Global Economy To Expand At Slightly Lower Rate In 2025

Data Interpretation

Economic

Summary:

The Conference Board's real GDP forecast for the Global Economy was unchanged at 3.1% for 2024 but ticked down by 0.1 percentage point to 3.1% for 2025.

Cooler US Activity Near-term

US economic activity is poised to decelerate, but a recession remains unlikely. US real GDP grew at a robust 2.8% quarterly annualized rate in Q2 2024, but we continue to anticipate material slowing in the second half of this year. Consumers are losing momentum, and the labor market has downshifted from the heady post-pandemic days of outsized hiring. The anticipated weakness in economic activity notwithstanding, we do not project a recession and the 2024 annual growth rate likely will be a healthy 2.4% given the better-than-expected rise in Q2 GDP growth. Growth prospects should improve in 2025 as inflation converges to 2% and the Fed cuts interest rates, which we posit will start as soon as September 2024.

Softer Asian Economic Outlook

The outlook for Asian economies is softer given downgrades to projected real GDP growth in India, South Korea, and Indonesia. Forecasts for China and Japan remain unchanged despite ongoing economic challenges.

Real GDP in China growth slowed in Q2 2024 due to weak domestic demand and the sluggish property sector. However, at the recently concluded Third Plenum meeting, the government signaled that it would intensify fiscal support and monetary easing. With overall growth at 5.0% in H1, and given our expectations for increasing government support in H2, we maintain our 2024 growth forecast at 5.0%. We expect fiscal stimulus to continue (with diminishing returns) next year, but weak domestic consumption will continue to weigh on the economy. Consequently, we maintain our 2025 real GDP forecast of 4.5%.

While India continues to be a bright spot in the global economy, we slightly lower our forecasts for 2024 and 2025. While Prime Minister Modi was reelected earlier this year his party’s command of parliament was eroded. Modi’s BJP Party must now work with political allies to push through new budgets and reforms, which will likely curb potential economic growth. Despite the downgrade, India remains one the fastest growing economies in the world. We forecast growth of 6.8% in 2024 and 6.2% in 2025.

For Japan, we maintain our current GDP forecasts of 0.1% in 2024 and 1.3% in 2025 but acknowledge that downgrades may be warranted in next month’s update. Japan made headlines in early August when its stock market collapsed. Triggered by an interest rate hike by the Bank of Japan and concerns about US labor market data (see our assessment here), the Nikkei fell more than 12% on August 5. Although markets subsequently recovered, the event may have damaged consumer and business confidence. Additional data are needed to determine the effects of the financial market meltdown.

2024 forecasts for Indonesia, South Korea, and Taiwan were all slightly downgraded this month. The somewhat lower projects reflect smaller-than-anticipated growth rates in the first half of 2024. Still, the outlooks for these economies for 2025 remain positive.

Unchanged European Growth Outlook

We maintain our Euro Area forecasts of 0.8% for 2024 and 1.3% for 2025. GDP data in Europe has come in largely as expected over the past month. August holidays are underway and political and business developments have been limited or are expected to have minimal impact on near-term growth.

Mixed Emerging Market Outlook

Our 2024 forecast for Latin America inched down by 0.2 percentage point to 1.3%, while the 2025 estimate was unchanged at 2.7%. The downgrade reflected softer-than-expected growth in Mexico in the second quarter of the year. However, the incoming administration is expected to enjoy a strong majority in Congress that should enable it to implement fiscal policy without much resistance. We forecast that the Mexican economy will expand by 1.6% in 2024 and 2.9% in 2025.

Growth projections for the Middle East & North Africa were downgraded in both 2024 (3.4%) and 2025 (4.0%). This was largely due to weak real GDP growth in Saudi Arabia in the first half of the year. We expect year-on-year growth in the country to emerge from negative territory in Q3 2024, but the momentum moving into 2025 will be more muted than previously forecasted.

