. And that
higher base partially explains the scale of contraction in 2023. Overall, the Polish economy continues
to outperform CE3 peers and the eurozone in terms of cumulative growth since end-2019 or in the
12M to end 2023 across all key components of GDP ie private consumption, fixed investment and
exports. And the outlook for growth remains brighter for Poland than others, too. In fact, we boost our
growth numbers to 3.3% y-o-y in 2024 (3.0% previously) and 4.1% y-o-y in 2025 (3.4% previously).
Domestic demand should be the main growth engine. We lift our cumulative 2024/2025 private
consumption as well as fixed investment growth forecasts.
The key to the robust investment dynamic is EU funding and improved business sentiment on the
heels of current administration taking office last year. The new government applied for the 1st tranche
of the RRF funding in its first week in office and the European Commission approved the funding in
February. With the EC’s positive assessment of reform commitment, Poland recovered access to the
recovery and resilience facility (EUR59.8bn, 8% of GDP) and 2021-27 cohesion funding
(EUR76.5bn, 10% of GDP). On the downside we expect little relief in terms of high financing costs for
investment relying on bank credit.
We continue to expect a strong consumption recovery. Wage growth should remain in double-digits
for the third year running in 2024. But in real terms, wage growth is set to rise to nearly 10% in the
first half of the year and remain in high single digits in the reminder of the year and in 2025. The pace
of nominal wage growth should moderate next year, absent the boost of double-digit minimum wage
hike and public sector wage hikes. But the risks are skewed to real wage dynamic and unit labour
costs remaining above long-term averages, presenting an important headwind to a sustainable return
of inflation to target.
Consumer confidence is recovering well…
… with the real wage bill growth turning from
negative to a 7% average in 2024/25
Net balance
10
Net balance
10
%
20
0
0
15
-10
-10
10
10
-20
-20
5
5
-30
-30
0
0
-40
-40
-50
-50
2019
Consumer confidence
2020
CZ
2021
2022
HU
Source: Refinitiv Datastream, HSBC forecast
96
2023
2024
PL
Labour market
HSBC
forecasts
-5
%
20
15
-5
2014
2016 2018 2020
Wages
Unemployment rate
Source: Refinitiv Datastream
2022 2024
Real wage bill
Economics ● Global
Q2 2024
Policy issues
Labour market risks notwithstanding, the better than expected inflation outturns at the start of
this year and falling energy prices and currency appreciation give room for some cautious
optimism on inflation. Headline inflation fell to 2.8% y-o-y in February and core inflation
moderated to 5.4% y-o-y down from a 12.3% y-o-y peak in March 2023 and 10.2% average in
2023 as a whole. But further improvement is not on the cards. Core momentum is stuck at those
elevated levels ca 5%. And headline CPI will be lifted by the impact of VAT rate on food
returning to 5% in April and gradual unfreezing of the energy prices in July. While the NBP’s
worst case scenario of inflation rising above 8% in H2 2024 is highly unlikely given the
government’s apparent preference for a gradual removal of energy price caps, possibly also
helped by mid-year energy tariffs adjustment lower. Accordingly, we pencil in inflation rising
above 5% in H2 2024 but not exceeding 6% and then likely moderating towards 2% in H2 2025.
We assume core inflation slowing to 3% towards the end of 2025, with upside risks though, and
every 1ppt of core CPI gain adding 0.54ppts to the headline. While this positive inflation outlook
is primarily secured by unpredictable non-core inflation in our forecast, we still expect it to offer
scope for interest rate cuts. A majority of MPC members appear reluctant to cut rates ahead of
the looming inflation spike but its smaller scale and transitory nature, especially if supported by
trend of moderating core CPI domestically and externally by ECB/Fed easing, could still warrant
a move before the end of the year. The terminal rate for the incoming easing cycle does not
have an obvious anchor with NBP remaining unclear about its estimate of an r*. Accordingly, we
except a gradual step by step cuts through 2025 taking the policy rate to 4.5%. This cautious
bias should serve well re-anchoring of the inflation expectations.
Risks
Geopolitical changes requiring higher defence spending and military equipment imports will take
important resources away from the economy and put new pressure on the current account and fiscal
balance. But the former enjoys a strong starting position and benefits from diversified exports. Fiscal
problems are more likely to linger with military spending needs compounded by rising demands on
from healthcare or education.
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)
EUR-PLN*
Policy rate (%)*
2023
2024f
2025f
Q1 24f
Q2 24f
Q3 24f
Q4 24f
Q1 25f
Q2 25f
0.2
-1.0
2.9
8.4
-3.8
-1.9
-8.3
-1.7
2.8
12.7
11.6
12.8
1.6
-5.8
51.6
50.9
4.34
5.75
3.3
4.1
0.4
6.2
3.7
3.9
4.7
4.2
3.0
10.7
4.2
11.3
1.3
-5.1
45.9
55.1
4.30
5.50
4.1
4.7
1.0
8.7
4.6
6.8
8.1
5.9
2.9
9.2
3.2
3.2
0.3
-4.4
44.1
55.4
4.50
2.3
0.9
3.6
1.1
3.7
3.3
-2.0
-0.9
2.0
2.9
11.6
2.9
5.1
2.5
4.28
5.75
3.5
1.1
4.1
1.8
7.8
4.3
2.7
4.0
4.6
3.0
10.3
3.1
3.0
1.5
4.30
5.75
4.4
1.5
3.8
2.1
6.6
3.8
12.9
12.7
5.3
3.0
10.1
5.2
1.8
0.8
4.30
5.75
3.1
1.2
4.9
-2.7
6.1
3.6
1.5
2.3
4.8
3.0
10.8
5.4
1.5
0.6
4.30
5.50
4.4
0.8
5.6
1.9
8.6
5.2
8.7
10.5
6.9
3.0
9.0
5.0
0.8
0.6
4.30
5.25
4.5
0.8
5.2
2.4
12.0
5.8
7.3
9.9
6.0
3.0
9.1
3.9
0.5
0.3
4.30
5.00
Note: *Period end
Source: HSBC estimates
97
Economics ● Global
Q2 2024
CEEMEA
Russia
Melis Metiner
Economist
HSBC Bank plc
melismetiner@hsbcib.com
+44 20 3359 2636
Economic activity continues to hold up, but risks remain
Growth continued to hold up better than expected in the latter part of 2023, with the preliminary
estimate putting full-year GDP growth at 3.6% -- well above our estimate. The reasons why
activity remained resilient are varied, including significant fiscal stimulus dominated by military
spending, re-direction of energy exports away from the West towards countries like China and
India, and the faster-than-expected transformation of the economy and rapid growth in some
manufacturing sectors and construction to sustain the war effort. That said, the long term
outlook remains downbeat. Macro imbalances are building, policy buffers are being depleted,
demographic trends are highly challenging, and productivity looks set to plummet.
We revise up our 2024 growth forecast from 1.5% to 2.6%, but continue to expect some
deceleration compared to 2023, given the lagged impact of monetary tightening. We make no
change to our 2025 forecast. Manufacturing and services PMIs were well above 50 in the first two
months of the year, even as the latter showed some deceleration in activity in February. Retail sales
rose by 9.1% y-o-y in January (from 11.1% y-o-y in Q4), while industrial output gained by 4.6% y-oy (from 3.6%). The entrepreneur confidence index, published by Rosstat, and a consumer
sentiment index, published by Levada Centre, are both at highs not seen in nearly ten years.
Resilient domestic demand is likely to mean a slow pace of disinflation and continued
weakening in the external surplus. The central bank’s central scenario for 2024 is markedly
more optimistic and envisions a more balanced and sustainable macro equilibrium. It sees
growth slowing to 1-2%, inflation falling to close to the 4% target by year-end, and little change
in the current account surplus compared to 2023. Meanwhile, we see inflation rising to above
8% in Q2 and moderating to slightly below 6% by the end of the year. The labour market is
extremely tight and wage growth averaged 16% y-o-y in Q4 23. But expectations did improve
slightly, likely reflecting the impact of CBR’s tightening, with households’ 12-month forward
expectations falling from 14% in December to 12% in February. We also expect a smaller
external surplus (of 1.7% of GDP, from 2.5% of GDP in 2023).
