The narrative of the last mile of disinflation being the hardest, which in 2023 became popular in the world of central banking, reflects concern that after having dropped significantly, further declines in inflation would be more difficult.However, it seems that relevance of this narrative is increasingly being questioned. The account of the December 2023 meeting of the ECB governing council mentions that it has been debated. It seemed that the disinflation of 2023 had been faster than in previous episodes, raising doubts about the relevance of the narrative. A paper of the Federal Reserve Bank of Atlanta analyses this topic for the US. Based on recent research on the Phillips curve, it concludes that the ‘last mile’ is likely not significantly more arduous than the rest
The Red Sea conflict has already had a substantial impact on global shipping. While maritime freight prices are, at this stage, still well below the levels seen in 2021, when the global economy was recovering post-lockdown, they have spiked in January 2024. The Freightos index (chart 5) shows that transportation costs have tripled on average compared to the end of last year. Due to their geographical locations, China and Europe have been the regions most directly affected by these disruptions, and are already facing threefold (China-Europe route) to fivefold (Europe-China route) increases in transportation costs. However, the effects are gradually being felt on all global shipping routes
GDP growth, inflation, exchange and interest rates.
BNP Paribas Economic Research wishes you all the best for 2024. On the macroeconomic front, the highlight of 2023 was the peak in official rates in the United States and the eurozone, but what is in store for 2024?In this video, you can discover the topics and points of attention that will be monitored throughout 2024 for each team: Banking Economy, OECD and Country Risk.
In recent speeches and interviews, officials of the Federal Reserve and the ECB have cooled down market enthusiasm about the timing and number of rate cuts this year. In the US, the message is that there is no reason to move as quickly or cut as rapidly as in the past, considering the healthy state of the economy. In the Eurozone, despite the drop in inflation in 2023, there is still uncertainty about the inflation outlook, particularly due to the pace of wage growth. Moreover, there is also a concern that the easing of financial conditions -due to overly optimistic market assumptions about the policy rate path- would be counterproductive from a monetary policy perspective. Both the Federal Reserve and the ECB want to tread carefully in deciding when to start cutting rates
GDP growth, inflation, interest and exchange rates.
It's official: with an average of 15 degrees Celsius, 2023 will have been the hottest year ever experienced on Earth, not only since temperature readings began, but perhaps also for the entire Holocene, which is the planet's current interglacial period, which began approximately 10,000 years ago.
The latest economic data paint a mixed picture. In both the eurozone and the US, the signal from most confidence surveys in December is encouraging. But it is still too early to conclude to a bottoming out. Non-farm payrolls in the US remained robust in December. But the collapse of the employment component of the ISM survey in the non-manufacturing sector looks alarming. Business failures are on the rise. The economic situation also remains vulnerable to geopolitical tensions. On the other hand, there is no reason to worry about the inflation rebound in December. And the dynamics appear more favourable in the eurozone than in the US.
In the United States, economic policy uncertainty, based on media coverage, fell in December, after rising for three months in a row. This drop can probably be attributed in part to the anticipated Federal Reserve rate cuts and the hopes that they are raising.
Croissance du PIB, inflation, taux d'intérêt et de change.
Inflation regained ground in the United States and the euro area in December, rising from 3.1% to 3.4% and from 2.4% to 2.9% year-on-year respectively. However, the breakeven inflation rates (10-year bonds) for the four major eurozone economies have fallen below those of the United States. The breakeven rate has also dropped in the United Kingdom, where the inflationary environment has improved, although it remains more deteriorated than in the other areas.
When looking ahead and formulating the forecasts for 2024, it is always relevant to look back at the recent past and to have a final look at 2023. It was a year with many surprises. The resilience of the Labor market in the US and in the euro area faced with aggressive monetary tightening, the resilience of the US economy in general with a staggering growth performance, the stagnation in the euro area, but also the decline in inflation. But the thing that has been the defining characteristic for 2023 to treat undoubtedly, has been the fact that the peak in policy rates has been reached in the United States and in the euro area. When we now look at 2024, we can say that there are two quote unquote certainties.
Further progress in terms of disinflation and the room this creates for central bank easing seem to be the only economic ‘certainties’ for 2024. What is left is a list of important questions that should be answered as the year progresses. What will be the pace and extent of rate cuts? Is there a risk of underestimating the impact of past rate hikes that still must manifest itself? What about the timing and strength of the pickup in growth in reaction to lower inflation and the start of policy easing? Is there a downside to the scenario of a soft landing in the US? The answers to these questions matter for the real economy but are especially important for financial markets and the policy rate expectations.
In December, the S and P Global Composite PMI index for worldwide business activity rose again slightly (+0.5 points), reaching 51, its highest level since August 2023. This is the second consecutive month of improvement, after five months of decline. The signal remains encouraging for global activity at the end of Q4 2023. However, this improvement masks a fairly clear divergence between the services sector and the manufacturing sector. In December, the global services index reached its highest level since August 2023 (51.6), while the manufacturing index recorded its lowest level since the same month (49).
The economic picture during November and December reveals some divergence between Europe, on the one hand, and the US and Japan, on the other hand.
Almost one year ago, we labeled 2023 as ‘a year of transition to what?’ based on the view that inflation would decline, that official interest rates would reach their peak and a concern that the disinflation process could be bumpy. 2023 has brought us many surprises: the resilience of the labour market in the US and the Eurozone, the extent of monetary tightening, the risk appetite of investors. The biggest surprise was the growth performance of the US economy. Towards the end of the year, the changing message from the Federal Reserve -and to a lesser degree of certain ECB governing council members- with respect to the monetary policy outlook has brought us a another favourable surprise and a hopeful note for 2024.
GDP growth, inflation, exchange and interest rates
In two podcasts Daniel Morris, Chief Market Strategist of BNP Paribas Asset Management discusses with William De Vijlder, Group Chief Economist of BNP Paribas the impact of geopolitical uncertainty on the economy. In this first podcast, they look at economic and geopolitical uncertainty, why it matters and how it can be measured.
In the second podcast on geopolitical uncertainty and its economic consequences, Daniel Morris and William De Vijlder look more closely at the impact of geopolitical uncertainty on firms, households and financial markets.
As the year is drawing to a close, time has come for economists to look back and to assess to what extent 2023 has been in line with expectations or has brought us many surprises. Let's start with the first part, 2023 in line with expectations. Well, the first dimension, the first dynamic, very important is disinflation.Headline inflation has declined very significantly thanks to a base effect, the decline in energy prices, but also core inflation.
According to its final estimate, the S&P Global Composite PMI improved slightly in November, wiping out almost all the decline recorded in October. The November index stood at 50.4 (compared to 50.0 in October and 50.5 in September), ending a five-month decline. This is a slightly positive signal for global growth in the middle of Q4 2023.This modest improvement can be seen in both manufacturing and services.
Updated data on GDP growth, inflation, interest and exchange rates.
The latest inflation data from the major developed economies have helped fuel the decline in bond yields and reinforced the conviction that the first policy rate cuts will take place in the first half of 2024 in the US, the euro area and the UK.
The evolution of international trade is sending rather reassuring signals about the state of global demand. New machinery and equipment orders from South Korea, as well as export orders from Taiwan – generally seen as two reliable indicators of global manufacturing activity – rebounded sharply in October.