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Thomas

Economic

China has emerged as the sixth largest investor in Vietnam, with new projects surging sevenfold, reported the Ministry of Planning and Investment's Foreign Investment Agency.

A prime example is the interest shown by Goldwind, a global leader in wind turbine manufacturing, in establishing a state-of-the-art wind turbine component manufacturing and assembly plant in the northern port city of Hai Phong. With over 47,000 turbines supplied and a total installed capacity exceeding 97 GW, Goldwind's interest signals a significant boost for Vietnam's renewable energy sector.

The recent Hai Phong investment promotion conference in China's Shenzhen city saw the awarding of seven new and expanded investment certificates to Chinese investors, totaling nearly 200 million USD. These investments span a range of industries, including solar panel production, electronic components, and automotive parts manufacturing. Additionally, the Hai Phong Economic Zone Authority (HEZA) also signed four memoranda of understanding with major Chinese investors.

Minister of Planning and Investment Nguyen Chi Dung highlighted a positive shift in Chinese investment toward hi-tech and green energy sectors, such as technology, electronics, manufacturing, infrastructure, renewable energy, and electric vehicles. This marks a departure from traditional investments in labour-intensive industries like furniture, steel, and apparel

Notable projects from Chinese giants such as Goertek, BYD, Radian, Brotex, Wingtech, Deli, and Trina Solar have already established their presence in Vietnam, with investments ranging from millions to billions of USD.

Beyond investment, China remains Vietnam's largest market for agricultural products. According to the General Department of Vietnam Customs, two-way trade exceeded 100 billion USD for the first time in 2018 and soared to 171.2 billion USD in 2023, accounting for over 25% of Vietnam's total export-import turnover.

As many as 11 types of Vietnamese fruit, including mango, dragon fruit, and durian, are among the top exports to China, said General Secretary of the Vietnam Fruit and Vegetable Association Dang Phuc Nguyen.

Prof. Nguyen Mai, Chairman of the Association of Foreign Invested Enterprises (VAFIE), attributed Vietnam's appeal to its favourable geographic location, relatively low labour costs, affordable land rentals, and tax incentives. The availability of locally produced raw materials, which can be exported with added value, also further enhances Vietnam's attractiveness to Chinese investors, he said.

Source: VNA

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Danske Bank

Economic

In focus today

Today we get UK retail sales data for July at 8.00 CET. According to polls from Reuters, analysts expect overall retail sales to grow by 0.5% m/m and retail sales excl. fuels to grow by 0.8% m/m.

In the US, the University of Michigan Consumer Sentiment survey is released at 16.00 CET. It is the preliminary release covering August, and analysts expect it to come in at 66.9 virtually unchanged from the 66.4 (revised) seen in July.

Fed’s Goolsbee (voting member) speaks at 19.25 CET.

Economic and market news

What happened yesterday

In the US, retail sales data came in much stronger than analysts had expected, as growth for the headline stood at 1.0% m/m dwarfing the expected 0.3% m/m. Core retail sales also grew by more than expected as it stood at 0.4% m/m compared to consensus amongst analysts of 0.1% m/m. Combined with yet another low figure of initial jobless claims for the second week in a row, markets reacted promptly sending both 1-, 2- and 10-year Treasury yields up by more than 10bp in the aftermath.

Equity markets on the other hand reacted positively, appearing to shake off some of the recession-fears which caught on last week. As such, the S&P500 is now around only 2.5% off its all-time high.

As was widely expected, Norges Bank left their policy rate unchanged at 4.50%. Furthermore, Norges Bank gave no new signals on their monetary policy, which was also expected given how economic key figures had pointed slightly in both directions since the monetary policy meeting in June.

In the UK, GDP growth came in as expected by analysts with GDP unchanged m/m in June and 0.6% q/q in Q2.

What happened overnight

Markets in Asia have followed in the footsteps of yesterday’s US session, and equities are in the green this morning led by Japan where the Nikkei 225 is up by around 3.1%.

