Moderate Cooling
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Economics Research13 Sep 2024
  • Global: Goods demand, global trade, and the state of the cycle are key when accessing global economy
  • China: Exports growth continues to beat expectations amid slight improvement in external demand
  • Taiwan: External trade remains in an expansionary phase with no signs of a downturn
  • Vietnam: Double-digit export growth continues to its sixth consecutive month
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Global: Assessing global momentum. There is rising clamour in the markets for easier monetary policy around the narrative of slowing economic growth momentum. To assess the state of the global economy, a few considerations are key. First, goods demand has stabilised after the recent years’ pandemic induced volatility. It is not reflecting substantial stress in affordability on the demand side or earnings on the producers’ side. PMI manufacturing is still hovering around 50 globally. The services sector, meanwhile, is characterised by strong 50+ PMI readings.

Second, the global trade cycle continues to hum along despite weak commodity prices. Supply chain expansion, friend-and-nearshoring, industrial policy, and the AI tech cycle have fuelled substantial demand for parts, machinery, and electronics. From China to Singapore, South Korea to Taiwan and Vietnam, exports are growing by high-single to double-digit rates. Order books are in good shape too.

Third, the state of the cycle. US and EU may be showing signs of a maturing cycle, having grown on the back of strong public sector-supported spending the last few years. However, this is far from the case for Asia. The region is still undergoing the process of post-pandemic normalisation of its travel/tourism industry. The European Central Bank (ECB) on Thursday delivered a 25 bps interest rate cut, marking its second reduction to the deposit rate this year. This comes after a period of weak economic growth across the eurozone and cooling inflation which fell back toward the central bank’s 2% target in August. The ECB lowered its 2024 growth forecast to 0.8%, down slightly from an earlier projection of 0.9%.

We think Fed officials will look at these developments along with the fact that the labour force continues to expand, bringing in previously discouraged workers back into the fray, even as hourly wage growth marches well ahead of inflation. With unemployment at a low-4%, the data is supportive of an economy with still-strong underpinning for consumption. Kansas Fed’s labour market conditions indicators suggest that the level of activity is little changed (above historical averages), although momentum decelerated moderately in July.

We find little reason that would warrant a major policy response to support the global economic cycle. It may not be red hot, but the ongoing cooling is orderly.

Figure 1: Post-pandemic normalisation continues

Source: LSEG Datastream, DBS




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