OECD raises 2024 global growth outlook on strong US economy

The Organisation for Economic Co-operation and Development (OECD)  believes that the global economy is on course to perform better in 2024 than previously expected, as an improved outlook in the United States offsets euro zone weakness.

Although world economic growth is expected to ease from 3.1% in 2023 to 2.9% this year, the anticipated dip is better than the 2.7% expected in November in the OECD’s previous outlook.

In an update of its forecasts for major economies, the Paris-based OECD, which represents 38 countries, left its 2025 global estimate unchanged at 3.0%, when growth is expected to be boosted by major central banks rate cuts as inflation pressures subside.

The US economy is now expected to grow by 2.1% in 2024 and 1.7% in 2025 as lower inflation boosts wage growth and triggers interest rate cuts, the OECD said, raising its 2024 forecast from 1.5% previously but leaving 2025 unchanged.

As China contends with real estate market turbulence and weak consumer confidence, its growth is seen as slowing from 5.2% in 2023 to 4.7% in 2024 and to 4.2% in 2025, all unchanged from November forecasts.

With a standstill in Germany’s growth weighing on the broader euro area, the region’s outlook has deteriorated since November, with its economy now expected to edge up from 0.5% in 2023 to only to 0.6% this year, down from 0.9% previously. For 2025, estimated growth is now 1.3%, revised down from 1.5%.

While economic outlooks diverge among the major economies, inflation is cooling faster than expected since November in both the United States and euro area while staying unchanged in China.

That should pave the way for rate cuts with the US Federal Reserve expected to move in the second quarter of 2024 and the European Central Bank (ECB) to follow in the third quarter.

However, attacks on Red Sea shipping lanes could add to inflationary pressures, albeit modestly, the OECD said. It estimates that if a surge in shipping costs persists, annual OECD import price inflation could increase by close to 5 percentage points, adding 0.4 percentage points to consumer price inflation after about a year.

The OECD also stressed that central banks should be certain they have beaten inflation before cutting interest rates this year, the said despite inflation falling at a faster rate than previously expected. It is “too soon to be sure that underlying price pressures are fully contained,” it added.

 

Central bank updates:

i. Australia’s central bank keeps rates on hold

The Reserve Bank of Australia (RBA) left its interest rate unchanged for a second meeting in a row, encouraging hopes the next rate decision will be a reduction that could arrive earlier than similar moves from other central banks.

At its first board meeting of 2024, the board on left its cash rate at 4.35%. The decision was anticipated by all 29 economists surveyed by Reuters.“While recent data indicate that inflation is easing, it remains high,” the RBA said in a statement.

“The board expects that it will be some time yet before inflation is sustainably in the target range,” the statement said. “The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.”

The RBA board met to set the cash rate for the first time in 2024 and is scheduled to meet eight times this year, down from 11 previously. The board traditionally does not meet in January, but no meeting is planned for April, July or October either this year. However, the eight meetings will be longer than before and span two days rather than one.

The change, announced last year, sees the RBA continuing to reveal the rate decision at 2:30pm Sydney time on Tuesday. But the announcement will now be followed by a 3:30pm press conference with RBA governor Michele Bullock. 

The justification for reducing the number of meetings is to give the board more time to weigh up the latest economic indicators before making their decision.

"The less frequent and longer meetings will provide more time for the board to examine issues in detail and to have deeper discussions on monetary policy strategy, alternative policy options and risks, as well as on communication," former RBA governor Philip Lowe said last year.

ii. Turkey’s rates may not have peaked as new governor installed

Turkey has its sixth central bank governor since 2019, after Hafize Gaye Erkan resigned on Friday after eight months in the post. Her successor, Deputy Governor Fatih Karahan, is not expected to deviate from the bank’s shift in June towards a more conventional monetary policy, 

The change of Turkey’s central bank governor and stickier inflation opened room for more interest-rate hikes, which the bank under its former Governor had indicated were ending in January, according to Deutsche Bank AG.