The economy is back to its pre-war size …
…but external dynamics are much less
supportive
Q4 2021=100
102
USDbn
250
Real GDP
100
100
98
98
96
96
94
94
92
92
90
90
88
88
86
2019
86
2020
2021
Source: Macrobond
Source: HSBC with data from INEGI
98
Q4 2021=100
102
2022
2023
Current account balance
% GDP
15
200
12
150
9
100
6
50
3
0
2019
0
2020
2021
USDbn (LHS)
Source: Macrobond
2022
2023
2024
% GDP (RHS)
Economics ● Global
Q2 2024
Policy issues
CBR has raised its key rate sharply since June, citing upside risks to inflation, which included a
deterioration in inflation expectations, rapid lending growth, and a more accommodative fiscal
stance. This, combined with various capital controls, including FX surrender requirements for
exporters, helped support RUB and avert financial stability risks. We fine-tune the quarterly
path, but continue to expect the easing cycle to start in Q3 24, with the key rate falling to 11%
by end-2024 and 7% by end-2025, which would keep the real policy rate well above 5% this
year, based on our inflation forecasts. The CBR’s guidance is for the key rate to average 13.515.5% in 2024, with the governor also pointing to Q3 as the likely start of the easing cycle.
Fiscal dynamics have also held up much better than expected, with the headline shortfall
standing at 1.9% of GDP at the end of last year, only slightly worse than the official target of
1.0%, and better than the performance in 2022. Oil and gas revenues fell from 7.5% to 5.2% of
GDP, but this was almost entirely offset by higher non-oil revenues. Expenditures, meanwhile
fell slightly, from 20.0% to 18.9% of GDP last year. The official estimates point a fiscal shortfall
of less than 1% of GDP for 2024. This target is likely to be missed, but we still continue to
expect less fiscal slippage compared to our earlier thinking.
Risks
Additional sanctions remain a key risk. The buoyancy in consumer confidence and spending is
surprising, so any shift there could pose downside risks to the growth outlook. In March, the
central bank also said that higher incomes are currently allowing households to simultaneously
increase savings and consumption, but the latter is expected to slow as the impact of earlier
tightening is felt. On the policy front, aggressive fiscal easing remains a risk, even though the
planned budget does not point in this direction.
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
2023
3.6
5.8
5.9
8.0
-1.1
14.1
3.2
3.2
13.9
5.9
50.2
2.5
-1.9
16.2
13.0
89.5
16.00
2024f
2.6
3.2
6.1
2.9
1.7
6.0
2.3
3.1
12.1
7.4
30.5
1.7
-3.5
17.2
15.8
110.0
11.00
2025f
1.7
0.9
4.4
1.2
1.6
1.0
1.3
3.2
8.8
5.0
23.5
1.3
-2.5
16.5
17.3
7.00
Q1 24f
4.1
0.5
5.7
9.6
7.2
1.1
16.7
3.9
3.1
14.6
7.6
47.8
2.4
91.0
16.00
Q2 24f
3.4
0.5
4.6
4.4
3.1
1.4
3.0
1.3
3.1
14.1
8.1
45.7
2.4
100.0
16.00
Q3 24f
2.2
0.0
2.6
6.8
2.4
1.6
1.1
1.7
3.1
11.5
7.6
33.3
1.8
105.0
13.00
Q4 24f
1.2
0.0
0.4
3.2
1.3
2.4
3.8
2.4
3.1
8.2
6.1
30.5
1.7
110.0
11.00
Q1 25f
1.9
0.5
1.1
9.6
1.2
1.9
6.2
1.6
3.2
8.3
5.6
27.4
1.5
110.0
10.00
Q2 25f
2.2
0.6
0.9
1.3
3.2
1.6
-3.1
1.3
3.2
8.6
5.3
26.2
1.5
110.0
9.00
Source: HSBC estimates, Refinitiv Datastream
Note: *Period end
99
Economics ● Global
Q2 2024
CEEMEA
Türkiye
Melis Metiner
Economist
HSBC Bank plc
melismetiner@hsbcib.com
+44 20 3359 2636
Tentative rebalancing
The economy grew by 1.0% q-o-q in Q4 23, accelerating from 0.3% in Q3. At 3.6% q-o-q,
household spending was very strong, while government spending, exports, and fixed
investment all fell in sequential terms. Imports also contracted in q-o-q terms for the first time
since Q1 22. This brought annual Q4 23 growth to 4.0% and full-year 2023 growth to 4.5%,
slightly stronger than our expectations.
Our full-year 2024-2025 growth forecasts are 3.1% and 3.6% respectively. We expect the
quarterly pace of activity to slow but remain positive throughout our forecast horizon. Last year’s
growth was strong but unbalanced, with domestic demand adding 10.6pp to the headline figure
and net exports subtracting 6.1pp (inventory contribution was zero). For 2024, we expect net
exports to make a positive, if modest, contribution to the headline growth rate, but for household
consumption to remain the primary driver. Fixed investment growth was surprisingly strong in
2023 as a whole (+8.9% y-o-y, 2.5pp contribution), but did fall in q-o-q terms in Q4 23, as
borrowing costs rose sharply. We expect this weakness to persist throughout 2024 before
capital formation recovers in 2025.
Inflation remains a headache for policymakers. Both headline and core inflation have been rising
in y-o-y terms for the past two months, reaching 67% and 73% respectively in February. More
importantly, the underlying monthly pace of price growth (seasonally adjusted, 3-month moving
average) has also risen noticeably, from around 3% in December to above 4% in February.
Inflation expectations, a key driver of price growth dynamics, also remain elevated. The end-2024
estimate in the expectations survey was 44% in March and the 12-month forward estimate was
37%. That said, we continue to think that this survey, which has roughly 70 participants drawn
largely from the financial sector, does not fully capture the deterioration in pricing behaviour that
has occurred over the past few years. This is a key reason why we expect to see only a slow
pace of disinflation for the remainder of the year and in 2025 too. Considering this together with
the relatively resilient domestic demand outlook, we continue to believe end-2024 and end-2025
inflation are set to markedly overshoot the CBRT’s estimates of 36% and 14%.
Inflation remains high and broad-based
The inflation expectations survey has
historically underestimated price pressures
% Yr
160
% Yr
100
Inflation
% Yr
160
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
2017 2018 2019 2020 2021 2022 2023 2024
CPI
PPI
Core CPI
Source: Macrobond
Source: HSBC with data from INEGI
100
Inflation and ex pectations
% Yr
100
80
80
60
60
40
40
20
20
0
0
2017 2018 2019 2020 2021 2022 2023 2024
CPI
12-m forward expectations (moved forward by 12-m)
Source: Macrobond
Economics ● Global
Q2 2024
Policy issues
CBRT has tightened monetary policy more than we were initially expecting in the second half of
last year and delivered a surprise hike in March, taking the key rate to 50%. But this was not
complemented with a tighter fiscal policy or with a more restrictive incomes policy. We think a
more comprehensive approach with monetary, fiscal and banking sector policies utilised in a coordinated manner could have been beneficial in anchoring expectations, both domestically and
for foreign investors. These trends are likely to persist throughout 2024: we expect to see a
slightly wider budget deficit vs 2023, and continued real gains in wages.
Our base case for the central bank is that the policy rate will remain higher for longer, ie.
unchanged throughout 2024. The risks to this base case are tilted towards more hikes. CBRT’s
forward guidance is that there will be more tightening if there is a “significant and persistent”
deterioration in the inflation outlook. Near-term inflation outturns in inflation and in the
expectations survey are likely to be critical in this regard.
