MACROscope

The tug-of-war between market players who foresee an imminent global recession that would force central banks to cut interest rates quickly, and those expecting inflation to remain stubborn, thus making interest rates stay 'higher for longer', continues. The US economy still seems to be evading a recession, while in Europe negative signals prevail, prompting a downward revision of economic growth forecasts. On both continents, central banks are apparently approaching the end of their monetary tightening cycles, but the question of when they will begin to reverse those cycles remains open. In our view, no sooner than 2H2024 – both ECB and Fed are clearly prioritising inflation over GDP growth. The normalisation of interest rates is led by Latin America, and in September, the National Bank of Poland followed in their footsteps, surprisingly cutting its reference rate by 75bp. (...)

About a quarter ago, we were discussing the possible consequences of US regional banks’s problems for the economic outlook. It seems we were right in our assessment that they would neither develop into a major financial crisis nor significantly worsen the growth outlook for major economies. Concerns about recession in the US have once again failed to materialise, although doubts about the economic situation are growing in Europe. This is due to – among other factors – the protracted lack of recovery in China and signs of weakening demand at the side of consumers, who are now feeling more keenly the effects of monetary tightening. We were, indeed, wrong to assume that the perturbations in the banking sector would significantly discourage the major central banks from further rate hikes. In fact, developed economies are raising interest rates and will likely continue doing so after the summer holidays. (...)