“Given our view of stickier inflation pressure in the near-term in combination with the appointment of the new governor, we see room for another 250 basis points or even 500 basis point of front-loaded tightening. The latter is not yet priced in,” strategists including Christian Wietoska wrote in a note. Before Friday, the swap market was pricing almost no change in interest rates until May.

Markets appear to have taken the sudden change in their stride, thanks largely to the new governor’s credentials. These include work as an economist at the New York Federal Reserve, his reputation since he joined the revamped Monetary Policy Committee last year, and the blessing of market-friendly Finance Minister Mehmet Simsek.

After Erkan’s removal, Treasury and Finance Minister Mehmet Simsek said in a statement that the president “has full confidence and support in our economy team and our program.”

The central bank last month increased interest rates to 45% after an extensive tightening cycle under Erkan, a reversal of the unorthodox policy of keeping borrowing costs low previously favoured by President Erdogan.

Data for January shows Turkey’s inflation logged its biggest monthly jump since August with a 6.7% rise from December, while year-on-year inflation hit nearly 65%.

The consumer price index increased by 64.86% annually, up slightly from 64.77% in December. Sectors with the largest monthly price rises were health at 17.7%, hotels, cafes and restaurants at 12%, and miscellaneous goods and services at just more than 10%. Clothing and footwear was the only sector showing a monthly price decrease, with -1.61%.

Food, beverages and tobacco, as well as transportation, all increased between roughly 5% and 7% month on month, while housing was up 7.4% since December.

iii. Nigeria is “on the mend” insists CBN governor

Central Bank of Nigeria (CBN) Governor Olayemi Cardoso said the country has almost cleared a backlog of foreign-exchange contracts that have weighed on the naira (NGN) and repeated his view that the currency is undervalued.

“We are on the road now where the right policy decisions are being taken,” he said in a television interview. “Nigeria is on the mend.”

Cardoso said that on taking up the post in October he met about US$7 billion in unpaid forex, which had prompted the bank to take a new look at the identified obligations.

A total of US$440 million traded in the West African nation’s foreign-exchange market on Friday, the highest since June 2022, according to data compiled by the FMDQ OTC exchange, compared with US$157 million on Thursday.

It marked the second devaluation of the naira in eight months, as the west African country bids to clear up its messy system of exchange rates and attract investment to its flailing economy.

The move is regarded as part of market-friendly reforms being introduced by Bola Tinubu, who became president last May and who shortly afterwards jettisoned the years-long peg instituted by the former central bank chief that had kept the currency artificially high.

However, the country still kept an official rate that was well above the freely-traded rate, which made it more expensive for multinational companies wanting to invest in Nigeria.

 

Germany’s trade data reflects economic slowdown

Germany’s trade surplus grew unexpectedly widened in December, but a sharp drop in trade volumes suggested a weakening economy, according to the country's federal statistics office Destatis.

Imports fell by 6.7% to €103.1 billion after a revised 1.5% increase in November, much lower than the 1.5% decline expected by economists.

Exports also fell but by a lesser 4.6% to €125.3 billion, following a revised 3.5% growth the month before; also more than the 2.0% reduction expected.

The result was an increase in the trade surplus to €22.2 billion, up from €20.7 billion previously, and above the consensus estimate of €18.8 billion.

Susannah Streeter, head of money and markets at financial services group Hargreaves Lansdown said that December’s exports figure was the lowest since March 2022.

“As interest rates have been ramped up across Europe in response to rampant inflation, demand for goods from Germany’s key industries has faltered significantly, with exports to the EU falling 5.5%. China’s fragility amid its property woes and a drop in confidence has also been hindering Germany’s manufacturers, with German exports to the region dropping 7.9%,” she added.

Claus Vistesen, chief eurozone economist for Pantheon Macroeconomics said the key story in the data was the overall collapse in trade volumes. "Admittedly, this comes after strong growth in both imports and exports in November, but still," he added.

"We always have to be careful with seasonals in December, but these are recessionary numbers, consistent with overall difficult economic conditions in the German economy."