Risks
Balance of payments dynamics have shown significant improvement compared to the early part
of last year, but vulnerabilities remain. This is clear from recent reserve dynamics. After rising by
USD30-40bn depending on the measure, between end-May and end-December, CBRT net
foreign assets have steadily declined since the start of this year. In the absence of a much more
meaningful reduction in the current account shortfall and/or improvement in funding flows, we
think external vulnerabilities will continue to linger in the background.
The next round of general and presidential elections are scheduled for 2028, but there is some
uncertainty in the outlook. At the end of last year, President Erdogan spoke about the need for
Türkiye to adopt a new constitution (BBC, 10 November 2023). If the government were to push
for such a change, this would likely require a public referendum. Meanwhile, AKP MP Bekir
Bozdag said that if the parliament were to call for early elections, this would allow for President
Erdogan to stand for a third term (BBC, 8 March 2024).
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)
USD-TRY*
Policy rate**
2023
4.5
12.8
5.2
8.9
-2.7
11.7
1.9
9.5
112.9
53.9
-45.1
-4.1
-5.2
45.8
29.5
29.53
42.50
2024f
3.1
5.5
3.4
0.7
2.8
-1.1
1.7
9.1
72.1
61.1
-32.1
-2.8
-6.5
45.7
30.3
36.00
50.00
2025f
3.6
2.8
2.9
3.7
4.5
4.1
2.6
9.4
40.0
34.3
-25.8
-2.1
-3.7
44.2
30.9
30.00
Q1 24f
4.6
0.6
8.2
3.5
5.0
2.4
-1.5
3.5
8.9
89.7
66.9
-32.6
-3.0
32.00
50.00
Q2 24f
2.8
0.5
2.5
-0.9
0.7
3.4
-0.6
1.2
9.0
83.6
74.2
-32.7
-3.0
34.00
50.00
Q3 24f
2.8
0.5
7.2
4.0
-1.2
1.4
-1.6
0.5
9.1
61.8
57.4
-30.8
-2.7
35.00
50.00
Q4 24f
2.5
0.5
4.1
6.3
-1.0
4.0
-0.6
1.5
9.2
53.1
51.0
-32.1
-2.8
36.00
50.00
Q1 25f
4.5
1.1
2.6
3.1
2.3
4.9
-1.8
0.8
9.2
46.4
41.7
-29.8
-2.6
36.00
45.00
Q2 25f
1.2
1.1
1.4
-0.1
1.7
3.3
4.8
2.0
9.3
40.9
35.4
-27.3
-2.3
36.00
40.00
Source: HSBC estimates, Refinitiv Datastream
Note: *Period end
101
Economics ● Global
Q2 2024
CEEMEA
Saudi Arabia
Simon Williams
Chief Economist, CEEMEA
HSBC Bank plc
simon.williams@hsbc.com
+44 20 7718 9563
Don’t sweat the headline
We have made further downward revisions to our near-term growth forecasts, with our new
numbers suggesting headline growth may run below 2% this year – a stronger outturn than
2023 when the economy contracted by 0.8%, but down on our earlier 2024 forecast of 2.7%.
Though of note, the forecast masks the underlying strength and stability of the growth outlook
as the headline numbers are heavily impacted by oil production volumes. Indeed, Q4 data show
that the oil sector contracted by 16% y-o-y (4% q-o-q) and exports fell by 10% as Saudi led
OPEC production cuts, and our forecast revisions are driven by the prospect of these cuts being
extended deeper into 2024. But provided oil prices hold around the USD80/b level then nominal
energy receipts should prove sufficiently strong to ensure there is little feed through from oil
production cuts to the non-oil economy which accounts for 75% of GDP and which we see
continuing to grow at around 4.5% over 2024-25. This divergence between the oil and non-oil
sectors would be consistent with data that show non-oil GDP growth accelerated to 4.2% y-o-y
(1.4% q-o-q) in Q4 from 3.2% in Q3 – a pick-up in momentum even as the oil sector shrank that
high frequency data suggests extended into the first months of this year.
Going forward we expect to see a shift in growth drivers as the Kingdom moves into the next
phase of its infrastructure and industrial investment spending programme. While boosting longterm potential, the scale of these projects will test logistical and management capacity limits,
while also bringing increased funding needs. This has already seen the Kingdom step up its
public debt issuance and our forecasts suggest that the on-budget element of the spending
gains will see the budget deficit widen, particularly if a protracted period of lower oil production
volumes puts revenues under pressure. The import-intensive nature of the development work
will also see the current account narrow. But with FX reserves above USD400bn and public
debt below 30% of GDP, the Kingdom’s balance sheet strength offers it considerable room for
manoeuvre. We also see little pressure on consumer price inflation, which has eased over the
past year and which we expect to remain low over our forecast period, despite gains in domestic
demand. Rents may be an exception, however, as strong growth sees the population expand
quickly, exposing capacity limits. The price of capital goods may also rise as development work
gains, adding to already high project costs.
…and investment spending is set to rise
OPEC cuts mask a strong underlying
growth story…
% y-o-y
25
20
15
10
5
0
-5
-10
-15
-20
Saudi Arabia Real GDP
% y-o-y
25
20
15
10
5
0
-5
-10
-15
-20
2023-Q4
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
Source: HSBC with data from INEGI
102
Oil
Non-Oil
USDbn
120
Total Saudi Arabia Contracts awarded
USDbn
120
100
100
80
80
60
60
40
40
20
20
0
0
2014
2016 2018
Annualised
Source: MEED projects, HSBC Calculations
2020
2022 2024
Actual
Economics ● Global
Q2 2024
Policy issues
Project data show that the Kingdom is set to accelerate markedly the execution of large-scale
investment projects tied to its Vision 2030 development programme. There is much in these
projects that we find compelling, particularly where the expansion of infrastructure and service
and industrial sector capacity is tied to broader structural reforms such as the overhaul of labour
markets, financial markets and the social code, support for SMEs and focus on export growth.
But while we are optimistic that this will see potential growth trend higher, the scale and
complexity of the development work planned will pose a demanding management challenge as
policymakers seek to prioritise and sequence overlapping projects effectively. Securing
adequate financing will also prove testing if onshore private sector funding continues to stall and
FDI gains slowly.
This could constrain project execution, particularly over the second half of the forecast period
and into 2026, with the finance ministry already hinting that some capital projects might require
re-calibration. A bigger policy risk for us, however, is that policy instead seeks to drive through
these capacity constraints, resulting in higher costs that not only increase the contingent
demand on the state balance sheet but also dilute the return on equity some of the investment
projects are likely to deliver.
In the urgency to get things done, policy must also find means to guard against entrenching the
dominant position of the state – a tough ask given the power and financial resources of the
states, but a critical one if there is to be room for the domestic and foreign private sectors to
drive long term productivity gains. Associated with this is the challenge of ensuring productivity
gains in a competitive domestic landscape and through increased export market share, rather
than near term growth fostered by import substitution.
Risks
The Kingdom’s balance sheet strength leaves it well placed to manage liquidity strains that
might emerge from a further sharp escalation in regional geopolitical tensions, but growth
prospects would likely dim as confidence fell away. Oil prices are also of concern - we continue
to base our forecasts on oil at around USD80/b, but we see downside risks, and a market shift
that saw prices settle below USD70/b would take a toll on sentiment and the Kingdom’s funding
needs, weighing on near and long-term economic prospects.
