The writing has been on the wall for several months with the global composite purchasing managers index (PMI) trending downwards since mid-2023, dropping to just over 50 in the fourth quarter of 2023.

Similarly, there has been a downwards trajectory in the global services PMI, amid a normalisation in post-pandemic pent-up spending following the full re-opening of the global economy, as the initial expansion in services activities loses steam.

However, there are some bright spots in this bleak picture. ASEAN economies are likely to see strong growth of 4.7 per cent this year, from 4 per cent in 2023 as policy measures to boost domestic economies and a turnaround in the global electronics cycle support the region’s output and export outlook.

There is also light at the end of the tunnel for the global economy in 2025, with Maybank analysts forecasting GDP growth to bounce back to 3.3 per cent.

Meanwhile, global markets could also see more flux and sizzling action in a Lunar New Year characterised by “Yang energies” which are more active and heated, according to the Feng Shui Guide.

“With conflict-prone Yang Wood controlling Yang Earth, the personality of the Dragon year is likely to be filled with competition and assertion,” says Feng Shui master Ken Koh in the Guide.

Indeed, investors will need to watch out for some key wildcards that will turn up the heat on global economy and even jeopardise its recovery.

All eyes will be on the risks of persistently elevated core inflation and “higher for longer” US interest rates; a protracted China real estate crisis spilling over to the financial sector, deepening the economic slump; and thirdly, worsening geopolitical and trade tensions in a key US election year.  

1. Interest rate and inflation uncertainties persist

The global debate on monetary policy – particularly that of the US Federal Reserve – has shifted from how high interest rates should go to control inflation, to the key question of “hold for how long?”, Maybank analysts note.

This shift in focus comes as inflation rates peaked in end 2023 and start to moderate. As inflation slows, benchmark interest rates have also peaked and central banks are broadly in pause mode. However, it is too soon to declare the end of interest rate hike cycle as central banks keep a close eye on indicators that suggest relatively “sticky” inflation expectations in major advanced economies, and they remain cautious about inflation expectations going forward even if actual headline inflation outcomes in recent months give cause for cheer.

Consequently, Maybank IBG remains more guarded on the timing and quantum of interest rate cuts in major advanced and ASEAN-6 economies in 2024.

While the US Fed has pencilled in a series of rate cuts this year, the general consensus is that it would still need to keep policy restrictive over the course of 2024 in order to navigate a soft landing for the economy until core inflation reaches – or gets very close – to the Fed’s 2 per cent target.

In Asia, expect sustained upward pressure on rates, but at a more gradual pace than in 2023, as central banks continue to mitigate the impact of higher imported energy and food prices on local consumers.

One wildcard is the impact on global energy and food prices this year from geopolitical tensions such as the Ukraine-Russian war and the Middle East conflict which could slow down the deflationary process for central banks.

While the IMF expects global consumer price inflation to drop from 6.9 per cent in 2023 to 5.8 per cent this year, sustained disruptions to oil production and transportation in the Middle East – along with geopolitical tensions in other areas – could derail this trend. A 10 per cent increase in oil prices could reduce global output in 2025 by 0.15 per cent while pushing global inflation up by 0.4 per cent, according to IMF estimates.

2. China’s slowdown

The spotlight on key downside risk to global and ASEAN-6 economic outlook could shift this year from the US to China, says Dr Chua.

The outlook of slower global growth in 2024 is premised on US growth “soft landing” instead of recession, which could see GDP growth moderate to 1 per cent from 2.2 per cent last year. This more sanguine growth prospect is bolstered by factors like the drawdown of household excess savings and resilient job market supporting consumer spending, as well as supply-side, industrial policies that boost US manufacturing investments.

In contrast, China is facing underwhelming post-pandemic growth and the risk of spillover from the weak real estate sector to the financial sector, and this could in turn drag the broader economy down.

Maybank economists’ forecast for China’s GDP growth is 4.4 per cent in 2024, down from 5.2 per cent in 2023. The real estate sector, which makes up roughly a quarter of China’s GDP, has remained weak despite policy measures to support it. This has in turn exacerbated financial troubles at highly-leveraged developers and local governments dependent on land sales for funding, as well as loss of wealth and confidence among homebuyers and consumers.

3. Global trade and economic fragmentation

Global trade and investment flows will inevitably be impacted by geopolitical tensions, particularly unpredictable US-China relations, in the lead-up to US presidential elections in November 2024.

There are signs that China’s relations with advanced Western economies like the US and UK are thawing, boosting hopes that bilateral trade and investment talks can be revived. International trade could bounce up from just 0.9 per cent in 2023 – when countries imposed nearly 3,000 new trade restrictions, up from less than 1000 in 2019 – to 3.5 per cent in 2024.

The fate of US-China relations and global trade will be overshadowed by what Dr Chua calls “the biggest known unknown and wildcard in 2024” – the US presidential elections in November.

If presidential candidate Donald Trump, who has been barred by two US states Colorado and Maine from the Republican primary ballot as of January 2024, is able to prevail and win the elections, this could lead to sweeping policy changes. This could include a blanket 10 per cent levy on foreign imports to the US that could disrupt supply chains, particularly those in Asia. “The world may become even more fragmented if America withdraws funding and support from Ukraine and Asia,” says Dr Chua.

Watch out for more twists and turns

What is clear amidst all this uncertainty is that there is more volatility ahead for investors. Global financial markets, in particularly, could be whipsawed by investor speculation about which sectors would recover first and outperform in the Year of the Dragon.

According to the Feng Shui Guide, the dominant element this year is Earth, and “earth-industries” like real estate, data centres and waste management could see a boost with the promise of easing interest rates.

Fire, which is a symbol of economic activity, confidence and optimism, could also ignite market sentiment in the second half of 2024, setting off a wave of mergers and acquisitions, as well as new listings in sectors like brokerages, insurance and energy, said Mr Wickramasinghe.  

While the Guide provides a great read about the secrets of the stars to making great investments, he also stressed that winning investment decisions “require in-depth research and analysis here on earth”.

“Investing is also not a journey one makes alone,” Mr Wickramasinghe added. As investors brace for a wild ride ahead, they can be assured that Maybank Securities’ award-winning investment advisory, research and brokerage teams are always on hand to help them maximise their investment goals.

To stay abreast of the latest developments in global and Asian markets, stay tuned to Maybank IB’s research insights.