City thinking, local knowledge

February Market Commentary 2024

By Questa Chartered

As we moved through February, the global economic landscape remains complex and ever-changing. While stagnation has been the norm in many parts of the world, recent indicators suggest that we might be turning a corner. Yet, as we’ll see, this path is not without its challenges and uncertainties.

UK Economy: A Mixed Bag of Developments

In the United Kingdom, the economy showed a modest growth of 0.3% in November, primarily boosted by the services sector and Black Friday spending. However, this growth is not a sure sign of economic stability. The risk of recession has now been realised. The UK’s economy is expected to grow by only 0.6% this year, marking it as one of the slowest in the G7 group.

Inflation remains a critical issue, having risen unexpectedly to 4% in December, well above the Bank of England’s target. This rise, driven by increases in tobacco and alcohol prices, was a stark reminder that the inflation crisis is far from resolved.

Despite this, there’s still a belief among many analysts that interest rates might be reduced later in the year.

UK Job Market: Pay Growth is Declining

The UK job market presents a mixed picture. Pay growth, excluding bonuses, has declined, and there has been a noticeable drop in the number of job vacancies. This scenario poses significant challenges for the government, especially in the lead-up to the general election. Chancellor Jeremy Hunt has hinted at possible tax cuts in the upcoming Spring Budget, a move that could offer some relief but also risks future tax hikes or spending cuts.

Consumer Confidence is at Highest Level in Two Years

On a positive note, consumer confidence has seen an uptick, reaching its highest level in two years. This increase in confidence is mirrored in the recent performance of major retailers like Tesco and M&S, which reported significant sales growth.

Industrial Sector Challenges

However, the UK’s industrial sector faces challenges, with Tata Steel announcing significant job cuts as it transitions to low-carbon steelmaking. The potential merger between Vodafone and Three is another development to watch, as it could impact consumer choices and pricing in the telecommunications sector.

Brexit continues to make headlines, with stalled trade negotiations with Canada and the introduction of new post-Brexit import controls from the EU, which could disrupt supply chains and increase business costs.

European Outlook: Tackling Inflation and Economic Recovery

In Europe, the European Central Bank (ECB) maintained interest rates at 4% in January, with a commitment to controlling inflation, which currently stands at 2.9%. ECB President Christine Lagarde emphasised the disinflation process but also acknowledged the risks posed by supply chain disruptions, particularly those arising from the crisis in the Middle East.

The euro zone’s economy shows signs of tentative recovery, as indicated by the S&P Global’s flash eurozone composite purchasing managers’ index, which hit a six-month high in January. However, this recovery is uneven, with the contraction in business activity being offset by a resurgence in manufacturing.

Global Trends: Inflation Concerns and Geopolitical Risks

Globally, inflation concerns continue to dominate economic discussions. Many central banks are considering cutting interest rates, a move that could stimulate growth but also risks reigniting inflation. The recent attacks by Houthi rebels in Yemen, threatening a vital trade route in the Red Sea, further complicate the inflation outlook by potentially disrupting global trade.

Far East: A Mixture of Resilience and Challenges

China’s Economic Fortitude

China’s economy, as highlighted by Premier Li Qiang at the World Economic Forum Annual Meeting 2024, displayed remarkable resilience with a 5.2% growth in 2023. This upturn, significantly higher than the previous year’s 3%, indicates a focused approach to sustainable, long-term growth. However, the World Bank’s prediction of a deceleration to 4.5% in 2024 suggests upcoming challenges, especially for countries closely tied to China’s economic fortunes.

Tackling Market Volatility

The introduction of short-selling limits by the China Securities Regulatory Commission is a strategic move to establish market stability amidst a significant sell-off in Chinese and Hong Kong stocks. This initiative, along with Premier Li’s call for firmer measures to stabilise share prices, reflects the government’s proactive stance in maintaining a stable financial environment.

Evergrande Crisis Continues

The ongoing troubles of Chinese property giant Evergrande reached a new peak with a court-ordered liquidation in Hong Kong. This development, under the shadow of a staggering £236bn debt, is a stark reminder of the fragility of overly leveraged corporate structures.

Sino-US Economic Talks

In a positive development, China and the US have agreed to hold regular dialogues, fostering a more stable business environment. This move, essential for economic and trade cooperation, is a significant step towards easing tensions, although issues like Taiwan continue to pose challenges.

Japan’s Steady Growth

Japan’s economic outlook for 2024, with a projected growth of 1.0%, signals steady, albeit slower, progress. The confidence of major companies like Toyota and SoftBank Group in this growth trajectory, coupled with a 1.8% rise in industrial production, paints a picture of an economy finding its footing.

South Korea’s Balancing Act

South Korea’s economy, facing a slowdown due to higher interest rates impacting domestic demand, remains buoyed by robust export figures. However, tech giant Samsung’s anticipated profit drop suggests that even leading companies are not immune to global economic pressures.

Emerging Markets: Varied Prospects

India’s Economic Surge

India’s economy continues to shine, with predictions of maintaining its status as the world’s fastest-growing major economy. However, the entertainment sector, a key contributor to the economy, faces challenges, as highlighted by the stalled Sony-Zee Entertainment merger and the Screenwriters Association’s push for fairer practices.

Russia’s Labour Shortage Amid Sanctions

Russia, grappling with sanctions, is experiencing a significant labour shortage, prompting the use of unconventional measures like prison labour to support industries. This situation underscores the broader impact of geopolitical tensions on the workforce.

Brazil’s Mixed Economic Signals

Brazil’s economy is set for a slower growth rate in 2024. However, the reduction in the Selic rate and a significant decrease in Amazon deforestation are positive developments, aligning with President Lula’s vision for economic and environmental progress.

Rounding Up

As we analyse market developments, it’s clear that the global economic environment remains fraught with challenges. While there are signs of improvement, risks like inflation and geopolitical tensions persist. As investors, businesses, and policymakers navigate this landscape, a cautious yet optimistic approach seems prudent.

The global economic landscape presents a tapestry of resilience, challenges, and nuanced progress across various regions. From China’s focused economic strategies to India’s burgeoning growth and the peculiar labour solutions in Russia, each narrative contributes to a broader understanding of our interconnected global economy.

What does the future hold for our economies? Only time will tell, but staying informed and adaptable will be key to navigating these uncertain waters. Questa will continue to keep a close eye on these evolving economic trends.

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