Global Economy on the Rise: Key Insights from May 2024

The Global Monthly report for May 2024 reveals a steady recovery in the global economy, driven by strong performance in emerging markets and developing economies (EMDEs), rebounding commodity prices, and improving financial conditions. Despite these gains, potential risks from geopolitical conflicts and supply disruptions pose challenges. This article delves into the highlights and future projections from the report.

The global economy has continued to gain traction in the second quarter of 2024. The global composite PMI, a key indicator of economic health, stood at 52.4 in April, signifying steady growth. The services sector showed particular strength, with the global services PMI rising to 52.7. However, the manufacturing sector, while still in expansion, saw a slight dip to 50.3. This decline was offset by robust performance in EMDEs, where new manufacturing orders hit their highest levels since December 2020. In contrast, advanced economies are still struggling, remaining in contractionary territory.

Global goods trade is also on the mend, growing by 0.2% in the first quarter of 2024. This marks the first expansion after five quarters of decline. The turnaround in the manufacturing component of global new export orders PMI, particularly driven by EMDEs, indicates a positive shift. Despite rising shipping prices due to capacity issues in the Red Sea, global delivery times have improved, suggesting smoother supply chains.

Commodity Prices: A Mixed Bag

Energy prices saw a notable rebound in April, with a 5% increase driven by oil and natural gas. Brent crude oil prices settled at $82 per barrel in May, down from mid-April highs. The surge in U.S. and European natural gas prices was due to strong electricity demand and geopolitical tensions. Metal prices climbed by 9%, fueled by strong demand expectations and possible supply disruptions. While food prices remained stable, beverage prices experienced significant spikes. Tea prices at the Kolkata auction jumped by 70% due to transport disruptions in the Red Sea, and cocoa prices soared to historic highs, reaching nearly $10,000 per ton due to adverse weather in West Africa.

Financial Conditions and Regional Insights

Global financial conditions improved in May after a period of tightening in April. In the U.S., the yield curve shifted lower early in the month due to softer inflation data but ended May relatively unchanged as central bank comments remained hawkish. Despite this, the S&P 500 hit an all-time high, reflecting market optimism. EMDE equity prices also rose, with a slight decrease in the median EMDE sovereign spread.

The U.S. economy displayed mixed signals, growing by 1.6% in Q1 2024 despite a slowdown driven by rebounding imports. Personal consumption expanded rapidly, leading to a 17-month low in the personal saving rate. However, inflation and activity indicators softened at the start of Q2, with a notable slowdown in non-farm payroll gains and flat retail sales.

The euro area showed modest recovery, with a 0.3% expansion in Q1 2024, supported by a rebound in Germany. Inflation remained steady, but services inflation stayed high. Japan's economy contracted by 2% due to weaker exports and domestic car sales, while China's economy showed signs of renewed softness. China's manufacturing and services PMIs both declined in April, and the property sector continued to struggle, prompting the government to introduce measures to boost demand.

Emerging Markets and Developing Economies: A Bright Spot

EMDEs, excluding China, continued to show strong economic activity in April. The GDP-weighted composite PMI for these regions remained in expansion at 56.3, despite a slight softening in manufacturing. India and Brazil were notable performers, with high composite PMIs. Russia and Saudi Arabia faced mixed outcomes, with Russia's PMI softening and Saudi Arabia's economy contracting due to oil production cuts.

Larger EMDEs showed firming activity in Q1 2024. Indonesia's GDP grew by 5.1% year-on-year, driven mainly by private consumption, while the Philippines saw a 5.7% growth due to strong export performance. Mexico and Poland also reported positive growth, while Saudi Arabia experienced a contraction.

Risks and Future Projections

The report highlights several potential risks to the global economy. Geopolitical conflicts, particularly in the Middle East, could disrupt oil supply, pushing prices above $100 per barrel. This would significantly impact global inflation, undermining recent disinflation progress. Other risks include supply disruptions and lower-than-expected U.S. energy production.

Food insecurity remains a pressing concern, with over 280 million people worldwide facing acute shortages. Higher-than-forecast commodity prices or further conflicts could exacerbate global hunger, posing significant challenges to food security.