 

Standard Bank launches new renewables platform Lyra Energy

South Africa’s Standard Bank and its asset management unit Stanlib are partnering with Norway’s renewable energy company Scatec on a new electricity trading platform.

The new entity, Lyra Energy, is for commercial and industrial businesses, whose electricity requirements do not justify the procurement and implementation of a dedicated large renewable energy project. It will offer distributed access to “affordable and predictable utility-scale renewable energy” to this “previously unserved segment of commercial and industrial energy users”.

Lyra Energy plans to help companies reduce their reliance on state-owned Eskom and contribute to the end of power rationing, aka load-shedding, which South African businesses have had to regularly contend with since 2007.

The aim is to create a low-risk private energy platform that can service parts of the market that are getting inadequate service from Eskom or no service at all.

Spokesperson for infrastructure investment at Stanlib, Andy Louw, said while there are similar structures to Lyra Energy, the aim is to improve on what is already in the market. Existing providers include South African insurer Discovery, which entered the renewable energy market last September. Discovery offers a renewable energy platform called Discovery Grfeen, which aims to connect businesses with renewable energy generation. 

The service has already been offered to select partners, including Woolworths, Sun International, Virgin Active, Planet Fitness, Clicks, and Life Healthcare. Discovery has also partnered with Rand Merchant Bank (RMB) as an investment banking partner to provide advice and funding. 

Two products, Green Saver and Green Guarantee, offer varying degrees of renewable coverage of electricity consumption. 

As with Discovery Green, Lyra Energy plans to transfer renewable energy through “virtual wheeling” agreements with Eskom to corporates who require it. Virtual wheeling connects buyers that have multiple off-take sites – including those behind municipal boundaries – to generators, via the Eskom or Municipal grids. However, Louw said Lyra Energy is unique in that it combines financing with a utility-scale renewable energy developer in-house. 

Stanlib has already invested in more than 20 utility-scale renewable energy projects in South Africa, and Scatec has nearly 1,000 MW of renewable generation capacity in the country. 

Lyra Energy plans to build, own, and operate multiple renewable energy projects and sell the electricity generated via Eskom’s grid to companies around South Africa. The renewable energy offering will not only help businesses save on energy costs and be immune from load-shedding but also cut the emissions associated with their electricity usage.

“Customers can expect increasing savings over time – especially if standard Eskom tariffs, which have risen by an average of about 14% annually over the past four years, continue to outpace inflation,” the partners said.

Companies will be able to get power purchase agreements of between five and 20 years, and pricing will be at a material discount to reference pricing from Eskom.

Projects with available grid capacity have been secured for the platform, and construction of an initial 200 MW facility is expected to start later this year.

Standard Bank and Stanlib will help mobilise capital to fund the generation projects for the new platform. The bank aim to fund a total of rand (ZAR) 300 billion (US$15.9 billion) in sustainable financing solutions mobilised by 2026.

This is not limited to loans and advances, with the bank also aiming to expand its underwriting portfolio and arranging activities in South Africa undertaken on behalf of clients. 

As part of the ZAR300 billion total, Standard Bank aims to finance ZAR50 billion worth of renewable energy power plants and underwrite ZARR15 billion in renewable energy commitments by the end of 2024. The bank set an initial target of financing ZAR55 billion worth of renewable energy projects in Africa within two years from 2021, which was reached in less than one year.

 

IT group Atos shares cancels rights issue and starts debt talks

French IT services company Atos is to enter talks with creditors after saying it can no longer go proceed with a planned €720 million (US$773 million) equity fundraising that it hoped to use for shoring up its balance sheet.

Paris-based Atos, which faces €2.25 billion debt payments next year, said on Monday that conditions for a rights issue were “no longer applicable” after “changes in market environment.”

it had appointed a mediator to oversee refinancing negotiations with lenders. Under French law, the move is a voluntary step before a potential court-supervised debt restructuring.

Atos shares fell nearly 25% in Paris to €2.95, giving the company a market capitalisation of €329 million.