Oil is giving some of its gains from yesterday back, as Brent is trading about 0.25% lower as of this morning at USD80.84/bbl.

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Warren Takunda

Economic

Stocks

London stocks edged lower in quiet trade early trade on Friday as investors mulled the latest UK retail sales data.

At 0825 BST, the FTSE 100 was down 0.2% at 8,335.16.

Figures released earlier by the Office for National Statistics showed that retail sales bounced back in July, albeit a touch less than expected.

Sales volumes rose 0.5% on the month following a 0.9% decline in June, when they were hit by bad weather and uncertainty over the general election. Economists were expecting a 0.6% increase.

June’s fall was revised from an initial estimate of a 1.2% decline.

The data showed that sales volumes were up 1.4% versus July 2023. Compared with their pre-Covid level in February 2020, sales were down 0.8%.

ONS director of economic statistics Liz McKeown said: "Retail sales grew in July led by increases in department stores and sports equipment shops, with both the Euros and discounting across many stores boosting sales.

"These increases were offset by a poor month for clothing and furniture shops, and falling fuel sales, despite prices at the pump falling."

Alex Kerr, UK economist at Capital Economics, said the better start to the third quarter is not as good as it looks.

Kerr said: "The rebound in sales volumes wasn’t particularly broad based, with sales rising in three of the seven main sub sectors. Department stores posted a 4.0% m/m gain, with the ONS reporting that summer discounting and the Euro 2024 football championship boosted sales volumes. That said, the euros didn’t appear to bolster food sales volumes by much as they were unchanged in July. ‘Other’ stores, such as stalls and markets, and online sales also rose by 2.5% m/m and 0.7% m/m. But clothing and household goods sales both fell by 0.6% m/m. And fuel sales declined by 1.9% m/m, despite the 0.8% m/m fall in petrol prices in July.

"Ultimately, while it is good news that the retail sector has returned to growth at the start of Q3, it is perhaps not as good as the 0.5% m/m rise suggests. That said, overall real consumer spending still rose by 0.2% q/q in Q2 despite the 0.1% q/q decline in retail sales. And if spending off the high street continued to hold up well, overall consumer spending may be more robust than the retail sales data imply. What’s more, we continue to think that rising real incomes, as inflation falls, should mean consumer spending growth accelerates over the rest of this year."

In corporate news, pharma giant GSK was little changed as it welcomed a ruling by the Florida State Court excluding expert testimony in the long-running Zantac lawsuit where the plaintiffs allege the heartburn drug caused cancer.

GSK said it would now seek dismissal of the upcoming Wilson case in Florida - whereby the plaintiffs "alleged a causal link between ranitidine and prostate cancer".

AstraZeneca was also in focus as it announced that ‘Imfinzi’, or durvalumab, has been approved by the US FDA for treating resectable early-stage non-small cell lung cancer in adults without certain genetic mutations.

Source: Sharecast

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Samantha Luan

Economic

Central Bank Outlook

▪ The Norges Bank (Norway) as widely expected, opted to stay on pause again at 4.5% in its monetary policy decision on Thu (15 Aug).

▪ St Louis Fed President Musalem (non-voter in 2024 FOMC) suggested the time is nearing for a rate cut, as he sees risks to inflation and labor have shifted and seem “more balanced”. That said, he was still confident about the US economy which has been growing very well in his view and data does not support the idea of a recession. He expects US GDP growth between 1.5% to 2% over second half of this year.

▪ Bangko Sentral ng Pilipinas (BSP) cut its target reverse repurchase (RRP) rate by 25bps to 6.25%, officially kicking off its monetary policy easing cycle ahead of the Federal Reserve, despite a stronger inflation reading in Jul and robust real GDP growth in 2Q24. The Monetary Board (MB) cited inflation on a target-consistent path and soft household consumption growth in 2Q24 as main reasons justifying a calibrated shift to a less restrictive monetary policy stance. In summary, BSP continues to indicate its intention for a gradual monetary policy easing from here onwards due to the lingering upside risks to prices and external uncertainties. For more details, kindly refer to Macro Note:“Philippines: BSP starts its gradual easing cycle in Aug”dated 15 Aug 24.