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
2023
2024f
2025f
-0.1
4.6
3.3
1.0
1.8
-3.1
0.3
-2.1
-0.8
12.1
1.7
-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
73.0
8.6
-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
38.5
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
-25.5
-3.5
-10.7
36.4
31.0
3.75
0.50
4.3
9.5
0.8
10.7
7.0
1.0
8.3
1.1
3.1
41.7
4.8
-2.2
33.4
28.6
3.75
0.50
8.7
4.9
9.3
21.7
4.7
19.7
12.4
13.2
2.5
151.5
13.7
2.5
28.0
23.8
3.75
4.50
-0.8
5.3
5.7
5.3
5.4
-6.5
9.9
-6.8
2.3
40.1
3.8
-2.0
30.4
25.2
3.75
5.50
1.4
3.0
3.0
10.0
5.1
-4.0
5.0
-1.0
2.0
22.3
2.0
-3.2
29.9
24.5
3.75
4.75
4.0
2.5
2.5
10.0
5.3
3.5
7.5
4.0
2.2
24.6
2.1
-2.9
28.7
23.3
3.75
4.00
Source: Saudi Arabia Monetary Agency, Central Department for Statistics and Information, HSBC estimates
Note: *Period end
103
Economics ● Global
Q2 2024
CEEMEA
South Africa
David Faulkner
Economist, South Africa and SubSaharan Africa
HSBC Securities (South Africa)
(Pty) Ltd
david.faulkner@za.hsbc.com
+27 11 676 4569
Matlhodi Matsei
Economist, Sub-Saharan Africa
HSBC Securities (South Africa)
(Pty) Ltd
matlhodi.matsei@za.hsbc.com
+27 116 764251
Sihle Boyce
Associate, SA & Sub-Saharan
Africa Economics
HSBC Securities (South Africa)
(Pty) Ltd
sihle.boyce@za.hsbc.com
+27 11 676 4246
All eyes on the election
South Africa will hold its seventh democratic national elections on 29 May with this year’s vote set to
be the most closely contested. Many opinion polls have pointed towards the African National
Congress (ANC) losing its parliamentary majority, raising the prospect of a shift towards a coalition
or minority government at a national level after decades of single-party dominance and adding
political uncertainty to the country’s policy, economic, and market outlook.
Election uncertainty adds a further headwind to the economy which narrowly avoided a
technical recession in 4Q23 as it expanded by 0.1% q-o-q. The economy grew by just 0.6% in
2023, marking the fifth slowest annual expansion in the past 30 years. Domestic final demand
was almost unchanged in Q4, as an uptick in household consumption was offset by a slight
decline in both government spending and investment. Restocking added GDP growth, after the
sharp decline in Q3, but these gains were negated by robust import growth that meant net
exports fell. The weak growth outlook remains sensitive to local energy constraints, logistics
disruptions, and consumer headwinds, which alongside election concerns continue to weigh on
business and consumer sentiment and are likely to cap the growth recovery. We expect the
economy to expand by 1.0% in 2024 and 1.5% in 2025.
Alongside the subdued growth outlook, inflation remains relatively sticky, and some way above
the 4.5% midpoint of the SARB’s inflation target range. Despite some slowdown in food price
growth recently, higher fuel costs and an increase in core inflation from services is impeding
disinflation. We expect headline CPI to average 5.3% this year before moderating slightly to
5.1% in 2025, however El Nino poses a significant potential upside risk for the inflation outlook,
alongside pressures from a weak rand, electricity tariffs and other administered prices, and
elevated inflation expectations.
South Africa’s current account deficit widened to -2.3% of GDP in 4Q23, led by a weaker trade
surplus. We expect further deterioration in the external accounts, reflecting the combination of
subdued commodity prices, robust imports related to ongoing investment in renewable energy
capacity, and the influence of logistics constraints on the country's freight transport corridors and
ports. We forecast a current account deficit that worsens to c3% of GDP over our forecast horizon.
The ANC’s vote share has fallen over
recent national elections
-6
40
40
-8
-8
30
30
-10
-10
20
20
-12
-12
10
10
57.5
0
0
1994
1999
2004
2009
2014
2019
% GDP
0
FY22/23
FY23/24f
FY24/25f
FY25/26f
FY26/27f
-6
62.1
60
FY21/22
-4
50
65.9
FY20/21
-4
50
69.7
FY19/20
-2
66.4
FY18/19
-2
60
62.7
FY17/18
70
70
Main budget balance
FY16/17
% GDP
0
ANC share of the national v ote
FY15/16
%
80
%
80
Actual / National Treasury forecasts
HSBC
Source: IEC, HSBC
Source: National Treasury, HSBC
The ANC’s vote share has fallen over
The government forecasts fiscal
consolidation, but we’re not so sure
recent national elections
104
The government forecasts fiscal
consolidation, but we’re not so sure
Economics ● Global
Q2 2024
Policy issues
The SARB kept its policy rate at 8.25% in January and there remains a hawkish bias to policy
decisions and communication with the MPC focused on the pressures from tight global financial
conditions, external and fiscal financing needs, while emphasising that achieving lower inflation
and interest rates permanently requires inflation expectations to be closely anchored to the 4.5%
midpoint. We see upside risks to the SARB’s inflation forecasts, with stickier core price growth and
the prospect of higher food price pressures postponing disinflation and narrowing the space for
SARB policy easing. Still-elevated inflation expectations, fiscal risks, and a high neutral real rate
may also delay cuts and result in a shallow easing cycle. We forecast 75bp of easing (100bp
previously), beginning in November.
The government continues to forecast strong and sustained fiscal consolidation in its latest
forecasts, with robust revenue gains and expenditure restraint expected to deliver a budget
deficit that narrows from 4.7% of GDP in FY23/24 (ending March) to 3.4% of GDP in FY26/27,
with debt levels to peaking at c75% of GDP. At the same time, the government has announced
that it will draw down ZAR150bn (c2% of GDP) of the unrealised profits from the cZAR500bn
gold and foreign exchange contingency reserve account (GFECRA) to reduce the borrowing
requirement and save on debt service costs. We remain cautious on the fiscal outlook and
several of our underlying concerns are unresolved. The FY23/24 deficit forecast appears
optimistic and jars with recent budget data that suggests a degree of fiscal slippage, while we
have concerns about the forecasts for robust tax revenue gains over the medium term, how
GFECRA is used and impacts fiscal discipline, while additional pressures from more SOE
support, national health insurance, and other key spending risks could jeopardise fiscal
consolidation and the long-term sustainability of South Africa’s public finances.
Risks
Political uncertainty is likely to inject volatility to the outlook and markets as potential election
and coalition outcomes force a recalibration of the political landscape and what this could mean
for policy. The near-term growth 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 could expose
deeper external and fiscal vulnerabilities. Sharper disinflation that we are factoring in could
enable to SARB to cut sooner, while a reacceleration of price pressures on higher food costs
could alternatively keep inflation expectations high and push out SARB rate cuts to 2025.
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 (%)*
2023
0.5
0.7
2.1
4.2
0.4
0.9
3.5
4.1
-0.5
32.2
5.3
5.9
-6.0
-1.6
-5.2
43.0
73.2
18.36
8.25
2024f
1.0
1.2
0.0
4.0
0.6
1.6
2.3
4.3
1.7
31.1
5.3
5.3
-10.8
-2.8
-5.1
45.5
74.1
20.50
8.00
2025f
1.5
1.7
0.1
6.0
0.7
2.2
2.2
4.5
1.3
30.4
5.5
5.1
-11.9
-3.0
-5.0
47.7
76.9
7.50
Q1 24f
0.6
0.2
1.0
0.5
3.4
-0.5
1.1
2.7
3.9
2.1
31.7
5.2
5.5
-9.5
-2.5
18.58
8.25
Q2 24f
0.4
0.3
1.1
0.1
3.0
1.7
0.7
2.4
3.4
1.1
31.3
5.0
5.5
-11.1
-2.9
19.50
8.25
Q3 24f
1.1
0.4
1.1
-0.3
4.7
1.1
2.1
1.8
5.2
1.9
31.0
5.3
5.4
-10.8
-2.8
20.00
8.25
Q4 24f
1.6
0.6
1.7
-0.4
4.9
-0.1
2.4
2.2
4.7
1.6
30.5
5.5
4.8
-11.3
-2.9
20.50
8.00
Q1 25f
1.7
0.2
1.6
-0.2
6.4
-0.2
2.3
2.6
4.5
30.7
5.5
5.3
-10.2
-2.6
20.50
7.75
Q2 25f
1.6
0.3
1.8
0.1
5.7
2.0
2.4
1.9
4.4
30.5
5.2
5.1
-12.6
-3.2
20.50
7.50
Note: *Period end.
