Blog Post

2024 - An Overall Positive Start

Bretton Woods Committee  | Thu, Feb 8, 2024


As of January, evolving global macro-financial indicators suggest a promising beginning to 2024. This comes amidst a context where inflationary pressures are easing, affecting short-term monetary policy prospects, and where there's notable resilience to ongoing risk factors. Indeed, both the central banks of the United States and the Eurozone have recently indicated the possibility of reducing monetary policy rates in 1H2024. Additionally, the central bank of China has taken further expansionary measures, including injecting CNY 378 billion in liquidity at the end of January.

We can observe a growing number of signals indicating a shift in the trend of real economic activity, following the deterioration in the past quarters (determined by the elevated levels of inflation, financing costs and uncertainties). For instance, the global economy experienced its most robust growth since July in December 2023, as reported by the PMI Composite indicator estimated by Markit Economics.  However, divergences have persisted between the ongoing expansion of the services sector for the 11th consecutive month and the sustained contraction of the manufacturing sector for the seventh consecutive month in December. 

Furthermore, figures recently published by the Netherlands Bureau for Economic Policy Analysis reveal stabilization across global trade and world industrial production at the end of 2023, within a context strongly influenced by the base effects. Global trade contracted at its slowest YoY pace since April, while world industrial production rose by its strongest YoY pace since November 2022 in the month of November 2023.

In United States, the improvement of the consumer confidence is noticeable, with an indicator estimated by Michigan University climbing to the highest since the summer of 2021. This evolution was determined by the slowing down of the inflationary pressures and a positive climate affecting the labor market (with positive impact for the real disposable income of households) and the upward trend on the stock market. At the same time, labor productivity grew for the third quarter in a row in 4Q 2023, at an accelerating YoY pace of 2.7%, the best dynamics since 1Q 2021, according to the figures released by the Bureau of Labour Statistics.

According to econometric estimates employed by the Hodrick-Prescott filter, labor productivity in USA grew by an annual pace above the structural component (the trend) for the third quarter in a row in 4Q 2023, an evolution expressing better prospects for the dynamics of fixed investments in coming quarters. In fact, preliminary estimates from the Bureau of Economic Analysis show an increase of gross fixed capital formation at an accelerating YoY pace of 3.1% in 4Q 2023, the highest pace since 1Q 2022.

China’s economy grew at an accelerating pace of 5.2% YoY in 2023, according to the estimates of the National Bureau of Statistics from Beijing. It is evident that investments in fixed assets increased by 6.4% year-over-year in 2023, driven by the removal of health restrictions at the end of 2022 and the ongoing Belt and Road Initiative (BRI). According to Wall-Street, the investments of China in BRI countries rose by 80% YoY to USD 50bn in 2023, the highest level since 2018, being noticed the investments in the high-tech projects.

On the other hand, macroeconomic indicators within the European Union published in the first month of 2024 presented unfavorable dynamics. Deterioration of the business climate in Germany is recognizable in January, with the indicator estimated by IFO Institute declining to its lowest since May 2020, the period of the first wave of the coronavirus pandemic.

Last, but not least, the positive climate on international financial markets consolidated at the beginning of the New Year – in combination with the US stock market at record high levels - an evolution also supported by the earnings season. According to FactSet, more than 70% of companies that reported earnings for 4Q 2023 presented revenues and earnings above the estimates of the analysts. The overall positive start to the economic year 2024 was also confirmed by the Winter Update of the International Monetary Fund (IMF), the international financial institution lifting the forecast for the YoY growth pace in 2024 by 0.2pps to 3.1%.

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