IMF sees 2024 global GDP growth at 3.2%; US and Eurozone slowing growth supports rate cuts this year; China’s consumption still depressed
US
The U.S. economy and inflation are slowing. The FED is expected to cut interest rates twice this year. Q2 GDP grew by 2.8% QoQ annualized, up from 1.4% in the previous quarter and above the market expectation of 2.0%. However, in June, existing home sales fell by 5.4% MoM, and new home sales dropped by 0.6% MoM. Headline PCE inflation stood at 2.5% YoY, down from 2.6% the previous month, while core PCE inflation remained steady at 2.6% YoY.
Despite better-than-expected Q2 GDP growth, other key economic indicators, such as home sales, manufacturing activity, consumer confidence, and unemployment, show a clear slowdown. This aligns with the IMF’s downward revision of 2024 GDP growth forecast to 2.6% from 2.7%. Concerns over a potential recession have led the market to expect up to three rate cuts by the Fed this year. However, as the outcome of the US presidential election in November could create uncertainty about economic policy and inflation going forward, and with steady core PCE inflation, Krungsri Research still expected that the Fed will cut rates twice this year, bringing the year-end policy rate to 4.75-5.00% from the current 5.25-5.50%.
Eurozone
The Eurozone economy has bottomed out but could face low growth amid increased uncertainty. In July, the composite PMI dropped to 50.1 from 50.9 in June. Manufacturing PMI continued to contract, falling from 45.8 to 45.6, while services slowed from 52.8 to 51.9. In June, private-sector loans grew by only 0.3% YoY.
Despite passing the trough in 4Q23, the Eurozone’s 2H24 growth would remain weak and uncertain due to (i) continued contraction in manufacturing and slower service sector growth, (ii) low retail sales growth amid rising household savings, (iii) increased trade tensions between the EU and China, and (iv) the IMF's 2024 GDP forecast of only 0.9%, down from the pre-covid level of 1.4%. These factors, coupled with slowing inflation, suggest the ECB to cut rates further this year. Nevertheless, given that service-sector inflation and wage growth both remain high, we see the ECB to cut interest rates just twice more this year (i.e., reductions will not be announced at every remaining meeting), which would then bring the benchmark deposit rate down from the current 3.75% to 3.25% at the end of 2024.
China
The IMF sees China reaching its 5% growth target but despite stimulus measures, consumption remains soft. The IMF expects China’s GDP growth to reach its 5% target in 2024, but this could slow to 4.5% in 2025, and to 3.3% by 2029. In 2Q24, GDP growth was below expectations at 4.7% on weaker consumption. Retail sales growth slowed to 2% in June from 3.7% in May. Amid concerns over an economic slowdown, China has cut the seven-day reverse repo rate from 1.8% to 1.7%, the medium-term lending facility (MLF) from 2.5% to 2.3%, and the 1-year and 5-year loan prime rates (LPR) from respectively 3.45% to 3.35% and 3.95% to 3.85%.
Services and exports would drive growth in Q3. Weak consumption would remain a drag, but this could be partly offset by measures allowing consumers to trade in old cars and appliances for newer models (with an extra budget of USD 41.5bn) and the broad cuts to policy rates. Around 300 structural reforms proposed at the Third Plenum (e.g., liberalizing markets, spurring innovation, increasing the birth rate, and cutting local government debt and hidden debt), will be implemented by 2029. These will address long-term structural risks rather than boost short-term growth.
1H24 exports up 2.0%, forecast to increase 1.8% for all of 2024; registrations for digital wallet scheme to open for citizens in August
Exports contracted slightly in June and for the year, growth will remain soft. The Ministry of Commerce reported that in June, export value contracted -0.3% YoY to USD 24.8bn, down from May’s 14-month high of USD 26.2bn. Excluding oil and gold from the calculations, exports posted a contraction of -1.6%. Major export goods experiencing contractions in the month included sugar (-51.9%), fresh, chilled, frozen & dried fruits (-37.8%), integrated circuit (-21.4%) and rubber products (-7.9%). However, export sectors seeing an expansion were rice (+96.6%), rubber (+28.8%), computers & computer equipment (+22.0%), telephones, fax machines, parts & equipment (+20.1%), and automobiles, parts & equipment (+13.5%). Exports to China, Japan, and the ASEAN-5 group all contracted in month, but those to the US, the EU and the CLMV countries grew. For the first half of this year, export value grew by 2.0%.
Exports weakened in June, partly due to the turn of the seasons and the resulting transition from growth of 36.3% in exports of agricultural goods in May to a contraction of -2.2% in June. In the second half of this year, exports will struggle against the impact of structural problems in the manufacturing sector. Also, Thai exports are coming under pressure from its weakening linkages to the world’s trade. The Bank of Thailand’s analysis shows that Thailand’s role of participation in global electronics supply chains has been limited. In addition, trade tensions between the US and China are worsening, while problems with an oversupply of manufacturing capacity in China will likely lead to a torrent of cheap Chinese exports flooding world markets, worsening Thai manufacturer’s competitive position in areas such as the production of electrical appliances and auto assembly. We therefore expect that over 2024, export growth will average just 1.8%.
The government has laid out a timeline for the implementation of its digital wallet policy, with the expenditure planned in Q4 of this year. On 24 July, the Ministry of Finance released its timetable for registrations for the THB 10,000 digital wallet payments. These will happen in three stages: (i) between 1 August and 15 September, registrations will open for those able to use the mobile-phone app.; (ii) from 16 September to 15 October, registrations will open for those without a smartphone; and (iii) from 1 October onwards, registrations will open for participating retailers. Further details of stages (ii) and (iii) will be released later. The government now hopes to be able to begin the expenditure under this program during the last quarter of the year.
Although details remain unclear, the government has now set out the broad outlines for how and when its flagship digital wallet scheme will be rolled out. This follows progress at the start of July in adjusting the project’s total funds to THB 450bn (from THB 500bn previously) and identifying sources of funds. The latter will comprise THB 165bn from the FY2024 budget (THB 122bn from additional budget and THB 43bn from budget management) and THB 285bn from the FY2025 budget (THB 152bn in direct allocations and THB 132.3bn in budget management). However, it remains to be seen how these budget allocations will be made and how this will be affected by domestic political factors, in particular the 14 August ruling by the Constitutional Court on Prime Minister Srettha Thavisin’s suitability for office. Recently, the Ministry of Finance has revised up its forecast for 2024 GDP growth from 2.4% to 2.7%, which excludes the potential impacts of payments to digital wallets.