Source: Refintiv Datastream, Bloomberg, HSBC estimates
105
Economics ● Global
Q2 2024
Latin America
Brazil
Ana Madeira
Chief Economist, Brazil
Banco HSBC S.A.
ana.madeira@hsbc.com
+55 11 2802 2558
Another good year ahead
Overall, GDP surprised positively throughout 2023 and set a good ground for our long-standing
and above-consensus forecast for 2024. Despite growth resiliency, the deceleration at the
margin is ongoing and should continue to drive inflation lower throughout the year. This
environment continues to favour the continuation of the easing cycle by the central bank, which
has been cutting interest rates at a steady pace. Moreover, approval of the tax reform and
several revenue-raising measures at the end of 2023 set the stage for weaker political and fiscal
noise in 2024, in our view.
We retain a constructive view on GDP growth into 2024, with an above-consensus forecast at
2.0%. GDP for 4Q23 showed yet another resilient print with overall growth reaching 2.9% for
2023, in line with our forecast (Another good year, 1 March). Consensus has started to revise
up 2024 GDP growth, reaching 1.8% from 1.5% since the year started. Private consumption
and the external sector were the main drivers in annual terms, while investment remained a
drag. The resiliency in private consumption in 2024 should be supported by the labor market.
The average unemployment rate reached 8.0% in 2023 (vs 9.2% in 2022) and we expect it to
fall a tad more to 7.8% in 2024.
External accounts have performed better than anticipated also, with the current account deficit
improving to -1.3% of GDP in 2023 (vs -2.5% in 2022) driven by a stronger trade balance. This
has led us to revise down our current account deficit to -1.2% of GDP for 2024 (from -1.6%).
We expect inflation to continue easing into 2024 and reach 3.9% by year-end (vs 4.6% in 2023end). The marginal weakening of GDP and still tight monetary policy should continue to put
downside pressure onto core and services inflation.
In fact, despite some negative surprises to inflation in January and February, its composition
improved with core and services inflation that continue to ease at a good pace (Upside surprise, but
improved composition, 12 March). We already expected Q1 to remain under pressure due to food
and services inflation. Food prices look set to remain high throughout Qq due to El Nino, but we
expect pressures to start dissipating in Q2. As for services, the ongoing deceleration in economic
activity – albeit slow – should confirm a downward trend in services inflation until year-end.
4Q GDP driven by a resilient private
consumption and external sector
Contributions to y -o-y inflation
ppts
10
ppts
15
ppts
10
10
10
8
8
5
5
6
6
0
0
4
4
-5
-5
2
2
-10
-10
0
0
ppts
15
-15
Dec-19
Source: IBGE
106
Contributions to y -o-y GDP growth
Non-durables putting upward pressure on
inflation
Dec-20
Dec-21
Pvt consumption
GFCF
GDP
-15
Dec-22
Dec-23
Govt consumption
NX
-2
Feb-20
-2
Feb-21
Feb-22
Non-durables
Semi-durables
Market-driven
Source: IBGE, BCB
Feb-23
Feb-24
Durables
Services
Economics ● Global
Q2 2024
Policy issues
We expect the central bank (BCB) to continue the easing cycle (started in August 2023) with the
Selic reaching 8.50% in YE24 (More data dependence and more degrees of freedom, 20 March).
However, we anticipate it will do so at a slower pace reaching the terminal rate only by year-end (vs
3Q before) and acknowledge that risks are balanced for a higher terminal rate. In its latest statement,
the BCB changed the forward guidance, signalling it will keep the same 50bp cutting pace at the
“next meeting” (i.e. removing plural). We perceive this as a hawkish turn, as BCB explained the
change in forward guidance due to an increase in uncertainty and thus the need to increase flexibility
of monetary policy. That said, BCB also tried to soften this hawkish shift by noting that its baseline
scenario did not change substantially. In our view, the BCB is suggesting that the pace of easing
could go slower – given uncertainty – but without necessarily impacting the terminal Selic rate.
On the political side, we expect noise to decline somewhat in 2024. Political noise was high during
2023 due to the new government and setting of fiscal rule and tax reform. For 2024, we expect
subdued political noise given fewer risk events in our view. According to political analysts, tensions
between executive and legislative at the start of the year are more of a modus operandi than a real
concern (Trip notes: consolidating a positive 2024 view, 4 March).
Fiscal risks also appear manageable for now, in our view. The fiscal adjustment underway is not
ideal as it focuses on revenue growth as opposed to spending, but for now the government is
managing to raise revenues. There is a growing consensus the government will not revise weaker
the primary target at its first (March) or even second (May) bi-monthly reports due to positive
surprises to revenues and ability from the government to delay spending. In this sense, we remain
comfortable with our primary deficit forecast at -0.6% of GDP for 2024 (compared to consensus at 0.8%), with gross debt/GDP to reach 76.6% (from 74.4% in 2023).
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, discussions of a possible increase in the
deficit target for 2024 have quiet down but should remain a concern for this year. That said, we see
more medium-term risks than short-term ones. The extension of the soft landing into 2024 that we
expect, should also be a favorable scenario to postpone eventual market-unfriendly measures and
limit big shifts in policies in the short term. Risks are also more medium-term 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 (%)*
2023
2.9
3.1
1.7
-3.0
1.7
9.1
-1.2
1.0
8.0
9.9
4.6
-28.6
-1.3
-8.9
15.2
74.4
4.85
11.75
2024f
2.0
2.0
2.9
2.3
1.9
3.9
2.9
2.7
7.8
6.0
4.0
-28.0
-1.2
-6.6
14.6
76.6
4.75
8.50
2025f
2.3
2.5
2.8
2.0
2.5
5.7
6.0
2.0
7.8
5.6
4.1
-43.6
-1.7
-6.3
15.1
77.4
8.75
Q1 24f
0.1
0.5
0.7
2.5
2.2
1.0
3.7
1.5
2.2
8.4
8.3
4.3
-32.6
-1.5
4.85
10.75
Q2 24f
2.1
0.9
2.0
2.8
2.1
1.8
3.3
2.2
1.8
8.0
6.2
3.8
-41.4
-1.8
4.85
9.75
Q3 24f
2.6
0.8
2.6
3.0
2.3
2.3
3.8
4.3
3.2
7.6
5.8
4.0
-40.1
-1.7
4.75
9.00
Q4 24f
3.2
0.6
2.7
3.2
2.4
2.3
4.7
3.6
5.3
7.4
6.0
4.0
-28.0
-1.2
4.75
8.50
Q1 25f
2.0
0.2
2.1
2.0
2.0
2.1
3.0
3.8
2.6
8.2
6.4
4.0
-36.5
-1.5
4.75
8.50
Q2 25f
2.2
0.4
2.4
1.6
2.6
2.3
3.3
3.0
0.6
8.0
6.2
4.3
-49.6
-2.0
4.75
8.50
Note: *Period end
Source: Refinitiv Datastream, HSBC estimates
107
Economics ● Global
Q2 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
Solid story, waiting for catalysts; June election on the spotlight
Mexico’s outlook remains solid, supported by structural and cyclical factors. Resilient domestic
demand will lead growth, while disinflation prevails, we think. The latter now allows gradual rate
cuts to the benchmark rate. Yet, the monetary policy stance will remain well-restrictive during
the policy horizon (i.e. until end-2025 at least), we believe. The short-term fiscal stance is in
check, but downside risks for the medium-term are growing (see HSBC Mexico Macro Day &
Trip Notes: Catalysts will make a good story turn great, 21 Feb 2024).
The general elections that will take place on 2 June to pick a president and renew Congress are
particularly relevant for the economic policy agenda. Also, potential trade policy risks related to
the US election are becoming the focus in our client conversations recently. We also notice
growing relevance of Chinese investment prospects in Mexico and on the potential
repercussions for some sectors and trade policy (see Mexico Trip Notes: Aligning factors to add
exposure, 11 March 2024).
