The International Monetary Fund (IMF), in its latest world economic outlook report, revealed its projections for individual country economic growth forecasts, with Asia and Sub-Saharan Africa leading the charge.
Key themes for this week include:
- High Treasury yields continue to weigh on sentiment
- Gold and oil blow off steam
- Robust United States (US) data bolsters dollar
TOP GLOBAL GROWTH PERFORMERS
According to the IMF’s latest report, the top five countries, in descending order, in terms of expected gross domestic product (GDP) growth in 2024, are as follows:
- Macao SAR (Asia Pacific), which is a special administrative region falling under China, leads the pack with an extraordinary projected GDP growth rate of 27.2%. This exceptional growth is mainly attributed to Macao’s heavy reliance on tourism. The industry accounts for over 60% of the region’s jobs and nearly 70% of its GDP. Macao’s reputation for world-class casinos and entertainment makes it a global hotspot, drawing visitors from mainland China and around the world.
- Palau (Asia Pacific) is anticipated to experience substantial growth at 12.4% in 2024. Despite its small size, Palau, consisting of 340 islands covering just under 500 square kilometers, depends significantly on tourism, which contributes approximately 40% to its GDP. The allure of pristine beaches, crystal-clear waters, and rich marine life, positions Palau as a sought-after destination for activities like scuba diving and eco-tourism.
- Niger (Sub-Saharan Africa) is expected to experience impressive growth at 11.1% in 2024. However, it is important to consider that this growth is influenced by recent political events, including a military coup, which have raised concerns about the country’s economic stability. Niger’s Agadem oil field, primarily owned by the China National Petroleum Corporation, could face export disruptions due to global sanctions, which would potentially impact this economic growth number.
- Senegal (Sub-Saharan Africa) is projected to achieve 8.8% GDP growth in 2024. Senegal’s economy is closely tied to the oil industry, which can lead to growth fluctuations in the coming years. The country has been actively exploring its offshore oil reserves, and developments or changes in global oil prices can significantly affect Senegal’s economic performance.
- India (South Asia), recently crowned as the most populous country globally, is projected to achieve a noteworthy growth number of 6.3% in 2024. India’s diverse economy encompasses technology, manufacturing, agriculture, and services. With a projected population of 1.7 billion people by 2064, India’s youthful and dynamic workforce plays a pivotal role in propelling economic expansion.
Furthermore, it is worth noting that in the world’s two largest economies, the US and China, the growth forecasts are way below capacity for the two economies. US growth for 2024 is expected to be 1.5%. Monetary tightening is beginning to impact the US economy, which may result in a further squeeze on economic growth. In China, growth for 2024 is anticipated to be 4.2%. China continues to grapple with turmoil in its property sector, which poses significant challenges to its overall economic growth.
Meanwhile, closer to home, the IMF expects South Africa to grow by 1.8%, which is marginally above capacity and up from the 0.9% percent growth expected in 2023.
GLOBAL MARKETS EXPERIENCE TURBULENCE AMIDST EARNINGS REPORTS AND ECONOMIC DATA
On Thursday, Wall Street’s primary indices all experienced declines, with the S&P 500 dropping by approximately 0.7% to its lowest level since the end of May. This downturn was primarily due to the ongoing pressure from elevated US Treasury yields, combined with the processing of various earnings reports and mixed economic data. Notable developments on the corporate front included social media giant, Meta, which revealed that its spending projections for 2024 exceeded expectations. The company cited concerns that the Middle East conflict could potentially impact fourth quarter sales. In addition, global package delivery company, UPS, lowered its full-year revenue forecast, while global entertainment company, Hasbro, reduced its annual revenue forecast, and toy maker, Mattel, expressed concerns about slowing demand in the industry, especially as the crucial holiday season approaches. Southwest Airlines reported a 30% decrease in third quarter profit. All eyes are also on e-commerce giant, Amazon, which is set to report its results later in the day after the closing bell. In terms of economic data, the US economy posted robust growth of 4.9% on an annualised basis in the third quarter, marking its highest rate since the fourth quarter of 2021 and surpassing the anticipated 4.3%. Additionally, while durable goods orders exceeded expectations, the country saw an increase in its jobless claims.
In the United Kingdom (UK), the FTSE 100 index declined by 0.7%, reaching the 7,360 level, its lowest point in two months. This decline was attributed to signs that higher interest rates were negatively impacting corporate performance, resulting in selling pressure on equities. Notably, international bank, Standard Chartered’s stock plummeted more than 11% after reporting a significant drop in third-quarter profit, largely due to its exposure to the Chinese real estate and banking sectors. Other banks, including HSBC, Lloyds, and Barclays, also saw declines with Barclays’ results mirroring those of Standard Chartered. Furthermore, fast moving consumer goods giant, Unilever’s shares slipped by almost 3% due to higher goods inflation leading to a decline in sales volume. Lastly, communications and advertising firm, WPP, sank by 3% after warning that its full-year profit margins would be lower than expected, primarily due to reduced advertising spending in the US and China.
