Stably high interest rates in the world’s largest economies mean that global economic growth is likely to slow in 2024 after this year’s rate of recovery exceeded expectations, the Financial Times writes, citing the opinion of economists.
Thus, according to the forecast of the consulting company Consensus Economics, in 2024 GDP will grow by 2.1% compared to 2.4% expected in the economy this year. Meanwhile, the estimate for 2023 was raised from the 1.4% assumed at the beginning of the year due to unexpectedly strong consumer demand and labor market.
Capital Economics senior global economist Simon Macadam also believes that the expected slowdown in economic growth next year will be partly due to a more substantial rebound in 2023. However, he added that economists “have actually become more pessimistic about the outlook for 2024”.
This is due to beliefs that persistently strong demand will keep inflation higher for longer, pushing advanced economy Central Banks to keep rates high throughout the year.
“Demand is barely weakening, the labor market remains strong, and wages continue to rise,” notes Citi Chief Economist Nathan Sheets. – Some of the weakening in the economy (which was expected this year – IF-U) is being carried over to 2024.” In many countries, including the U.S., “there will be a recession, it will just come later,” he predicts.
Until a few months ago, the Federal Reserve was expected to start cutting rates this year. But the resilience of the U.S. economy indicates there is a small possibility that the Fed could raise borrowing costs by another quarter-point in September, to 5.5-5.75% per annum. And economists now expect the first rate cut to occur next spring.
The high probability that the U.S. economy will avoid recession this year “means the Fed will hold rates higher longer to fully suppress inflation, leading to slower growth in 2024,” according to Mark Zandi, chief economist at Moody’s Analytics.
On average, economists forecast the U.S. economy to rebound 0.6% in 2024 after expanding 1.9% at the end of this year.
Europe’s economies have also performed “somewhat better than expected” this year, with the exception of Germany, meaning the European Central Bank and the Bank of England are also likely to keep rates on hold for longer, Zandi said.
The ECB raised its deposit rate from minus 0.5% per annum in June 2022 to the current 3.75% and is not expected to cut it for most of next year. The Bank of England is forecast to increase its cost of borrowing by a further half a percent to 5.75% by the end of this year and is unlikely to start cutting it until the second half of 2024.
Christian Keller, head of economic research at Barclays, notes that the negative investor sentiment towards 2024 is also due to a slowdown in China’s GDP growth after a significant acceleration following the removal of anti-Kowitz restrictions.
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The National Bank of Kazakhstan has raised its economic growth forecast for 2024-2025 to 4-5% per year from the previously expected 3.5-4.5%, the regulator said in a statement citing its updated macroeconomic forecasts.
This year, GDP growth is still expected to reach 4.2-5.2%.
“Forecasts for the growth of Kazakhstan’s economy in the medium term have been improved. The expansion of business activity will be driven by sustained domestic demand, increased budget expenditures and the recovery of the oil sector. (…) The risks to the GDP forecast are associated with possible problems of access to international markets for Kazakh exports, as well as the likelihood of not achieving the planned oil production,” the statement said.
In addition, the inflation forecast has been adjusted. In the short term, uncertainty about price growth has decreased. In the baseline scenario, inflation is projected to be in the range of 10-12% this year (previous forecast – 11-14%), 7.5-9.5% in 2024 (9-11%), and 5.5-7.5% in 2025 (corresponding to the previous forecast).
“At the same time, without taking into account the direct effect of the increase in utility tariffs, to which the NBU does not respond by changing the key policy rate, the medium-term inflation target of 5% is expected to be reached by the end of 2025. This will be facilitated by the further easing of pressure from the external environment and monetary conditions that are in the restraining zone,” the statement said.
The main risks to the inflation forecast, according to the National Bank, include increased fiscal stimulus, “unanchored inflation expectations,” accelerating inflation in Russia and a possible rise in world food prices due to the failure to renew the grain initiative. Another risk in the forecast is the continuation of pricing reforms in the Kazakh fuel and lubricants market.
Kazakhstan’s economy grew by 3.1% in 2022, with inflation at 20.3%.
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Ukraine’s real gross domestic product (GDP) growth by the same period last year slowed to 8% in July from 15% in June, primarily due to a high statistical base as the rate of GDP decline slowed significantly in the third quarter of last year, according to the Institute for Economic Research and Policy Consulting (IER).
