The anticipated moderation of US economic growth in the fourth quarter, following a robust performance in the second half of 2023, is expected to highlight the resilience of the American economy. Economists project a 2% increase in the government’s initial reading of gross domestic product (GDP), maintaining optimism after the 4.9% advance in the third quarter. As the Federal Reserve contemplates potential rate cuts in response to slowing inflation, global central banks, including the Bank of Canada, European Central Bank, and Bank of Japan, are closely watched for signs of policy shifts.
Key Points:
- US Economic Outlook: Despite the expected moderation in the fourth quarter, the US economy has shown strength over the final six months of 2023. Economists project a 2% increase in GDP, marking the strongest back-to-back quarters of growth since 2021.
- Inflationary Pressures: Inflationary pressures in the US are showing signs of moderation. The personal income and spending report is anticipated to reveal a 3% increase in the Federal Reserve’s preferred gauge of underlying inflation for the year ending in December. This marks the 11th consecutive month of waning annual price growth.
- Federal Reserve’s Dilemma: Slowing inflation has created room for potential interest rate cuts by the Federal Reserve in 2024. However, policymakers remain cautious about committing to such moves as early as March. The inflation-adjusted federal funds rate is currently at its highest level since 2007, presenting a dilemma for policymakers.
- Global Central Bank Actions: Global attention turns to central banks worldwide. The Bank of Canada is expected to maintain its benchmark overnight rate at 5% for a fourth consecutive meeting. The European Central Bank (ECB) and Bank of Japan are closely watched for signs of their first rate moves, while Turkey’s central bank may deliver the final hike of its cycle.
- Asian Economic Highlights: In Asia, the focus is on the Bank of Japan’s meeting, with speculation about its first potential rate increase since 2007. Japan’s trade statistics, consumer inflation, and South Korea’s economic growth data are key indicators for the region. China’s prime rates are expected to remain unchanged, offering an early glimpse of global trade through South Korea’s export figures.
- European Developments: The ECB’s decision takes center stage in Europe, with expectations of unchanged rates. President Christine Lagarde’s comments will be closely scrutinized for hints on the timing of potential rate cuts. Economic data, including purchasing managers’ surveys and Germany’s Ifo business sentiment, will provide insights into the region’s economic conditions.
- Central Bank Meetings: Central bank meetings are scheduled in Ukraine, Norway, Turkey, South Africa, Eswatini, and Malawi. Turkey’s central bank is anticipated to mark the end of its tightening cycle with a rate hike. In South Africa, despite easing inflation, rate cuts may not be immediate, according to Governor Lesetja Kganyago.
- Latin American Developments: In Latin America, mid-month consumer price readings in Brazil and Mexico will be crucial. Brazil’s inflation slowing and Mexico’s return of disinflation will influence the policy decisions of Banco Central do Brasil and Banco de Mexico.
- Argentina’s Economic Data: Argentina is set to release economic activity data for November and full-year budget results, with President Javier Milei aiming to balance the budget in 2024 through tax measures and spending cuts.
- Brazil’s Economic Indicators: Brazil’s busy week includes reports on full-year bank lending, tax collections, foreign direct investment, and current account figures, providing a comprehensive overview of the country’s economic health.
As the US and global economies navigate various challenges, including inflation concerns and potential policy shifts, the upcoming economic data releases and central bank meetings will shape the trajectory of markets in the coming weeks.