FX

▪ The US dollar was stronger against most of the G10 FX with the exception of AUD and GBP on Thu (15 Aug). The US Dollar index (DXY) ended higher by 0.4% at 102.977 (from the previous session’s close of 102.568).

▪ The euro weakened as the EUR/USD traded to an intraday low of 1.0950 before closing the NY session at 1.0972 (from 1.1012). The Japanese yen also weakened, and the USD/JPY ended the day higher at 149.28 (from 147.33), depreciating by more than 1.3%.

▪ The Kiwi and Aussie diverged against the dollar as the kiwi continued to weaken with the NZD/USD closing lower at 0.5986 (from 0.5998) while the AUD/USD closed higher at 0.6612 (from 0.6598).

▪ The UK pound also gained against the USD as the latest GDP and industrial production data showed the UK economy keeping to a steady recovery pace. The GBP/USD pair traded to as high as 1.2872, before settling at 1.2855 (from 1.2829).

▪ After the mediocre showing in US equities overnight, the USD pushed back against Asian FX. As such, both onshore CNY and offshore CNH weakened. This resulted in USD/CNY gapping higher at the opening bell from 7.14 to 7.1580 and USD/CNH also rising from 7.1450 to 7.1610. However, USD/TWD was little changed around 32.30. However USD/KRW did not trade due to public holiday.

▪ In South East Asia, USD/MYR and USD/THB rebounded from 4.42 to 4.4375 and from 34.90 to 35.00 respectively. But USD/IDR was little changed under 15,700. Similarly, USD/SGD was little changed as it consolidated around the 1.3170 level.

Equities

▪ US stock markets rose for the third straight session on Thu as the overnight surge in stock prices was attributed to the favorable US macro data, especially the retail sales, easing concerns about an impending US recession. The Dow Jones Industrial Average (DJIA) ended the session up by nearly 555 points (1.39%), at 40,563.06, while the S&P 500 index closed even higher by 1.61% at 5,543.22. The NASDAQ was the best performer among the three majors as it ended the session surging more than 400 points (2.34%) to settle at 17,594.50. The CBOE volatility Index (VIX) or “fear index” retreated further to 15.23 (from 16.19 previously).

▪ Asian equities closed mostly in the green, lifted by the rebound in Chinese equities with investors there expecting further stimulus measures from the authorities after the weak set of July macroeconomic data for China.

▪ In North Asia, China’s SHCOMP rallied 0.9% to 2,877 as the SZCOMP also jumped 0.8% to 1,553. Hong Kong’s HSI however closed a marginal 4 points lower at 17,109. While Taiwan’s TWSE eased 0.6% to 21,895. South Korean equities market was closed for public holiday.

▪ In South East Asia, Singapore’s STI led the gainers with a 0.9% recovery to 3,315 with Malaysia’s KLCI squeezing out a marginal gain of 0.6 points to 1,612. But both Thailand’s SET and Indonesia’s JCI eased 0.2% to 1,289 and 0.4% to 7,409 respectively in cautious trading.

US Treasuries/Bonds

▪ The US Treasury yields ended higher on Thu as positive US data releases showed the strength of the US economy, and traders further pared back the magnitude of Fed rate cuts this year. According to Bloomberg, swap traders further reduced bets on aggressive Fed easing, pricing in less than 100 bps of cuts for 2024.The 10-year UST yield closed the session higher by 7.8 bps at 3.913%, while the UST 2-year yield rose even more, by 13.7 bps to 4.093%. As a result, the 2-year and 10-year yield spread inversion widened further (by -6.1 bps) to -17.8 bps.