Q4 2023 GDP grew 0.1% q-o-q seasonally adjusted and 2.5% y-o-y. This was the ninth q-o-q
increase in a row. We expect some services and industrial activities to prove resilient in H1
2024. Our 2024 and 2025 GDP growth forecasts are 2.7% and 2.5%, respectively.
From a demand perspective, domestic sources will remain the main driver. Consumption will remain
supported by a low unemployment rate, real wage gains and solid remittances. Also, the frontloading
of social spending programs in H1 2024 could provide additional support. Yet, this effect will fade in
H2 2024. Investment will continue to expand due to nearshoring trends, we think. External demand
could start to soften somewhat, while a strength MXN could also weigh negatively on exporters.
With respect to inflation, modest increases of tradable goods prices, partly due to a stronger
currency, will continue to anchor the disinflationary process, in our view. In contrast, solid
consumption could inject some stickiness in service sector prices. Meanwhile, the outlook of the
non-core category seems more volatile, as non-processed food prices are fluctuating strongly,
due to temporary shocks. Yet, steady energy prices could help to keep the non-core component
in check. Our end-2024 and end-2025 inflation forecasts stand at 3.9% and 3.6%, respectively.
Economic activity grew on a q-o-q basis
for the ninth time in a row in Q4 2023
Consistent disinflation across the board
has opened the door for rate cuts in 2024
MXNtn
27
%
12
Real GDP
26
26
25
25
24
24
23
23
22
22
21
21
20
20
19
19
2018 2019 2020 2021 2022 2023 2024 2025
Source: INEGI, HSBC forecasts
Source: HSBC with data from INEGI
108
MXNtn
27
Inflation and policy rate
%
12
10
10
8
8
6
6
4
4
2
2
2018 2019 2020 2021 2022 2023 2024 2025
Headline CPI
Core CPI
Key rate
Source: Banxico, INEGI, HSBC forecasts
Economics ● Global
Q2 2024
Policy issues
Mexico’s central bank, Banxico, cut the policy rate by 25bp to 11.00%, in line with expectations.
In our view, a mix of headline and core disinflation, lower inflation expectations, a well-restrictive
real stance for the policy horizon, and the significant appreciation of the MXN in recent weeks
supported the case to cut rates for the first time since February 2021.
The cut was accompanied by a cautious tone, emphasising the highly data-dependent approach
ahead. The cautious tilt within the Board could be reflected by keeping a 25bp pace in the early
and mid-parts of the cycle. Triggers for larger cuts could come via faster disinflation in Mexico or
from a clearer path in US rates, but these are not on radar for now. These conditions might only
occur in Q1 2025 (ie in our base-case scenario) or in Q4 2024 (ie if service sector prices ease
faster and the Fed has already started to cut rates), in our view. Our end-2024 and terminal rate
forecasts stand at 9.5% and 7.5% (ie reached by end-2025), respectively.
On the fiscal side, larger deficits included on the 2024 budget are materializing. Due to the 2 June
election, some of the social spending programmes of Q2 were brought forward to Q1. We see debtto-GDP below 50% by end-2024, but the ongoing expansionary fiscal stance adds to the downside
risks for public finances from 2025. Fiscal aid to Pemex is unlikely to change any time soon.
General elections are due to take place on 2 June 2024, with voters set to elect a new president, all
Congress members (ie 500 Deputies and 128 Senators), and nine state governors. This will be the
main development in Q2 2024. The composition of Congress will prove key for policy and reform
risks, in our view, as stronger gridlocks should bode well for capping these risks further.
Risks
Currently, the evolution of US economic activity will remain the key risk for the Mexican economy.
An eventual deceleration is a relevant downside risk. Stickier core inflation is another factor to
monitor, as it could prompt a more restrictive stance on monetary policy.
In contrast, the gradual materialization of nearshoring and its effects on investment and output are
the main upside risks. Faster disinflation is another benign risk, especially as this is weighing on the
start to the easing cycle. Yet, the pace 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 (%)*
2023
3.2
3.9
1.2
15.6
-4.7
6.6
-1.3
7.1
3.9
2.9
10.8
5.5
-5.4
-0.3
-3.3
49.5
46.8
16.97
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
17.75
9.50
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
Q1 24f
2.1
0.8
2.2
2.6
8.8
3.9
-1.9
6.5
2.0
3.0
9.0
4.6
-7.5
-0.4
-2.1
17.25
11.00
Q2 24f
3.7
0.8
2.3
3.0
7.5
3.7
-1.0
6.9
3.8
3.1
8.3
4.4
-3.5
-0.2
-2.1
17.75
10.50
Q3 24f
2.5
0.5
2.5
2.0
7.0
3.6
0.2
5.6
2.9
3.1
8.0
4.1
-2.0
-0.1
-0.4
17.75
10.00
Q4 24f
2.5
0.5
2.3
1.5
6.7
3.3
0.9
5.0
2.3
3.0
7.0
4.1
1.4
0.1
-0.3
17.75
9.50
Q1 25f
3.0
0.5
3.1
0.8
6.0
3.6
4.9
9.0
4.0
2.9
7.2
3.7
-7.0
-0.4
-1.1
17.50
8.50
Q2 25f
1.5
0.7
2.2
1.6
5.6
3.0
2.6
8.6
2.1
3.0
6.4
3.7
-3.1
-0.2
-1.3
17.50
7.50
Note: *Period end
Source: HSBC estimates
109
Economics ● Global
Q2 2024
Latin America
Argentina
Jorge Morgenstern
Senior Economist, LatAm
HSBC Bank Argentina S.A.
jorge.morgenstern@hsbc.com.ar
+54 11 4130 9229
Living on the edge
We forecast GDP to fall 4.0% in 2024 following a 1.6% decline in 2023. Excluding the
agricultural sector, GDP would fall around 5.5%. We still expect a levelling out in 3Q and an
incipient recovery of activity in 4Q. Our base scenario assumes that the administration is able to
stabilize the economy and put it on a path for sustainable growth. We forecast 3.0% GDP
growth in 2025.
If the ongoing stabilisation process is successful, we think inflation will fall to single-digit monthly
rates at some point in 2Q-2024, after accumulating 37% of price increases in January-February.
We forecast inflation at 176% by end-2024. Two factors are driving a faster than expected
decline of inflation, in our view: the stronger contraction in GDP and stable FX dynamics, both
on the official and unofficial FX rates. In addition, the tight fiscal stance and ongoing demonetization of the economy are putting downwards pressure on prices. Regulated prices will
continue to increase in coming months and exert upwards pressures on overall prices.
Meanwhile, some market-driven prices have risen excessively, in our view, and we expect this
to lead to disinflationary pressures.
There is no clarity on the strategy authorities will adopt to lift FX controls and ultimately unify the
FX market, whether they will opt for a piecemeal removal throughout the year or a one-off
shock. So far, the central bank remains focused on accumulating FX reserves and reducing the
monetary overhang. For this, it continues to set a policy rate below inflation. Our base scenario
is that they see de-monetization complete by mid-year and start lifting regulations on FX market
transactions, including the scheme by which exporters have to sell part of their proceeds in the
unofficial market. Removing taxes on imports will be harder as they have become a significant
source of revenues.
A proper stabilisation plan will require some pre-conditions that are yet to be in place, such as
full alignment of relative prices (tariffs, in particular) and eliminating the monetary overhang.
Interest rates are below inflation but above
the crawling peg of the FX
Policy rates, inflation and
currency depreciation
% m-o-m
30
30
25
25
20
USDbn
0
USDbn
0
FX reserv es
-2
-2
20
-4
-4
15
15
-6
-6
10
10
-8
-8
5
5
-10
-10
0
-12
0
Mar-23
Jun-23
Sep-23
Headline CPI
ARS depreciation
Source: BCRA
110
Thousands
% m-o-m
Central bank FX reserves are rising, but
the net stock remains negative
Dec-23
Mar-24
-12
Dec Jan Feb Mar Apr May Jun
Policy rate
Net FX reserves
Source: BCRA
Jul
Aug
Target (7th review)
Economics ● Global
Q2 2024
Policy issues
In the near term, monetary policy is being used to reduce the significant monetary overhang.
