CMA CGM to resume Red Sea transit on case-by-case basis. The ocean carrier said it will assess each vessel before transit before making a final decision and can’t provide shippers with anticipated routing choices. (Supply Chain Dive)

China’s factories send mixed signals about the economy, pressing Beijing to do more. China’s vast manufacturing industry sent mixed signals last month about the health of the economy, fueling calls for Beijing to do more to boost growth just days before a key meeting of the country’s leaders. (CNN Business)

European inflation eases to 2.6% as energy prices fall and food inflation slows. The inflation that has ravaged the European economy eased again in February, falling to 2.6% as high interest rates, moderating oil and gas prices, and sluggish growth held back price increases in stores. (AP)

Fed's favorite inflation measure confirms quicker price gains in January. Prices rose at a quicker pace in January, according to inflation measure watched closely by Federal Reserve officials released on Thursday. (Axios)

India and South Africa block major investment deal at WTO talks. India and South Africa have filed a formal objection against an investment agreement at a World Trade Organization meeting in Abu Dhabi, blocking its adoption in a move that observers say could block hundreds of billions of dollars in investment. (CNBC)

Exclusive: Deutsche Bank to file liquidation suit against Chinese developer Shimao, sources say. Deutsche Bank is preparing a liquidation lawsuit in Hong Kong against Chinese developer Shimao Group, two sources said, in a rare move by a foreign firm that comes amid rising credit defaults and China's deepening property sector crisis. (Reuters)

A growing hunger: Argentina’s soup kitchens battle Milei’s spending cuts. Under President Javier Milei, Argentina’s government has cut funds to community kitchens, sparking mass protests. (Al Jazeera)

How Russia has managed to shake off the impact of sanctions—with a little help from its friends. Almost two years after the West responded to the Russian invasion in Ukraine with a blistering array of sanctions, a fresh round of financial measures was announced by the Biden administration on Feb. 23, 2024. (The Conversation)

Canada GDP rebounds in 4Q with 1% growth. Data come ahead of a Bank of Canada meeting next week. (WSJ)

India economy beats expectations with 8.4% growth. India has retained its title of the world's fastest growing major economy as it expanded 8.4% in the last three months of 2023, from a year earlier. (BBC)

Supply chain headaches persist four years into pandemic. As the fourth anniversary of COVID-19’s arrival in the U.S. nears, contractors are still dealing with challenges around materials pricing and availability. (Construction Dive)

Australian manufacturing downturn returns in February. Headline index falls to 47.8 in February from 50.1 in January. (WSJ)

The world's energy transition is highly uneven, new report finds. Climate-friendly technology is moving much more slowly in developing economies—often the same places emissions and energy demand are rising fast. (Axios)

 

Mixed US economic forecast

Kendall Payton, editorial associate

While the U.S. economy seems to have avoided a recession, the forecast for 2024 remains mixed. It is no secret that inflation, labor shortages and geopolitical tensions all contribute to current economic conditions. Despite these factors, real GDP growth is expected to bounce between expansion and contraction for much of this year—showing the U.S. has reached a soft landing.

Why it matters: Inflation is falling faster than expected even with ongoing supply issues and a restrictive monetary policy. With higher central bank policy rates to fight inflation and low underlying productivity growth, the fast pace of disinflation could lead to an ease on financial conditions.

By the numbers: Global growth is projected at 3.1% in 2024 and 3.2% in 2025, with the 2024 forecast 0.2 percentage points higher than projected in the October 2023 World Economic Outlook (WEO), according to the IMF. Economic conditions continue to improve, providing the opportunity for stronger growth. Global headline inflation is also expected to fall to 5.8% in 2024, however, the U.S. recession probability sits at 46%, according to a report from NACM Economist Amy Crews Cutts, Ph.D., CBE.

U.S. inflation is falling but it still has not reached target levels. Long-term interest rates have surpassed pre-pandemic levels meaning the Fed’s monetary tightening attempts were not as efficient as expected. And geopolitical conflicts continue to pose monetary challenges on the U.S. government’s budget process from provision of weapons to financing, heavily impacting the U.S. economy.

However, even if the economy recovers from said factors, here are a few other long-term challenges worth looking at:

Economic growth is expected to decelerate in 2024. The Fed has engaged in aggressive tightening in hopes to slow demand while supply chains recover. And the retail sector has seen a slowdown in sales in January leading many economists to believe in slow, not negative growth throughout 2024. “The main target of the demand destruction is consumer spending, but consumers have been more resilient than expected throughout the past year,” said Cutts. “Most of the tailwind from pandemic relief payments is gone and many are turning to credit cards to keep up momentum—but this method is unsustainable.”

Labor market tightness has also remained persistent over the last year. Though expected to continue over the upcoming quarters, economists do not expect labor markets to fall through as the economy slows. The tightness can also be due to a shrinking labor force as Baby Boomers retire—leading to businesses being less likely to lay off workers. However, persistence from the labor force should prevent overall economic growth from falling into contractionary territory and aid in a rebound next year.

Fed Funds are on hold until the middle of 2024. Many assume the Fed’s hiking cycle is over, but if inflation continues its current trajectory throughout the remaining quarters, the Fed Funds target range is expected to be at 4.6% by the end of 2024, per CNBC. After reaching a four-decade high in 2022, inflation on both a headline and core basis calmed significantly in 2023. However, some economists say it is unlikely that the Federal Open Market Committee (FOMC), will begin cutting the Fed Funds rate before May—given the strong labor market and persistently higher-than-target rate of inflation. “They have been emphatic about waiting to see what the data have to say, and thus far, they have succeeded in bringing down inflation in an orderly fashion without a marked increase in the unemployment rate. This is quite a feat,” Cutts said. “But there is still a long way to go to get inflation back within the target range. Even if the FOMC were to begin cutting rates, it would not mean that monetary policy would be loose, rather it would still be tight, just less so. Monetary policy works with a 6-to-12-month lag, so we are still being impacted by the last rounds of interest rate increases.”

Is the banking crisis over? Though the Fed may loosen their grip on the economy with interest rate cuts, banks are still on a tight leash. Bankruptcy filings declined sharply in 2020-2021 and began to rise again in the second half of 2022. There has also been a sharp rise in the number of banks using the Bank Term Lending Program that offers loans of up to one year in length to banks, savings associations, credit unions and other eligible depository institutions. “The main drivers that caused the failures of Silicon Valley bank and a few others early last year have been largely mitigated by the Bank Term Lending Program, which is currently being wound down,” explained Cutts.

Additionally, there is concern and risk in commercial real estate and banks with sizable commercial assets. As the banking crisis looms, a cautious approach to monitoring commercial real estate and bank assets is crucial for sustained economic stability. Because smaller community banks do not have large commercial portfolios, it is harder to assess individually. “The riskiest ones at present appear to be large office buildings in city centers that have seen their vacancy rates rise. They may not be able to refinance the debt without some sort of accommodation while many community banks have commercial loans on their books that finance owner-occupied businesses or smaller leased properties in which vacancy rates are relatively low.”

The bottom line: Inflation and monetary challenges are the main themes in impacting the U.S. economy for 2024 requiring a strategic approach to credit management and financial stability moving forward.

 

Week in Review Editorial Team:

Annacaroline Caruso, editor in chief

Jamilex Gotay, editorial associate

Kendall Payton, editorial associate