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Eyes set on start of declining rates cycle


The current global cycle of rising interest rates is almost certainly over as consumer price inflation (CPI) rates are declining in a fast pace. The focus has shifted to when the first cuts in interest rates will start and by how much interest rates will decline in 2024. Especially as signs of decreasing global economic growth rates are appearing almost everywhere. However, if OPEC+ continues to cut production, rate cuts may occur later than forecasted by markets.


In an attempt to increase oil prices, several countries in OPEC+ decided to cut production by 2.2 million barrels per day in Q1 2024. This initially caused an increase in oil prices. However, analysis showed one million barrels per day is just an extension of Saudi Arabia's current voluntary cut, while another 0.5 million barrels per day comes from Russia. The rest comes from Kuwait, Iraq, the UAE, Oman, Kazakhstan, and Algeria. Full commitment to cuts is not expected though, as these cuts took a long time to negotiate. This hints at limited implementation and caused oil prices to decline to levels before the production cut announcement. However, if the cuts continue, it may contribute to further increases in oil prices.

Turning to developments in countries/regions, the United States’ (US) “second” quarter-on-quarter (QoQ) estimate of third quarter (Q3 2023) economic growth was adjusted upward to 5.2% from the initial estimate of 4.9%. Growth in Q2 2023 was 2.1%, meaning the pace of growth sharply accelerated in Q3 2023. The updated growth rate primarily reflected upward revisions to nonresidential fixed investment and state and local government spending. However, consumer spending saw a downward revision, now rising just 3.6%, compared with 4% in the initial estimate, indicating less consumer spending strength. This, in addition with the expectation if a strong decline in Q4 2023 growth, tightening financial conditions and a sharp slowing in CPI (declined to 3.2% in October from 3.7% in September and 6.4% in January) mean the Fed is almost certainly done with hiking rates. Current market expectations are for rates to be decreased late in Q2 2024 or early Q3 2024.


Gross Domestic Product (GDP) in the Euro Area shrank by 0.1% QoQ in Q3 2023 – in accordance with the first estimate – marking the first contraction since the COVID-19 riddled year of 2020. Among the Eurozone's biggest economies, GDP contracted in Germany (-0.1%), paused in Italy and increased a bit in France (0.1%) and Spain (0.3%). Compared to a year ago, the Eurozone economy grew by just 0.1%. Meanwhile, CPI cooled strongly to just 2.4% from 2.7% and 8.6% in January. Being close to the target level and paltry growth on the way in 2024 caused a growing number of analysts forecasting a cut in interest rates before that in the US. In the United Kingdom (UK), the economy stalled (0% growth) in Q3 2023, the weakest performance in a year, but a bit stronger than forecasts of a 0.1% contraction. CPI for October dropped sharply to 4.6% in October from 6.7% in September and 10.1% in January.


China’s economy is still plagued by a myriad of challenges, especially in the property sector. In addition, the official NBS Manufacturing PMI in China fell to 49.4 in November 2023 from 49.5 in October, missing market forecasts of 49.7. New orders, foreign sales, and employment all declined, while output rose the least in 4 months. The official NBS Non-Manufacturing PMI declined to 50.2 in November 2023 from 50.6.


In South Africa CPI for November is expected to decline following a rise to 5.9% in October – due to lower fuel price. However, economic growth is again under pressure due to a strong increase in loadshedding hours. The National Treasury adjusted the budget deficit for 2023/24 upward to 4.9% of GDP from 4.0%. Research by the World Bank estimated the cost of crime at 10% of GDP, which is estimated to decrease South Africa’s economic growth potential by 1%.


Multivest Economic Division

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