“Economic activity is not yet close to pre-war levels: we estimate that GDP has fallen by 25% compared to July 2021,” the IEI said in its monthly economic monitor.
The institute estimated the increase in real gross value added (GVA) in July in the processing industry at more than 20% due to the recovery of all industries from a low base, while the extractive industry saw a small increase.
According to the IEI experts, agriculture grew by almost 5% in July, primarily due to the lower statistical base of July 2022. The grain harvest was close to last year’s due to higher yields.
“The growth rate of real GVA in transportation slowed to 9% y/y, while GVA in trade continued to grow rapidly, by about 27% y/y,” the report said.
As reported, the State Statistics Committee has not yet published its assessment of the dynamics of GDP of Ukraine in the second quarter, while at the end of the first quarter it reported a 10.5% decline in the economy.
Earlier, the IEI estimated Ukraine’s GDP growth in the second quarter of this year at about 20-21%: almost 22% in April, 20.9% in May and 15.3% in June.
According to the National Bank, Ukraine’s GDP grew by 18.3% in the second quarter. The NBU forecasts that the economic recovery will slow to 4.6% in the third quarter of 2023 and 1.8% in the fourth quarter, which would translate into year-on-year growth of 2.9%.
The National Bank of Ukraine in its August inflation report worsened its forecast for the country’s 2024 consolidated budget deficit including grants to UAH 1,281 billion, or 16.8% of GDP, down from UAH 811 billion, or 10.5% of GDP, in its April report.
“Deficits are expected to be higher than in the previous forecast, primarily due to the longer duration of security risks, and therefore the need for significant spending on the security and defense sector. Taking this into account, the amount of expected international assistance to finance other expenditures has been increased,” the NBU points out.
In the new report, the forecast of the consolidated budget deficit including grants in 2025 is raised to UAH 883 billion, or 10.0% of GDP, up from UAH 577 billion, or 6.5% of GDP in the April report.
Last year, as the NBU recalled, the deficit of the consolidated budget including grants amounted to UAH 845 billion, or 16.3% of GDP. In the second quarter of this year, it widened to more than UAH 233 billion, and excluding grants in revenue – to UAH 369 billion, or more than 24% of GDP.
“In 2023, the budget deficit excluding grants in revenue is expected to be at the level of the previous year – more than 26.3% of GDP. In the future, due to the increase in revenues, it will narrow to almost 20% of GDP in 2024 and 12% of GDP in 2025 excluding revenue grants,” the National Bank summarized.
It specified that it expects grants to decline from 9.3% of GDP last year to 6.5% of GDP this year, 2.9% of GDP next year and 1.8% of GDP in 2025.
“Given the significant budget deficits for several consecutive years and their financing mainly by debt, as well as the reduction of grant support in the medium term, the debt will approach 100% of GDP,” the National Bank said. It explained that it increased the debt-to-GDP ratio in this forecast compared to the previous one due to the revision of assumptions about the size of deficits upward and grant support downward in 2024-2025.
In particular, the NBU expects government debt to rise from 78.4% of GDP to 84.6% of GDP this year, to 96.6% of GDP next year and to 98.2% of GDP in 2025.
“At the same time, such a high level of debt will have a relatively moderate pressure on the budget in the coming years, primarily due to the receipt of loan funds on preferential terms – at low rates and with a deferred schedule of principal payments,” the NBU believes.
Ukraine’s real gross domestic product (GDP) growth in the second quarter of 2023 compared to the same period last year amounted to 18.3% after a decline of 10.5% in the first quarter, such an updated estimate the National Bank of Ukraine published in an inflation report on its website on Friday night.
According to it, the economic recovery will slow to 4.6% in the third quarter of 2023 and 1.8% in the fourth quarter, with a slight acceleration to 2.6-2.2% in the first and second quarters of next year.
In late April, the National Bank expected GDP growth of 15.9% in the second quarter of this year, and 3.9% and 3.7% in the third and fourth quarters, respectively.
Overall, as reported, the NBU improved its forecast for Ukraine’s economic recovery this year to 2.9% from 2.0% in April (including by improving its estimate of the decline in the first quarter from 13.5% to 10.5%), but worsened it for next year to 3.5% from 4.3%.