Atos’s financial difficulties have been deepening and its shares have lost 96% of their value in the past three years amid a rapid churn of executives and mounting debt load.

The outcome of these negotiations could include a new refinancing plan, asset disposals, and “possible changes in [Atos’s] capital structure which could result in a dilution of the existing shareholders”, the company said in a statement. The process is “an amicable procedure allowing negotiations to be conducted within a confidential framework”, the group added.

The now cancelled rights issue was planned as part of a plan to split the company and sell its lossmaking legacy IT business to Czech billionaire Daniel Křetínský. The deal was announced in August.

Atos said it has entered talks with its banks to refinance its debt. The company added that the standby underwriting commitment provided by BNP Paribas and JPMorgan was also no longer in effect, according to a statement on Monday.

 

ADB secures US$150 million for renewables in Indian green bond sale

The Asian Development Bank (ADB) has raised rupees (INR) 12.5 billion (US$150.5 million) in an Indian green bond placement aimed at funding private-sector renewable energy and green finance projects.

The deal, which ADB said in a recent statement is its largest local currency green bond issuance to date, is structured as a four-year currency-linked bond and is listed on the Luxembourg Stock Exchange. The securities have a fixed interest rate of 6.72% per year.

Although denominated in INR, the issue was settled in US dollars and is indexed to the performance of the Indian currency. Such bond structures are known as masala bonds in the Indian financial community, ADB noted, adding that the transaction has attracted “significant” interest from UK and US investors.

“The ability to finance climate change projects with local currency green bonds represents the apex of our ambition, while contributing to capital market development,” said ADB treasurer Pierre Van Peteghem.

The offering was arranged by Standard Chartered Bank. It was held after a three-year pause of ADB’s activities on the Indian rupee bond market.

 

South Africa raises minimum hourly wage by 8.5%

South Africa’s minimum hourly wage will rise by 8.5% to rand (ZAR) 27.58 (U$1.46) from next month.

The raise, which was announced in the Government Gazette, exceeds labour union officials' inflation expectation of 5.9% for 2024, but is below the 11% average increase in food prices last year, according to data from the statistics office.

A year ago, President Cyril Ramaphosa’s administration announced a 9.6% rise in the minimum wage to ZAR25.42 from March 2023, which was also more than the central bank’s forecast inflation rate for the year of 5.4%

While the minimum wage was introduced by Ramaphosa in January 2019 to try and reduce the pay gap in one of the world’s most unequal societies, the latest increment will be insufficient to raise the living standards of a large part of the working population who spend the biggest proportion of their money on food.  

About 32% of the people in South Africa’s labour market are unemployed. 

Ramaphosa, who is due to give his state-of-the-nation address in Cape Town on Thursday, last week hinted at the possible introduction of a permanent basic income grant, saying there is a strong case for it despite the country’s fiscal constraints.

 

Montran provides multi-currency platform to Intesa Sanpaolo

US multinational payments technology group Montran has launched a multi-currency virtual account management platform for Italy's Intesa Sanpaolo. The platform “marks a strategic enhancement in the bank’s ability to manage multi-currency cash and liquidity for its diverse client base, offering unparalleled efficiency and flexibility” a release stated.

“Our new multi-currency platform revolutionizes the way our clients manage funds, enabling efficient handling of multiple currencies through virtual accounts,” said Giancarlo Esposito, Head of Payments, Cash Management and Open Banking at Intesa Sanpaolo. “This significantly enhances international trade by streamlining liquidity and improving cash flow.”

“Deployed within a few months for rapid market introduction, Montran’s multi-currency and real-time Virtual Account Management solution enriches both Intesa Sanpaolo and its clients with advanced cash and liquidity management tools,” added Raegan Esca, General Manager of Montran Europe.

“Integrating seamlessly with the bank’s existing infrastructure, our solution elevates financial operations through enhanced account segregation, pay-on-behalf-of (POBO), collection-on-behalf-of (COBO), automated reconciliation, and improved liquidity visibility.”