The negative real rate implies the stock of remunerated liabilities falls in real terms. We expect
this focus to change in 2H-2024, towards one where monetary policy anchors money demand in
an FX market with fewer restrictions.
The government has achieved a budget surplus in January and February and maintains its goal
for a budget surplus for 2024, or a primary surplus of 2.0% of GDP. We think that some of the
improvement in fiscal dynamics is not sustainable and, in particular, tax collection will suffer
from the impact of the recession. We expect a small primary surplus for 2024. How this is
achieved will depend on negotiations with Congress and provinces for potential changes to the
income tax (which was cut drastically in 2023), a tax amnesty, the adjustment of pensions for
inflation and the revenue-sharing between government levels.
Risks
The government’s 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 with
provincial governors and members of Congress and of potential judicial challenges. The
government has only a minor representation in Congress -not enough to block opposition
initiatives- which has already rejected some of its proposals. It has called governors for an
agreement on the basis for a market-driven and more open economy, setting a deadline for
late-May. At the same time, even with this weak standing, has adopted a confrontational
strategy. We think it will be key to monitor the popularity of the administration to assess whether
the reform agenda will have a chance of success.
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*
2023
-1.6
1.1
1.2
-1.9
0.1
0.7
-24.3
-9.4
-1.8
6.1
111.6
133.5
-22.1
-3.4
-4.4
52.0
86.0
808
100.0
2024f
-4.0
-6.6
-19.2
-14.7
0.0
-9.8
14.5
-20.3
-7.7
6.5
184.3
249.2
4.0
0.7
-2.4
58.4
83.0
1600
65.0
2025f
3.0
4.1
0.5
7.6
0.0
4.4
6.8
8.2
2.1
6.2
45.4
72.2
2.9
0.5
-2.0
61.4
83.0
30.0
Q1 24f
-5.4
-3.5
-8.0
-20.0
-15.0
1.4
-9.8
14.2
-19.8
-7.9
7.4
161.1
248.8
0.8
-5.1
860
80.0
Q2 24f
-3.1
0.0
-9.0
-20.0
-20.0
0.9
-11.9
18.9
-27.2
-10.1
6.5
174.5
289.8
2.5
-1.7
1000
75.0
Q3 24f
-5.0
0.3
-5.0
-21.0
-15.0
-1.6
-10.3
12.4
-19.9
-7.9
6.2
183.0
276.7
0.4
-0.1
1200
65.0
Q4 24f
-2.3
1.0
-4.0
-16.0
-8.0
-0.9
-7.0
12.0
-12.4
-4.8
5.9
205.5
208.0
0.3
1.0
1600
65.0
Q1 25f
2.9
1.2
5.0
0.0
6.0
-0.4
4.3
6.9
6.1
1.4
7.2
105.3
130.3
0.9
1.0
1800
60.0
Q2 25f
3.7
0.6
4.5
0.0
7.0
0.9
5.4
6.8
9.3
1.8
6.1
57.6
83.1
2.2
0.9
2000
50.0
Note:*Period end Source: HSBC estimates, Refinitiv Datastream
111
Economics ● Global
Q2 2024
Latin America
Colombia
Jorge Morgenstern
Senior Economist, LatAm
HSBC Bank Argentina S.A.
jorge.morgenstern@hsbc.com.ar
+54 11 4130 9229
Low expectations
Economic activity remains sluggish. We expect 1.2% growth in 2024 following a 0.6% GDP
expansion in 2023. This is not great by itself, but also a source of additional uncertainty, as the
government could jeopardize fulfillment of the fiscal policy rule or propose significant legislation
overhauls in an attempt to regain support.
Congresspersons have shown opposition to the healthcare reform proposed by the Executive.
The fate of the pension reform is also unclear and we think that, if it passes, it will probably be
after significant watering down. In this context, President Gustavo Petro has suggested the
need for a constitutional assembly to be able to meet the reform agenda he campaigned on in
2022. Constitutional amendments require the vote of Congress, so its unclear how this could be
achieved. However, this shows how regulatory risk remains a key issue in Colombia. We think it
will continue impacting negatively on investment and, over time, eroding potential growth.
Part of the decline in investment relates to the government’s intention to reduce the relevance of
oil for the economy, but there is still not a clear replacement. We think that, even if a new
administration comes with an agenda favoring the sector, some scarring from the stagnation of
the sector in recent years will be left.
Stagnation and lower imports helped in reducing the current account deficit, which we see
below 3% of GDP in 2024 and 2025. There is also some supportive growth in remittances. FDI
remains strong, mostly as a result of profit reinvestment thanks to tax incentives.
Inflationary pressures are easing as the impact of the annual minimum wage adjustment did not
result in higher-than-expected prints in early 2024 and the El Niño is fading without having caused
disruption on the supply of perishables. Still, energy prices remain a source of inflationary pressure
and the government is readying increases in the price of diesel, necessary to reduce subsidies. We
expect inflation to return to the central bank’s target of 2% to 4% in 2025.
Inflation is falling but pressures from
energy prices will remain
Monetary policy rate and inflation
%
% Yr
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
2019
2020
2021
Monetary policy rate
Source: DANE, BanRep
112
The current account deficit has fallen and
FDI was strong in 2023
2022
2023
Core
0
2024
Headline
% GDP
12
Balance of pay ments by component
% GDP
12
8
8
4
4
0
0
-4
-4
-8
-8
-12
-12
2017 2018 2019 2020 2021 2022 2023
Goods
Services
Primary income
Secondary income
Direct investment
Portfolio investment
Other investment
Current account
Source: DANE, BanRep
Economics ● Global
Q2 2024
Policy issues
The central bank accelerated the pace with a 50bp rate cut to 12.25% on 22 March. We
forecast another 50bp in April and 75bp cuts starting in the end-June meeting. We forecast a
8.50% 2024YE policy rate. At over 4% in real-terms compared to our 2025 inflation forecasts,
we think the policy rate will be somewhat above-neutral, in our view. This will be the result of
limits to further easing given by the potential impact of rate differentials with the US on portfolio
flows, the exchange rate and inflation. We forecast 100bp of rate cuts in 2025, leaving the policy
rate closer to neutral. In 2025, President Petro will be able to make appointments to the central
bank board that could swing it into a more dovish stance. Hence, we think there are downside
risks to our forecasts.
We see the fiscal deficit widening by 1ppt of GDP to 5.3% in 2024, in line with the current
government projections. The primary deficit will stand at 0.9% of GDP, in our view. The
government estimates that, adjusting for cyclical and oil price factors, this will correspond to the
0.2% of GDP deficit allowed by the fiscal rule. However, due to a different criteria in treating
certain revenues, the independent committee that oversees the rule sees estimates that the
cyclical adjusted deficit will be 0.9% of GDP. Moreover, they also see that, given low growth in
the economy, stabilising debt levels would require primary equilibrium. The mid-term fiscal
framework, due to be published in June will show whether authorities are willing to make a
significant adjustment or will miss the fiscal rule target, with likely negative consequences in
terms of access to funding.
Risks
Reform discussions are close to finishing, with a deadline for pensions and healthcare coming
in June. Even if these are not approved or diluted significantly, we think regulatory uncertainty
will remain high as the administration continues to push the reform agenda it campaigned on.
The latest example is floating the idea of a constitutional assembly.
There are also risks coming from the government’s stance on oil and how this could make the
transition out of it more difficult. We think that market participants have taken comfort from the
lack of support in Congress for the Executive and thus its inability to pass radical reforms but
still see the possibility of negative impacts from other measures.