“The baseline scenario is based on assumptions about Ukraine’s consistent compliance with the obligations of the Extended Fund Facility Program with the IMF, coherent monetary and fiscal policies, gradual leveling of quasi-fiscal imbalances, particularly in the energy sector. Also, the baseline scenario assumes a tangible reduction of security risks from mid-2024, which will contribute to the full unblocking of seaports, reduction of sovereign risk premium and return of forced migrants to Ukraine”, – the National Bank almost verbatim repeated the paragraph of the previous inflation report, but moved the reduction of security risks from the beginning of 2024 to its middle.
Despite this, the key risk to the forecast is still a longer duration and intensity of the war, which could slow economic recovery and worsen inflation and exchange rate expectations, the National Bank emphasizes.
Among other risks, the regulator named a decrease in the volume or loss of rhythmicity of international aid, the resumption of significant power shortages due to further destruction of energy infrastructure, which will limit economic activity and exports and lead to higher imports and demand for foreign currency.
The NBU also pointed out the risks of export logistics constraints due to large-scale terrorist attacks, the emergence of additional budgetary needs and significant quasi-fiscal deficits, particularly in the energy sector; further complications for agro-products exports.
The National Bank estimates the probability of the risk of prolongation of the war and its escalation, as well as eco-terrorism of the occupants, as well as a quarter earlier, at the level of 25% to 50%.
As for the “grain corridor,” which stopped working in June, although the National Bank estimated this risk at 25-50%, now the regulator gives a 15-25% probability of restoring its work and the same value estimates the new risk of continuing food ban by some European countries, which threatens additional losses of $500 million by the end of this year and a possible reduction in crops.
With a probability of 15-25%, the National Bank also assumes such risks as increased emigration and imbalance of public finances (freezing of tariffs on housing and utility services, reduction of international aid, emission financing of the deficit).
The risk of renewed energy deficit due to damage to infrastructure is on the scale of the National Bank, as in April, at up to 15%.
In this report, as well as in the previous one, there is a mention of such a factor as “Marshall Plan”, which can greatly affect and improve the macro outlook, and its probability the central bank kept at 15-25%.
The real growth of Ukraine’s gross domestic product in 2023 may be up to 5%, but given the existing risks, the Ministry of Economy is still conservatively keeping the growth forecast at 2.8%, said Natalia Gorshkova, Director of the Department of Strategic Planning and Macroeconomic Forecasting of the Ministry of Economy.
“In those working calculations that we have, we as well as most experts who gave you forecasts, we see the possibility this year to reach a real growth of about 5%,” she said at the discussion “New macroeconomic forecast for Ukraine: what will be the exchange rate, GDP and inflation”, organized by the Center for Economic Strategy (CES).
At the same time, Gorshkova pointed out that the ministry is not going to change the current forecast of 2.8% yet, as the risks remain quite significant.
“We are part of the budget process, and we would not want to revise the base for budget formation every time, like on a seesaw,” added the representative of the Ministry of Economy.
She specified that earlier the ministry forecasted the growth of Ukraine’s economy this year at 3.2%, but in June it was adjusted to 2.8% due to the destruction of the Kakhovskaya hydroelectric power plant and pessimistic expectations about the future harvest.
“Perhaps we were hasty,” Gorshkova pointed out.
Speaking about longer-range forecasts, the Economy Ministry representative noted that, like most experts, the ministry hopes that the war will end in 2024, and this will stimulate an early recovery in the economy.
“Therefore, according to the current forecasts that we have, we expect 5% growth next year,” said the director of the Department of Strategic Planning and Macroeconomic Forecasting of the Ministry of Economy.
According to her, the main driver of growth is investment dynamics, while the nature of investments will change: military investments will be replaced by investments in infrastructure projects, in projects related to reconstruction, as well as supported by foreign investments, and the return of migrants from abroad.
As for inflation, which the Ministry of Economy expects this year at the level of 14.7%, Gorshkova noted that the forecast of the agency remains also conservative, as the assumption of the possibility of revision of the official hryvnia exchange rate at the end of the year remains.
As reported, the National Bank of Ukraine last week raised the forecast of real GDP growth in Ukraine in 2023 from 2% to 2.9%, but lowered it for 2024 from 4.3% to 3.5%. In addition, the NBU improved its inflation estimate for this year from 14.8% to 10.6%.