▪ In the front end, the overnight SORA dipped by 5 bps to 3.61% while in the back end, the 10 year Singapore Government Securities eased 5 bps as well to 2.76%.

Commodities

▪ Crude oil prices rose on Thu, as investors continued to assess China’s demand outlook while monitoring the geopolitical threat posed by a direct confrontation between Israel and Iran. The London Brent oil futures ended the day US$1.28 (1.6%) higher at US$81.04/bbl while the NY WTI rose by US$1.18 (1.5%) to US$78.16/bbl.

▪ According to a Bloomberg report, US natural gas prices rose after the US EIA data showed the first summer drop in stockpiles since 2016. Meanwhile, the Department of Energy bought 1.5 million barrels of US sour crude to top up their strategic reserves.

▪ Gold price rose on Thu despite a broadly stronger dollar, as investors are faced with a myriad of factors including improving US data lowering the risks of a US recession but also implying less amount of Fed rate cuts. The price of gold increased by US$8.94 (0.4%) to US$2,456.79/ troy ounce.

Economic News & Data

▪ The UK economy kept to a steady recovery pace as the 2Q GDP grew by 0.6% q/q, 0.9% y/y (exactly in line with Bloomberg estimates) while the 1Q growth was unchanged at 0.7% q/q, 0.3% y/y. Private consumption was a tad disappointing at 0.2% q/q (down from 0.4% in 1Q) and missing estimate for 0.5% increase but that shortfall was made up for by the spike in government spending, up by 1.4% q/q (from 0.0% in 1Q, and well above estimate for just 0.3% rise) and a robust services sector (as the index of services rose by 0.8% 3M/3M in Jun, from 1.1% in May).

▪ UK Jun industrial production also rose more than expected, coming in at 0.8% m/m (versus Bloomberg est 0.1% m/m, up from 0.2% m/m in May). This translated to a contraction of -1.5% y/y in Jun (versus Bloomberg est -2.3% y/y), from +0.4% y/y in May.

▪ UK Jun trade deficit narrowed to GBP 5.324 bn (versus Bloomberg est deficit of GBP 3.5 bn from -GBP 5.77 bn in May).

▪ Euro-zone’s labour productivity did not improve in 2Q, falling by -0.4% (after declining by -0.5% in 1Q), according to ECB data released on Thu. The 2Q number also missed the European Central Bank’s (ECB) June staff projection of a smaller -0.3%, a blow for the central bank’s efforts to bring inflation back to 2%.

▪ US Jul advance retail sales surprised with a robust surge of 1.0% m/m (well above the Bloomberg median est 0.4% m/m) while the Jun print was revised downwardly to -0.2% (from the prelim print of 0.0%). The Jul spike was the most since Jan 2023 (4.1%) even though it came amidst high prices and elevated borrowing costs, a cooling labour market and uncertain economic outlook. The advance in retail sales was broad-based as 10 of the 13 categories in the Jul report posted increases. Car sales rebounded strongly in Jul after a cyberattack in the preceding month led to a sizeable decline. Excluding autos and gasoline stations, retail sales grew by a smaller 0.4% m/m, from 0.8% in Jun. Electronics and appliances also recorded solid gains while in comparison, e-commerce sales only increased modestly, and according to Bloomberg report, that may have been due to heavy discounting and other promotions by the major players in the online sales space during Jul.

▪ As for control group sales (which are used to calculate the share of retail sales to the US GDP, and excludes food services, auto dealers, building materials and gasoline stations), it rose by 0.3% m/m (above the Bloomberg forecast of 0.1% but markedly slower from Jun’s 0.9%).

▪ The Empire manufacturing survey for Aug improved more than expected to -4.7 (versus Bloomberg est -6.0 from -6.6 in Jul) but the Philadelphia Fed Business Outlook for Aug unexpectedly dipped lower to -7.0 (versus Bloomberg est +5.2 from 13.9 in Jul), the worst outturn for this indicator since Jan 2024 (-10.6).

