The current macroeconomic outlook is “a lot more uncertain” than what consensus suggests due to the extreme interest rate hike cycle, China’s economic slowdown and a shift in commodities, says Eric Robertsen, Standard Chartered's global head of research and chief strategist.
Robertsen was speaking at the bank's global research roundtable on Sept 18, in which he suggested that the US Federal Reserve’s (US Fed) rate hiking cycle was more aggressive than those seen in recent decades, and the full implications have yet to be fully realised.
On the other hand, the China economy is not only slowing down but also experiencing structural changes and changes in consumer mindset. The full impact of which has also not been entirely appreciated, says the economist.
In addition, commodities experienced enormous enthusiasm for the first six months of the year but have since experienced a downturn, evidenced by weak commodity prices. Sentiments in both crude oil and copper markets have weakened, a stark contrast to their highs in the earlier part of 2024, he notes.
Robertsen says that there is a “comfortable acceptance” of a global and US soft landing, with many assuming it will occur without issues. While the Standard Chartered team does not necessarily disagree, the risks surrounding this issue are a lot wider than historically has been the case and this has not been reflected in market pricing.
Today, the global economy growth outlook of 3.2% is consistent with the idea of a soft landing. However, Robertsen quips that the more intriguing narrative that lies beneath is the big question as to who will be the engine of growth.
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The bank forecasts that the US economy will experience a slowdown of growth to 1.4% - 1.5% with inflation expected to reach the Fed’s target of 2% in the next 15 months. However, Kaushik Rudra, Standard Chartered's global head of fixed income research & head of Asia research, believes that there will be fewer rate cuts up front but a more aggressive approach in 1H2025. By the end of 2025, their conclusion aligns with the consensus, but reflects a different trajectory.
The global research team’s growth forecast for the European economy remains slightly below the US, noting that structural headwinds to growth are the strongest in a long time. They also identify disinflation as a result of China’s slowing economy, challenges to the automotive industry and competition from China as potential barriers.
In Asia, China faces structural headwinds to onshore wealth as both equity and real estate prices are in decline. Additionally, the labour market in China is softening, with growth primarily occurring in the manufacturing and exports sector.
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Given the global economic slowdown, this reliance on export raises questions, the stan chart team notes. Unless China re-stimulates, its economy is on a downward trajectory. Despite this, the stan chart team suggests that China policymakers appear unwilling to implement a large-scale stimulus program.
The stan chart team, however, have identified several positive stories globally.
For one, trade corridors are shifting, revealing a pattern of increasing emerging market to emerging market trade, including between China to Asean and Asia to the Middle East. According to Robertsen, non-oil trade between the Gulf Cooperation Council (GCC) and Asia is growing 10% - 15% annually. This could potentially reach a value of US$1 trillion ($1.29 trillion) a year, Robertsen says.
Furthermore, the economies in this region have remained resilient. Edward Lee, Standard Chartered's chief economist & head of foreign exchange, Asean and South Asia, labels Malaysia as an “outperformer”, with public and private investments performing well and experiencing a resurgence in confidence.