In the European market, stocks partially rebounded from earlier losses on Thursday afternoon following the European Central Bank’s (ECB’s) expected decision to leave interest rates unchanged, which marked the end of an unprecedented 10-consecutive-rate-hike streak. Frankfurt’s DAX 40 fell by over 1%, reaching its lowest level since 6 January. Additionally, the pan-European STOXX 600 dropped by 0.8%, nearing a 10-month low of 430 points. This decline followed investors digesting a series of corporate results, including a significant drop in energy technology company, Siemens Energy’s shares after the company announced negotiations with the German government for potential state guarantees, and vehicle manufacturer, Mercedes-Benz, reporting decreased third quarter earnings, partly due to reduced deliveries. Meanwhile, chemicals maker, Wacker Chemie, lowered its full-year guidance, citing weak demand across various industries.
In South Africa, the JSE All Share Index remained slightly down around 69,860 on Thursday afternoon, hovering around an 11-month low. Investors were evaluating a fresh set of corporate results and mixed US data, which contributed to expectations that the US Federal Reserve (Fed) would maintain its current policy stance for the remainder of the year. On the local front, producer price inflation in South Africa accelerated to a four-month high of 5.1% year-on-year in September 2023, up from 4.3% in the previous month and surpassing market forecasts of 4.7%. Among the JSE’s worst-performing companies were Oceana, MTN Group, Reunert, and Telkom, all experiencing losses of over 3%.
GOLD AND OIL MARKETS SEE A DECLINE
Gold prices experienced a decline to below the $1,980/ounce mark on Thursday, marking a retreat from its recent five-month highs. This drop can be attributed to the response of investors to robust US economic data. The third-quarter US GDP and durable goods orders for September surpassed initial expectations. This positive economic news further solidified the likelihood of the US Fed maintaining its elevated interest rates, ultimately diminishing the attractiveness of assets like gold, which do not yield interest. Traders are also closely monitoring the situation in the Middle East, as any escalation in that region could trigger a flight to safe-haven assets, thereby increasing the demand for gold.
On the same day, West Texas Intermediate Crude oil futures declined to nearly $83/barrel. This drop was influenced by a stronger US dollar and indications of weakened demand. Recent data revealed that seasonal demand in the US fell below expectations. The Energy Information Administration reported notable decreases in the supply of motor gasoline and distillate fuels compared to the previous period, during the week ending 20 October. Additionally, refinery crude runs and utilisation rates decreased. Unexpectedly, crude oil inventories rose by 1.371 million barrels, surpassing the forecasted increase of 0.239 million barrels. However, arguments for reduced demand were mitigated by Beijing’s decision to widen its budget deficit by issuing ¥1 trillion in supplementary bonds for manufacturing investments, which bolstered fuel purchasing activity. Furthermore, market participants remained cautious due to supply concerns, driven by fears that the Israel-Hamas conflict could escalate and disrupt oil supplies in the region.
CURRENCIES IN CONTEXT
The US Dollar Index held its ground at the 106.7 level, maintaining its position near a two-week high. This stability was closely linked to the substantial surge in US Treasury yields, spurred by robust economic data affirming the strength of the US economy. During the third quarter, the US economy exhibited noteworthy growth, with the primary driver behind this expansion being robust consumer spending. While expectations suggest the US Fed will keep interest rates unchanged in its upcoming policy meeting, there is a consensus that the central bank will keep interest rates elevated for an extended period.
In tandem, the US dollar’s strength found support from the euro’s weakened performance, which was influenced by a less optimistic economic outlook within the eurozone. Additionally, the ECB appears to be shifting away from pursuing further interest rate hikes.
Conversely, the British pound experienced a decline, slipping below the $1.21/£ threshold to reach its lowest level since 3 October. This drop followed the release of discouraging UK economic data earlier in the week, combined with signs of waning inflationary pressures. This situation solidified expectations that the Bank of England will likely maintain its current interest rates in its forthcoming policy decision. Notably, a flash purchasing managers index (PMI) survey indicated a contraction in the British economy during October, primarily due to contractions in both the service and manufacturing sectors.
The South African rand was observed trading around R 19.00/$, remaining near the four-month low recorded on 5 October, following a volatile week for the currency. Sentiment was driven by the prevailing risk aversion due to the deepening crisis in the Middle East, with potential repercussions for the global economy. Additionally, investors were pondering the possibility of higher US interest rates being sustained over an extended period. Fed Chair, Jerome Powell, commented on the strength of the US economy and the potential need for tighter borrowing conditions to control inflation, with market interest rates playing a role in this scenario.
On the domestic front, South Africa’s inflation rate rose to a three-month high of 5.4% in September, primarily due to the increasing prices of food and energy. This data supported the argument for the South African Reserve Bank to also maintain elevated borrowing costs.
The rand is trading at R18.92/$, R19.99/€ and R22.96/£.
Sources: IMF October global outlook report, Trading economics and Investing.com.