World Economies Update & Outlook September 2024

Australia 

Australia’s GDP rose by 1.0% for the year and 0.2% for the quarter to June, with the annual pace declining slightly and the quarterly growth in line with the revised prior quarter. Inflation rose slightly to 3.8% in the year to June, up from 3.6% for the year to March, marking a pause in the declining trend from the peak of 7.8% of December 2022.  Unemployment rose to 4.2% in August, steady on the previous month and up from 3.9% a quarter ago. Forward looking indicators in Australia were weaker over the quarter to September with Purchasing Manager Indices (PMI) in Australia down for manufacturing and services to September, while both business confidence and consumer confidence were weaker. No relief was in sight as the RBA held cash rates steady at the September policy announcement with the likelihood of cuts growing and priced by markets for early 2025. 

United States 

The United States’ GDP strengthened to 3.0% for the year and 0.75% (3.0% annualised) for the quarter to June, demonstrating resilience and a rebound from the prior quarter’s slowing. Headline Inflation was 2.5% in August, resuming a downward trend, with core inflation also down for the quarter to 3.2%. The Fed’s preferred measure of inflation, the Core Personal Consumption Expenditure (PCE) index was down to 2.62% in the quarter and year to July. Unemployment declined over the month to August to 4.2% from the prior yearly high of 4.3%, while continuing the gradual uptrend over the quarter and year noting a low of 3.7% in November last year. The broader measure of unemployment, the U-6 (underemployment) measure has been trending up from 6.5% in December 2022 to 7.9% in August 2024.  Forward-looking indicators are mixed with the PMI indices for September weaker in manufacturing but relatively strong for services indicating both some volatility and resilience.    

Europe 

The Eurozone GDP to June improved slightly over the year to 0.6% however was steady for the quarter at 0.2% reflecting some very modest strength from the low in annual growth as at September last year. Inflation resumed a down trend to 2.2% for the year to August, following a sideways range since December last year and well down from the high of 10.6% in October 2022.  Unemployment declined to a new multi-year low average for the Eurozone of 6.4% in August, down slightly from a peak of 6.6% during the last year and well down on the Covid era peak of 8.6%.  Forward-looking indicators such as the Eurozone Purchasing Manager (PMI) indices were down for the quarter in both manufacturing and services, noting quite a volatile period over the last year and contractionary readings for manufacturing in particular.  

China 

China’s official GDP rose 0.7% for the quarter and 4.7% for the year to June, weaker for both the quarter and year. Inflation has picked up by 0.6% for the year to August, rising from 0.3% from the previous quarter while rising from deflation which at its worst in January was -0.8%. Unemployment has been volatile over the year rising to 5.3% in August from a low of 5.0% a quarter ago noting a range of between 5.0%-5.3% over the past year.  Forward-looking indicators for both manufacturing and services PMIs have declined over the past quarter and year, having had some tentative signs of improvement last quarter. Consumer confidence has continued to oscillate sideways for most of the last year, again falling to near lows since falling dramatically in early 2022.  The Chinese central government stimulus has picked up in size and pace in the last week of September with multiple measures which has been warmly welcomed by markets. This follows on from ineffective smaller government and central bank stimulus over the last year that didn’t get traction in the economy or with markets.  

Economic outlook 

Inflation continues to fall across the world in aggregate with some countries ahead and others behind the trend, beginning to settle into a new post Covid range of between 2% and 4%.  With cash rates still high in the US, the Federal Reserve have been prompted to start cuts with a large 0.50% cut, with other countries already commencing their rate cutting journey.  However, this may result in a soft landing for economies while fueling a resurgence in inflation most likely in the second half of next year. Inflation remains more likely a risk on the high side of central bank target ranges.  

Economic growth has levelled out across most countries globally, with relative weakness in Australia versus other countries over the past year. We see leading economic indicators guiding to tentative signs of a rebound in global growth but there is less evidence of this for Australia. Recessionary signals from an inverted yield curve that then normalize have been of recent concern although policy cuts in the US and significant stimulus in China encourage a more positive economic upswing in the months ahead. There are some mixed signs from leading indicators such as Purchasing Manager Indices (PMI) for services has been expansionary while most manufacturing has been moderately contractionary. Contribution to economic growth is also mixed across consumer demographics and business industries hence the aggregate can be difficult to determine due to these different signals. 

Employment has been resilient overall as jobs have been added despite a rise in unemployment in Australia and the US. There are varying reasons for a rise in unemployment such as a rise in labour force participation from re-entrants and migration. Reasons for this may also be linked to rising cost of living pressures encouraging people back into the labour force. Hence, we are watching leading employment indicators such as ANZ Job Ads in Australia and the US jobless claims.  There still seems to be some lagged wage rises from enterprise agreements in Australia that will impact future employment decisions by businesses. 

Policy action by central banks that have capacity to cut appears to be gaining momentum. The Fed has room to cut due to inflation coming down closer to their target while the RBA is likely to pause for longer before cutting rates due to the progress of inflation normalization being not as advanced. Government spending is still a major contributor, with this likely to be a positive contributor to both GDP growth and contributing upward pressure on inflation. The US election year provides some uncertainty of the result but not much doubt that whoever wins power will enact further government spending.  

 

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.