JPMorgan Econ FI-Global Data Watch It takes a steady hand-109894445

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Global Economic Research

16 August 2024

JPMORGAN

www.jpmorganmarkets.com

Contents

RBA: Learning the hard way 13

Global Economic Outlook Summary 4

Global Central Bank Watch 6

Economic Activity Tracking 8

Selected recent research from J.P. Morgan

Economics 10

J.P. Morgan Market Watch 11

Data Watches

United States 10

Focus: benchmark to revise down

payrolls modestly 10

Euro area 17

Japan 17

Canada 21

Mexico 23

Brazil 25

Argentina 27

United Kingdom 32

Emerging Europe 36

South Africa 40

Australia and New Zealand 40

China, Hong Kong, and Taiwan 42

Korea 44

ASEAN 46

India 50

Regional Data Calendars 53

Economic and Policy Research

Bruce Kasman

(1-212) 834-5515

bruce.c.kasman@jpmorgan.com

JPMorgan Chase Bank NA

Joseph Lupton

(1-212) 834-5735

joseph.p.lupton@jpmorgan.com

JPMorgan Chase Bank NA

Nora Szentivanyi

(44-20) 7134-7544

nora.szentivanyi@jpmorgan.com

J.P. Morgan Securities plc

Global Data Watch

•US recession fears moderate with better growth and inflation data

•Still sticky inflation should give more pause to European central banks

•Weak July credit and growth data prompt another China downgrade

•Up next: DM Aug flash PMIs (fcst: rotation); Riks -25bp; BI, BoK hold

It takes a steady hand

Change is always hard. This includes periods of transition in the business cycle.

Distinguishing between a slide into recession from a mid-cycle slowdown is one

of the more difficult tasks in forecasting. Standing at such a juncture in this four-

year old global expansion, it is understandable to feel uneasy. In these difficult

times, it is best to fall back on first principles: recessions are typically breaks in

behavior driven by an adverse shock that interacts with a set of imbalanced

macroeconomic conditions built up over the cycle. While the most rapid and

synchronized hiking cycle in over half a century is clearly a large shock, we have

long maintained that the lack of macroeconomic imbalances would short-circuit

the fall into recession. Recent data are now challenging this view as a slowing US

labor market, a loss of momentum in Europe, and a struggling China combine to

threaten the life of the expansion. The risk is that the duration of the rate-shock has

fueled its own imbalances. Credit pressures are rising, even if not to alarming

levels. More concerning, however, are the continued imbalances in global growth

across sectors and regions.

The global economy has outperformed this year by a large margin, again. In our

year-ahead outlook published in November 2023, our soft-landing forecast called

for global GDP to expand 2% this year. Global GDP is now tracking a stronger

2.4% gain for the year, with the first half expanding 0.5%-pt (ar) more than

expected. Unfortunately, economic activity continues to be concentrated across

sector and region. All of the outperformance this year has owed to a much stronger

showing in non-manufacturing activity while manufacturing is stuck in low gear

(Figure 1). At the same time, nearly all of the upside surprise has come from the

US, where our rolling year-ahead outlook has been marked up over 1%-pt this year

(Figure 2). Euro area GDP has also surprised somewhat to the upside, though this

momentum has lost steam in recent months. And while China started the year

strong, expectations have been trimmed considerably over the last quarter in

response to a string of weak data, including this week’s disappointing credit and

activity reports for July.

While global growth imbalances remain a concern, the focus of worry has shifted

to the US of late. A notable rise in the unemployment rate alongside signs of a shift

100

101

2019 2020 2021 2022 2023 2024

Source: J.P. Morgan Global Economics

Index, 4Q19=100; Dashed: 2024 outlook (Nov 2023)

Figure 1: Global GDP, relative to potential

Mfg

Non-mfg

-0.4

0.0

0.4

0.8

1.2

Jan Mar May Jul

%pt rev to rolling yr-ahd GDP outlook

Figure 2: Forecast Revision Index

Source: J.P. Morgan Global Economics

Chn

RoW

EMU

See page 72 for analyst certification and important disclosures.

Bruce Kasman (1-212) 834-5515

bruce.c.kasman@jpmorgan.com

JPMorgan Chase Bank NA

Joseph Lupton (1-212) 834-5735

joseph.p.lupton@jpmorgan.com

Nora Szentivanyi (44-20) 7134-7544

nora.szentivanyi@jpmorgan.com

Global Economic Research

Global Data Watch

16 August 2024

JPMORGAN

from a slowdown in hiring to a rise in job separations has lift-

ed recession probabilities and sent a shudder through markets.

And yet, despite a moderation in job growth, the US now

looks on track to post yet another quarter of above-trend 2%ar

growth—above our forecast for a downshift to 1.25%. After

this week’s surprisingly robust retail sales report, real con-

sumer goods spending looks to be surging nearly 6%ar on a

3m3m, saar basis—contrasting with the recent rise in reces-

sion risks (Figure 3).

