MONETARY easing is coming this year, said BNP Paribas in its Global Outlook 2024 report, and there should be enough of it to cushion the descent of global economic growth.

In the light of steep monetary policy tightening over the last year or so, and the unwinding of a once-in-a-generation shock from the pandemic, the French multinational bank expects to see an economic slowdown.

It believes the probability of a hard landing is low, however. Given the ongoing trend of disinflation – driven by improved supply conditions, limited energy inflation and slowing food inflation – major central banks are likely to feel confident enough to begin monetary easing in the not-too-distant future.

BNP expects the European Central Bank to deliver its first rate cut in April, and the US Federal Reserve to initiate cuts in May. In emerging Asia, it believes that Indonesia will commence its easing cycle in July, and that Thailand will initiate rate cuts only in February 2025.

But disinflation from the slowing of economic activity may not last over the medium term.

Inflation will stay more volatile and settle at the higher end of the target range for central banks, BNP analysts said. Upside inflationary risks include the fragmentation in trade and global value chains.

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One wildcard adding uncertainty to global inflation is the ongoing Red Sea crisis, said BNP’s head of macro strategy and emerging markets research for Asia-Pacific Siddharth Mathur on Wednesday (Jan 17).

“From an Asia perspective, the bigger risk is not so much with the shipping cost, but with the price of energy,” he added.

BNP expects US exceptionalism to fade in 2024, with the downturn in the US economic cycle most visible in the first quarter, although it will not be severe enough to cause a global recession.

The bank is structurally bearish on the US dollar, particularly from the second quarter, especially against the euro and other low-yield currencies. This outlook is driven by the expectation of stronger growth and fewer rate cuts in Europe compared to the United States.

Mathur nevertheless expects foreign exchange market volatility will remain low throughout 2024, as various economies (except Japan) follow similar paths in monetary policies, maintaining interest rate differentials.

As for China, Mathur anticipates additional interest rate cuts and reductions in reserve requirement ratios.

BNP anticipates a total rate cut of 25 basis points in 2024, and an additional 10 basis points in 2025. Additionally, it expects a cut of 50 basis points in the reserve ratio this year, to inject long-term liquidity into the financial system.