▪ US Jul industrial production declined more than expected at -0.6% m/m (versus Bloomberg est -0.3% m/m, from a downwardly revised +0.3% in Jun), while the capacity utilization dipped lower to 77.8% (versus est 78.5% from 78.4% in Jun). The decline in Jul was the sharpest since the start of the year (Jan: -1.1%) and was partly blamed on Hurricane Beryl (for the decrease in Gulf Coast refinery activity) as well as a fall in vehicle output weighing on manufacturing.

▪ The weekly initial jobless claims fell to 227,000 for the week ending 10 Aug (below the Bloomberg est 236,000, from a revised 234,000 last week). Continuing claims also eased to 1.864 million (for the week ending at 3 Aug) from 1.871 million in the preceding week.

▪ US Aug NAHB housing market index moderated more than expected, coming in lower at 39 (versus Bloomberg est 43, and from 42 in Jul).

▪ China’s industrial production and retail sales were broadly in line with consensus forecasts, but fixed asset investment unexpectedly slowed, and the surveyed jobless rates jumped higher in Jul. The housing market remained in a downtrend with prices, residential property sales value and real estate investment continuing to fall. There is room for the LPRs to be further lowered next week (20 Aug) to reflect the larger than usual 20 bps cut to the 1Y MLF on 25 Jul. In the near-term, there is also the possibility of a 50 bps cut to the reserve requirement ratio (RRR).

▪ For today, final GDP prints for 2Q24 are due for Malaysia, Hong Kong and Taiwan. In particular, Malaysia’s final GDP print is expected to stay strong at 5.5% y/y, just slightly softer than the preliminary print of 5.8% y/y and more importantly stay significantly stronger than 1Q24’s 4.2% y/y estimate.

▪ In Thailand, the governing coalition has announced their decision to support Ms Paetongtarn Shinawatra as its candidate for Prime Minister. Parliament is scheduled to convene later today to cast the Prime Minister vote.

Source:UOB Group

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Warren Takunda

Central Bank

Economic

The political uncertainty left by Prime Minister Fumio Kishida's decision to step down will likely lead to a pause, rather than a full stop, to the Bank of Japan's plan to raise interest rates steadily from near-zero levels.

How long that pause could be will depend not just on how the ruling party leadership race plays out, but how market moves affect the political debate on the preferred pace of rate hikes, analysts say.

Kishida, who hand-picked Kazuo Ueda as BOJ governor last year, said on Wednesday he will not stand in his ruling Liberal Democratic Party's (LDP) leadership race in September.

The BOJ worked closely with Kishida's administration in preaching the benefits of higher wages. Days before the BOJ's rate hike in July, Kishida said the central bank's policy normalisation would support Japan's transition to a growth-driven economy in a sign of his backing towards exiting ultra-low interest rates.

Kishida's departure leaves a political vacuum that heightens uncertainty on economic policy, and complicates the BOJ's efforts to steer a smooth exit from easy monetary conditions in coordination with the government.

Those seen as leading candidates have mostly endorsed gradual increases in Japan's current ultra-low interest rates, partly as a means to keep sharp yen falls at bay.

Shigeru Ishiba, seen as a frontrunner to succeed Kishida as next LDP leader and thus premier, told Reuters that the BOJ was "on the right policy track" in hiking rates gradually.

Other leading candidates, such as party heavyweights Toshimitsu Motegi and Taro Kono, have also called on the need for higher interest rates and hawkish communication by the BOJ.

The only advocate of aggressive easing is dark horse candidate Sanae Takaichi, who belongs to a party group that supported former premier Shinzo Abe's stimulus policies.

"Takaichi might be an exception, but most candidates don't seem to be against the BOJ's policy normalisation. If so, there won't be much disruption to the bank's long-term rate hike path," said veteran BOJ watcher Mari Iwashita.