-4

-2

80.0

0.2

0.4

0.6

2022 2023 2024

% (inverted)

Figure 3: US recession probability and real goods spending

%3m/3m, saar (Jul est)

Source: BEA, J.P. Morgan

Real consumer

goods spending

1yr ahead rec prob

(near-term econ indicators)

Against the backdrop of resilient US growth, the anticipated

aggressive shift in the Fed’s policy stance should reinforce

the soft-landing outlook. This week’s US CPI report showing

core inflation falling to 3.2%oya (its slowest pace since 2021)

provides a green light to start the easing cycle, even if the

resilience in growth tempers the chances of opening with a

50bp move (JPM fcst). The decision will likely depend on

how big a bounce back the August payroll report delivers but

also on the underlying signals for income generation. Some-

thing in the 160-200k range and a u-rate that ticks lower

would likely erase much of the fear invoked by the July labor

report, while something in the low-100s would likely tip the

risk balance further toward growth and deliver a larger cut. At

the same time, seeing a steadying out in the flows into unem-

ployment will also be important to calm fears.

If our forecast is right and downside risks do not materialize,

the easing in broader financial conditions of late around the

world will provide fuel for global growth. The breadth of this

relief however remains unclear. Next week’s flash PMIs for

August will be keenly watched to see if the rotational con-

cerns are allayed. We look for some modest improvement,

with particular emphasis on a nudge up in Europe and in the

DM manufacturing index.

W. Europe: You can’t get there from here

Despite varied growth backdrops, elevated inflation across

Europe is keeping central banks in the region cautious. Eco-

nomic activity in the Euro area is being held back by Germa-

ny where GDP was reported to have contracted last quarter

even as the rest of the region rose a more solid 1.6%ar. Con-

tinued gains in jobs, which advanced 0.9%ar in 2Q, should

help boost lackluster consumer spending—particularly when

combined with strong wage gains. However, the risk is that

ongoing soft productivity reflects a structural malaise that

damps future income and spending and keeps inflation elevat-

ed—tying the hands of the ECB from delivering as many cuts

as it would like.

In the UK, GDP posted another sturdy 2.3%ar gain, continu-

ing the rebound from its 2H23 contraction. We revise up cur-

rent-quarter growth by 0.5%-pt to 1.5%ar. Solid growth

alongside the highest core inflation in the DM is expected to

keep the BoE to a modest quarterly pace of rate cuts with the

next one coming in November. The impact of high rates has

been felt the most in Sweden. With growth weakening and

inflation nearing target, we expect the Riksbank to cut 25bp

next week with guidance toward 3-4 cuts before year-end (2-3

previously). By contrast, Norges Bank remained on hold this

week as Western Europe’s hawkish outlier. Inflation has

moved steadily lower this year but remains elevated. The

weak currency is preventing a more dovish pivot, and the

risks to our call for a December rate cut are now tilted toward

a later move.

Stall in CE-4 disinflation limits cuts

After the rapid disinflation of 2023, July CPI releases show

disinflation across Central Europe (CE-4) stalling around

4%-5%, still above central bank inflation targets (Figure 4). A

reversal of earlier food price declines is also now boosting

headline inflation. Czechia stands out with the lowest infla-

tion in the region and near target. Hungary’s core inflation

remains the most stubborn. Services inflation remains elevat-

ed across the region at 7%ar, reflecting high wage settlements

and inertia in some industries (like telecoms and insurance).

2018 2019 2020 2021 2022 2023 2024

%3m saar

Figure 4: Core CPI in CE-4

Source: National sources, J.P. Morgan. Details on request.

Poland

Hungary

Czechia

Romania

Against the backdrop of still-elevated inflation, we see limit-

ed space for policy easing. With core inflation stuck above

the 1.5%-3.5% target band, the NBP’s resolute hawkishness

makes sense and we see it maintaining the policy rate at

5.75% until 2Q25. Likewise, we see the NBR on hold at 6.5%

Bruce Kasman (1-212) 834-5515

bruce.c.kasman@jpmorgan.com

JPMorgan Chase Bank NA

Joseph Lupton (1-212) 834-5735

joseph.p.lupton@jpmorgan.com

Nora Szentivanyi (44-20) 7134-7544

nora.szentivanyi@jpmorgan.com

Global Economic Research

16 August 2024

JPMORGAN

until February next year. Hungary’s NBH is likely to pause

this month after having delivered 15 consecutive cuts

although we still see it cutting 50bp later this year, to 6.25%.

Despite having inflation close to target, the CNB still leans

hawkish and we expect only 50bp of cuts to 3.5% by year-

end.