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 (%)*
2023
0.6
1.1
0.9
-8.9
-10.1
-4.3
-11.7
-17.1
-2.0
10.0
13.5
10.8
-9.7
-2.6
-4.3
53.3
55.0
3854
13.00
2024f
1.2
0.9
1.1
0.8
-2.5
1.1
0.5
-0.9
1.0
9.3
9.9
7.2
-9.9
-2.4
-5.3
52.8
54.4
4150
8.50
2025f
2.0
1.7
1.1
2.5
-2.5
1.9
-0.5
0.6
1.1
9.1
5.2
4.6
-12.0
-2.7
-4.0
51.9
54.7
7.50
Q1 24f
-0.2
0.6
-0.8
0.0
-4.0
-2.5
-1.6
1.0
-6.2
-3.0
10.5
-4.0
7.2
-2.1
-2.2
4000
12.25
Q2 24f
0.8
0.6
0.8
1.0
-3.0
-2.5
0.3
1.0
-2.7
-1.1
10.0
-3.0
6.9
-1.3
-1.9
4100
11.75
Q3 24f
1.6
0.6
1.5
1.0
5.1
-2.5
1.9
1.0
1.0
0.5
9.4
5.1
6.1
-2.8
-2.1
4150
10.25
Q4 24f
2.3
0.5
1.9
1.8
5.0
-2.5
3.4
1.0
4.5
1.1
9.6
5.0
8.4
-3.7
-2.4
4150
8.50
Q1 25f
2.1
0.4
1.7
1.5
2.5
-2.5
1.8
2.2
0.7
0.1
9.9
2.5
5.2
-2.5
-2.5
4150
8.00
Q2 25f
2.0
0.5
1.6
1.0
2.7
-2.5
1.7
2.0
0.4
-0.1
9.5
2.7
4.8
-1.8
-2.6
4150
7.50
Note: *Period end Source: Refinitiv Datastream, HSBC estimates
113
Economics ● Global
Q2 2024
Latin America
Chile
Jorge Morgenstern
Senior Economist, LatAm
HSBC Bank Argentina S.A.
jorge.morgenstern@hsbc.com.ar
+54 11 4130 9229
Calmer waters
We forecast 1.8% GDP growth in 2024, 2.4% in 2025 following 0.2% growth in 2023, as
monetary policy turns less contractionary and regulatory uncertainty continues to clear.
Discussions on pension and tax reforms are under way. The government has already watered
down its proposals significantly, trying to gain the support of the opposition. Even then, there is
no clarity whether these reforms would pass.
The tax reform, which Congress rejected in 2023 and can only now be re-submitted, has now a
focus on growth-enhancing measures. It will seek to simplify the permission process for new
investment and the tax system. It includes a reduction in corporate taxes. The main point of
disagreement with the opposition will likely be the increase in personal income taxes for top
income brackets. The government argues the need to raise revenues in order to fund new
spending and has tied an increase in the universal pension scheme to the achievement of
higher revenues.
The discussion on the pension reform passed the lower chamber and moved to the Senate but
without a favorable vote on the key issue of raising contributions to the system. There is no
agreement between the government and the opposition on how much of these revenues could
be used in a solidarity pillar instead of being added to each individual’s pension account.
Following the second rejection of a constitutional draft in December 2023 there is no appetite for
reopening the process across the political spectrum.
Inflation has come above expectations in early 2024. We expect a moderation in annual inflation
in the months ahead, to 3.8% by 2024YE, but now see a period of around 4% inflation in mid2024. Our base case is that inflation will come down fast towards the 3% centre of the central
bank’s target range in early 2025.
We expect the current account deficit to widen from 3.5% in 2023 towards c4% of GDP in 20242025 as economic activity recovers and imports rise.
Disinflation paused with early 2024 prints
%Yr
Index
20
20
130
16
16
120
120
12
12
110
110
8
8
100
100
4
4
90
90
0
0
2018 2019 2020 2021 2022 2023 2024
Headline
Non volatile goods
Non volatile services
Volatile
%Yr
Inflation by component
Source: INE, Central bank of Chile. Note: Headline CPI shown here is the central
bank’s spliced series.
114
Currency weakening despite improved
terms of trade
Real effectiv e ex change rate and
terms of trade (2017-24=100)
80
2017
Source: Refinitiv, HSBC
Index
130
80
2019
2021
2023
Terms of trade
Real effective exchange rate
Economics ● Global
Q2 2024
Policy issues
We forecast a reduction of the fiscal deficit in 2024 to 1.9% of GDP from 2.4% of GDP in 2023.
There is great uncertainty regarding future fiscal performance given the ongoing discussions on
tax and pensions matters. Moreover, the council overseeing the fiscal rule has shown concern
over the optimistic assumptions on which future reductions of the fiscal deficit are based. The
fiscal rule includes a debt to GDP target which the government sees stabilising near 41% of
GDP but with a significant depletion of Treasury assets. There is a risk that social demands
continue to push for higher spending even if revenues are not rising enough to fund it.
The central bank has behaved quite erratically in recent quarters, giving guidance and then not
following it. We expect less volatility in monetary policy decisions moving forward, but there is a
risk that the lack of consistency will continue. We expect a 75bp rate cut in April and then a
move to a 50bp rate cut pace towards a terminal rate of 4.5%. We deem this to be the neutral
level, but the central bank estimates it to be lower.
Risks
We think the central bank will have to improve its communication about policy direction.
Currency weakness is now being driven by rate differentials with other economies more than
terms of trade, in our view. Authorities are thus considering the exchange rate in their monetary
policy decisions. We expect more consistent guidance on the path for rates but there is a risk
that the lack of clarity on the future steps for monetary policy remains.
Copper production is likely to decline in the coming years, as a result of a mature geology and a
strict permit environment. Lithium has the potential to buffer some of the impact to Chile, but not
all of it. We still see a lack of new sources of growth for the country.
We also see the risk of the next administration implying a new major swing of the political
spectrum, this time to the right. This could result in another government coming to power with
an agenda that might not be supported by the majority of the population or Congress and thus
without the ability to execute it.
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)
CLP/USD*
Policy rate (%)*
2023
0.2
-5.2
1.7
-5.7
-0.1
-4.2
-3.7
-16.2
-0.6
8.6
7.7
7.6
-11.9
-3.5
-2.4
80.8
41.2
879
8.25
2024f
1.8
3.0
0.4
2.0
-0.3
2.3
0.3
6.1
-0.7
8.5
4.3
3.6
-12.6
-3.8
-1.9
88.4
41.2
880
4.50
2025f
2.4
1.5
1.0
3.0
-0.2
1.9
4.8
7.9
-0.9
8.3
3.5
3.3
-14.5
-4.0
-1.5
86.4
41.5
4.50
Q1 24f
1.0
0.4
3.0
0.4
2.0
-0.1
2.2
-7.0
-0.7
-0.7
8.6
5.2
3.6
-1.1
-4.1
950
7.25
Q2 24f
2.1
0.6
3.0
0.4
2.0
-0.2
2.1
-0.2
6.7
-0.5
8.6
5.0
3.7
-4.0
-4.3
900
5.50
Q3 24f
2.7
0.6
3.0
0.4
2.0
-0.2
2.6
4.1
8.7
-0.6
8.6
4.2
3.8
-4.9
-4.2
890
4.50
Q4 24f
1.4
1.3
3.0
0.4
2.0
-0.3
2.3
5.3
9.7
-1.0
8.4
4.3
3.4
-2.6
-3.8
880
4.50
Q1 25f
2.3
0.4
1.6
1.0
3.0
-0.3
1.7
5.0
8.7
0.0
8.3
3.8
3.6
-1.4
-3.8
870
4.50
Q2 25f
2.4
0.4
1.5
1.0
3.0
-0.3
1.8
4.8
8.2
0.0
8.3
3.7
3.3
-4.4
-3.8
870
4.50
Note: *Period end, **10-year, period-end.
Source: HSBC estimates, Refinitiv Datastream
115
Economics ● Global
Q2 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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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, Paul Bloxham, Jamie Culling, Jin Choi,
Aris Dacanay, Yun Liu, Simon Wells, 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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Additional disclosures
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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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