POLITICS-BOJ TENSION

The BOJ by law is granted independence from government interference in setting monetary policy. But it has historically come under political pressure to use its monetary easing tools to reflate the economy.

That policy tension is in part driven by the government's power to appoint BOJ board members including the governor, which then needs parliament approval to take effect.

With the weak yen intensifying the strain on households through rising living costs, many politicians will likely nod to gradual rate hikes for now, analysts say.

That means the BOJ will likely stay the course and keep raising rates - albeit at a slower pace than initially thought.

A survey taken by think tank Japan Center for Economic Research on July 30-Aug. 6 showed many economists projecting another rate hike by year-end.

"The weak yen has been enemy No. 1 for many lawmakers, which means there is less political pushback against rate hikes than in the past," said a source familiar with the BOJ's thinking.

MOMENT FOR PAUSE

Data showing the economy rebounded in the second quarter on robust consumption helps justify further rate hikes, analysts say.

The BOJ has too much to lose by ditching a carefully crafted plan to roll back a decade-long radical stimulus programme, which put an end to negative rates in March and led to an increase in short-term rates to 0.25% from 0-0.1% in July.

The BOJ remains a global outlier on monetary policy. The central bank kept rates ultra-low even as its U.S. and European counterparts hiked aggressively since 2022 to combat red-hot inflation. Now, the BOJ is raising rates while its peers have begun easing and yet it's some way off from normalising policy.

Governor Ueda has said further rate hikes are necessary adjustments of excessive monetary support, rather than a full-fledged tightening - a stance he is likely to maintain.

But the BOJ also has good reason to ride out the storm by standing pat at the next policy meeting on Sept. 19-20, which will likely be close to the date of the LDP leadership race.

The U.S. presidential election may also heighten market volatility and keep the BOJ from acting at a subsequent rate review on Oct. 30-31, analysts say.

"The BOJ will hold off on rate hikes at least until December, when Japanese and U.S. political events run their course," said Toru Suehiro, chief economist at Daiwa Securities.

The BOJ would also need time to build trust with the new prime minister, who may have to wait until November to be approved by parliament.

An academic turned governor, Ueda has few associates in political circles, which heightens challenges in communicating smoothly with the new administration, some analysts say.

There is no guarantee politicians will keep favouring rate hikes, if the yen's downtrend reverses course.

A spike in the yen, caused in part by the BOJ's July rate hike, led to a plunge in stock prices that forced the central bank to back-track on its hawkish communication.

"If the weak-yen tide reverses, some politicians may begin to question whether the BOJ needs to hike rates further," said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities.

Source: Reuters

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RBA

Remarks of Officials

Central Bank

Michele Bullock, Governor of the Reserve Bank of Australia (RBA), delivered an opening statement to the House of Representatives Standing Committee on Economics on Friday, August 16, and the main points are as follows:

There has been further progress on inflation, but it has been very slow. Inflation has only declined a further 0.3 percentage points to 3.8 percent in the June quarter of 2024 since the end of 2023. While goods price inflation has declined substantially, it has not been enough to offset continued high services price inflation. The main contributors to this are high rents and insurance prices, in addition to continued demand and the ability for some businesses to pass through costs.

The economic outlook remains highly uncertain. The gap between aggregate demand and supply in the economy is larger than previously thought. While inflation has fallen substantially since its peak, it is still some way above the midpoint of the 2–3 percent target range. Our current forecasts have underlying inflation by the end of this year still sitting around 3.5 percent. The central forecasts are for inflation to return to the 2-3% target range late in 2025 and approach the midpoint of the target band in 2026.

Inflation is proving persistent. The Board remains vigilant to upside risks to inflation and policy will need to remain sufficiently restrictive until it is confident that inflation is moving sustainably towards the target range. It is premature to be thinking about rate cuts.