Elsewhere in the EMEA EM region, domestic demand in Tür-

kiye is slowing, in line with our recession call (here and

here). Industrial production plummeted 3.9%q/q (not annual-

ized) in 2Q24 and retail sales fell 0.5%. This came alongside

a 0.7%-pt jump in the unemployment rate to 9.2% in June. A

negative output gap should aid the disinflation process. How-

ever, the backward indexation of education and transportation

prices is likely to keep services inflation elevated in the near

term, with monthly CPI gains likely to hold above 2%

through 3Q24. We continue to see the CBRT cutting policy

rates 250bp each in November and December to 45% by

year-end.

China: Revising down 3Q growth

A weak set of activity and credit data for July prompt us to

lower our 3Q growth forecast to 3%ar (previously 4%). A fall

in July exports was accompanied by a stall in IP gains last

month, while infrastructure investment grew at its weakest

pace since 2022. Retail sales and service consumption picked

up in July, but not enough to reverse the weak June reading.

Renewed weakness in housing transactions and starts sug-

gests the real estate downturn has yet to stabilize. Credit sup-

ply has been adjusted over the course of the year to provide

more support, but demand remains weak, with July credit

growth posting a very weak outturn. We maintain that more

forceful policy measures are needed to boost consumption,

stabilize the housing market, and restore private sector confi-

dence. We still look for GDP growth to pick up toward 5% in

4Q24 as policymakers accelerate issuance of special local

government bonds and provide more flexibility in the deploy-

ment of these funds. However, given the gradual policy

adjustment, we expect full-year growth to average just 4.6%

(previously 4.7%), below the government’s 5% target.

EMA (ex-China) kicks off easing cycle

Domestic macro conditions (here and here) have been calling

for monetary policy easing in much of EM Asia, but fears that

rate cuts could trigger FX weakness have held policymakers

back. The significant repricing of near-term Fed easing allays

these fears somewhat. The BSP this week cut 25bp, as we

expected, and with current rates well above neutral we think

it has scope to cut another 25bp next quarter and at least

200bp in total by end-2025. The case for cuts is also building

in India as July inflation gapped lower to 3.5%oya (on track

to undershoot the RBI’s 3Q forecast) and 2Q GDP growth

likely slowed more than expected. In Indonesia, the austere

2025 budget plan presented this week, which should bring the

deficit down to 2.5% of GDP (from 2.7%), is an important

signal of the incoming administration’s fiscal prudence and

further reinforces the case for BI to cut the policy rate by Sep-

tember. Political uncertainty spiked briefly in Thailand this

week after the Constitutional Court dismissed Prime Minister

Srettha for breaching the ethical code and the daughter of for-

mer Prime Minister Thaksin Shinawatra, Paetongtarn Shina-

watra, was confirmed as the next prime minister. We do not

expect any meaningful impact on fiscal or economic policies

and see the BoT on hold till 2025.

The push and pull on Latam policy

Policy-setting in Brazil and Mexico is being buffeted by a

range of domestic and foreign forces. Over the past two

weeks in Brazil, the BRL went from testing its weakest levels

since 2022 to appreciating over 5% and edging closer to 5.45.

The move happened amid a busy period, when hawkish

COPOM minutes were followed by cautious remarks from

different board members, reinforcing market pricing of hikes

as soon as September and contrasting with our call for stable

rates until mid-2025. At the same time, several economic

indicators reveal surprisingly strong growth over 2Q and

more persistent core inflation in July. We have upgraded our

2024 GDP forecast to 2.9% (from 2.5%) and raised our CPI

forecast to 4.2%. Despite strong growth and inflation, we

maintain the BCB will remain on hold even if the odds of a

hike have increased. More front-loaded cuts in the US should

make room for a different discussion, while keeping rates sta-

ble for longer should be enough to bring the BCB’s inflation

forecasts to levels closer to the 3% target. We think the next

move in the Selic rate will be lower starting in 2Q next year.

In Mexico, growth in economic activity is slowing while

inflation pressures remain. Currency pressures moderated this

week, but the MXN is still 10% down this year. This will

cushion the economy but also jeopardize the convergence of

inflation to target. Nevertheless, with inflation nearing the

upper reference pace of 4% and with the Fed now looking to

move more aggressively this year, Banxico has some space to

act. Next week’s minutes will be important to understand and

calibrate the board’s sensitivity to the incoming data, particu-

larly given the divided 3-2 decision to cut at the last meeting.

The key to understand the bias and guidance—as the state-

ment concluded they will continue to discuss cuts in future

meetings—lies in the tight policy stance as explained by the

ex-ante policy rate. Even incorporating two additional cuts

this year, the real policy rate will remain above 6%, well

above the neutral range determined by Banxico. We expect

two more 25bp cuts this year, with the next one coming in

September.

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GlobalEconomicResearch16August2024JPMORGANwww.jpmorganmarkets.comContentsRBA:Learningthehardway13GlobalEconomicOutlookSummary4GlobalCentralBankWatch6EconomicActivityTracking8SelectedrecentresearchfromJ.P.MorganEconomics10J.P.MorganMarketWatch11DataWatchesUnitedStates10Focus:benchmarktorevisedownpayr...

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