Will there be a "soft landing"?

According to Ho Quoc Tuan, a lecturer at the University of Bristol (UK), without exaggerating, but confident enough, the economy and financial markets will weather the "headwinds" steadily, hoping for a "soft landing".

Without sugarcoating the situation, there is reason to believe that the economy will weather the headwinds steadily, giving hope for a "soft landing." (Source: Vietstock)

2023: A difficult start to the year, a pleasant end.

2023 can be considered a relatively fortunate year for the global economy in that no major crisis occurred, despite significant obstacles such as USD interest rates exceeding 5%, defaults at US banks, and the Chinese real estate market entering its third year of recession with no signs of recovery.

The complex geopolitical developments in Israel and the Red Sea in the second half of the year have not yet created any major shocks. Oil prices have fallen below $80 per barrel, and inflation in Western economies, which was at 8-11%, has returned to the 3-5% range.

These are successes that, even in mid-2023, people weren't so sure about. In other words, the outlook for the economy in the final days of 2023 was much more optimistic than in the beginning and middle of the year. Sitting at Heathrow Airport waiting for my flight to Finland on May 23rd, I read an article titled "Experts are certain the US economy is about to enter a recession." By the end of the year, we didn't have a recession. And the forecast that China's economy wouldn't reach 4% in 2023 was also wrong. These are positive signs towards the end of the year.

However, there are also signs that 2024 will be a more challenging year than 2023 in terms of macroeconomics. European manufacturing and services Purchasing Managers' Index (PMI) indicators continue to show a contraction rather than expansion outlook. The Chinese economy is still struggling to maintain its 5% growth target. Earnings in many factories are declining, and the number of new, high-quality, high-paying jobs in the economy is decreasing. The real estate market shows no signs of recovery, despite numerous support plans being implemented, most recently the program to inject credit into the social housing sector.

In other words, compared to the beginning of 2023, economists are much more optimistic about the short-term outlook. Data collected from Bloomberg , Macrobond, and Steno Research shows that articles about "soft landing" are far more prevalent than those mentioning "recession."

Challenge 2024

If things continue to unfold as they have since the end of 2023, then we can expect a not-too-bad 2024. As analyst Ed Yardeni puts it, the economy in 2024 will be "resilient".

Undeniably, overall economic growth in 2024 is projected to slow in most major economies, from the US and Europe to China and India. According to forecasts by the International Monetary Fund (IMF), the global economy will become more polarized in 2024, with the general trend remaining slightly downward compared to 2023.

But this was already a good scenario and a soft landing scenario: growth slowed only slightly, without causing an economic recession or financial market collapse, and that slight slowdown helped contain inflation, bringing inflation rates down in places where inflation was still above the central bank's long-term target, such as the US. If you read reports from analytical organizations, the economic downturn would mainly be concentrated in the early months of the year, and the recovery would occur in the middle of the year.

However, these predictions are based on the assumption that the global geopolitical situation will not become more complicated. This may be the first thing that goes wrong. 2024 is a “biggest election year in history” (to use the Economist ’s term), with a host of countries playing a crucial role in the global economy such as the US, Russia, India, the European Parliament, and possibly the UK and Japan (elections are scheduled for 2025, but could be held earlier in 2024).

Meanwhile, worrying developments in Israel and the Red Sea are raising the risk that the conflict in the Gaza Strip could escalate into a regional war in the Middle East.

These developments are enough to create two key impacts. Firstly, businesses will postpone major investments for at least the first half of the year to observe policy developments and the views of new leadership candidates, and secondly, the escalating conflict in Gaza will create new risks of supply chain disruptions globally.

If we combine that with the fragmentation of supply chains caused by the friendly re-manufacturing policies and de-risking strategies that the US is implementing in various forms to contain China's rise, then it is clear that the peace we are experiencing in the final months of 2023 could be shattered at any time in 2024.

Furthermore, high interest rates did not sink Western economies in 2023, due to policy lags. Many loans with interest rates of 1% or lower will not mature until mid-2024, and the economies of some countries will only truly feel the impact of high interest rates when these loans mature.

Although USD interest rates and those in some European economies are expected to peak and be cut in 2024, the predicted cuts are quite modest and no more than 1%. This means that many loans will still mature with new borrowing costs at least 2.5 to 3 times higher. Increased defaults are an inevitable consequence and are already being seen in some year-end figures.

A commercial real estate market, particularly the office segment, is quietly collapsing, but not on the scale of the 2007-2009 crisis. However, there is no guarantee it won't suddenly escalate into a mini-real estate crisis in the West.

In the East, China may have bottomed out with its difficulties, particularly in the real estate sector. Analysts believe that difficulties in selling new projects will gradually ease in 2024, but housing prices in major cities may need to fall further, as the government is directly providing funding to complete social housing projects and increase housing supply in first-tier cities. However, overall difficulties remain, and therefore Chinese people will continue to tighten their belts and postpone spending. This could lead to the first few months of 2024 not seeing any significant breakthroughs in this populous nation.

Given all these risks, 2024 remains a year of uncertainty, and the stock market rallies in the US at the end of 2023 and the beginning of 2024 could reverse by the end of the first quarter as difficulties and risks become more apparent. Therefore, many investors have diversified their portfolios into gold amidst the rising price of this precious metal, which could reach a high of $2,200 per ounce in 2024 as predicted by Wells Fargo.

However, the forecast of $2,200 per ounce for gold, only about 7-8% higher than the current price, also shows that people are not overly pessimistic about the economy in 2024, as well as the associated risks. The general sentiment in the markets remains that the economy is "not too good, but not too bad either," and the forecast for stock markets to rise remains dominant.

It's reasonable to say that the economy and markets will be "resilient" in 2024. Without being overly optimistic, there's enough confidence that the economy and financial markets will weather the headwinds steadily, hopefully leading to a "soft landing."

(according to Investment Newspaper)

Source: https://baoquocte.vn/kinh-te-viet-nam-nam-2024-lieu-co-ha-canh-mem-255971.html