Is there a "soft landing"?

According to Lecturer at Bristol University (UK) Ho Quoc Tuan, without being too rosy, but confident enough that the economy and financial markets will steadily overcome the "headwinds" to hope for a "soft landing".

Without being too rosy, we are confident that the economy will weather the "headwinds" steadily, hoping for a "soft landing". (Source: Vietstock)

2023: Difficult beginning, pleasant end

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

The complicated geopolitical developments in Israel and the Red Sea in the second half of the year have not been able to create any major shocks. Oil prices have fallen below $80/barrel and inflation in Western economies has returned to the 3-5% range from 8-11%.

These are successes that people were not sure about until mid-2023. In other words, the economic outlook for the last days of 2023 is much more optimistic than it was at the beginning and middle of the year. Sitting at Heathrow airport waiting to fly to Finland on May 23, I read the article "Experts are convinced that the US economy is about to enter a recession". By the end of the year, we did not have a recession. And the forecast that China's economy would not reach 4% in 2023 was also wrong. Those are positive signs for the end of the year.

But at the same time, there are signs that 2024 will be a more difficult year for the macroeconomy than 2023. European manufacturing and purchasing managers’ indexes (PMIs) continue to point to a narrower rather than an expanding outlook. China’s economy is still struggling to maintain its 5% growth target. Many factories’ earnings are falling, and the number of new, high-quality, well-paid jobs in the economy is shrinking. The real estate market has shown no signs of recovery, despite the implementation of many support plans, the latest of which is a credit injection program into the social housing sector.

In other words, the economic community is much more optimistic about the near-term outlook than it was at the start of 2023. Data collected from Bloomberg , Macrobond, and Steno Research shows that posts about “soft landings” significantly outnumber those mentioning “recessions.”

Challenge 2024

If everything plays out as it has since late 2023, we can expect a not-so-bad 2024. As analyst Ed Yardeni puts it, the economy in 2024 will be “resilient.”

Undeniably, overall economic growth in 2024 is expected to decline in most major economies, from the US, Europe to China and India. According to the International Monetary Fund (IMF), in 2024, the global economy will be more fragmented and the overall trend will still be a slight decline compared to 2023.

But this is a good scenario, and a soft landing scenario: growth slows only slightly, without triggering a recession or financial market crash, and that slight slowdown helps to keep inflation in check, pushing it down in places where inflation is above the central bank’s long-term target, like the US. If you read the reports of the analysis organizations, the economic decline will be mainly concentrated in the first months of the year, and the recovery will occur in the middle of the year.

However, these forecasts assume that global geopolitics will not become more complicated, which is where things could go wrong. 2024 is “the biggest election year in history” (to use the words of the Economist ), with a host of countries that play a major role in the global economy, including the US, Russia, India, the European Parliament and possibly the UK and Japan (which are scheduled for 2025, but could be held as early as 2024).

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

These developments are enough to create two important impacts: businesses will delay major investments for at least the first half of the year to observe policy developments and the views of new leadership candidates, and the escalation of the war in Gaza will create new risks of disruption to global supply chains.

Combine that with the fragmentation of supply chains due to the impact of the friendly reshoring policy and the de-risking strategy that the US is launching in various forms to limit China's rise, and it is clear that the peace we are feeling in the final months of 2023 could be broken at any time in 2024.

Moreover, high interest rates will not sink Western economies until 2023 because of a policy lag. Many loans at 1% or lower will not mature until mid-2024, and some economies will only really feel the impact of high rates when they mature.

Although interest rates in the US and some European economies are expected to peak and cut in 2024, the cuts are forecast to be quite modest and not more than 1%. This means that many loans will still mature with new borrowing costs at least 2.5 - 3 times higher. Defaults will increase as a result and are already being seen in some year-end figures.

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

In the East, China may have hit rock bottom in its troubles, especially in the real estate sector. Analysts believe that the difficulty in selling new projects will gradually ease in 2024, but home prices in major cities may need to fall further, as the government is directly supporting capital to complete social housing projects, increasing housing supply in Tier 1 cities. However, the general difficulties remain, so Chinese people will continue to tighten their belts and delay spending. That could lead to the first months of 2024 not creating a significant breakthrough in this populous country.

With all the above risks, 2024 still has many uncertainties and the stock price increases in the US in the last days of 2023 and early 2024 may reverse in the end of the first quarter when the difficulties and risks become more obvious. Therefore, many investors have diversified their portfolios into gold in the context of this precious metal increasing in price and possibly reaching a high of 2,200 USD/ounce in 2024 as forecast by Wells Fargo.

However, the forecast of gold price of 2,200 USD/ounce, only 7-8% higher than the current price, also shows that people are not too pessimistic about the economy in 2024, as well as the risks that come with it. The general belief of the markets is still that "the economy is not too good, but not too bad" and the forecast of stock markets rising is still the main one.

It is reasonable to say that the economy and the market will be “resilient” in 2024. Without being too rosy, we are confident that the economy and the financial markets will weather the “headwinds” steadily, hoping for a “soft landing”.

(according to Investment Newspaper)

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