A world of sticky inflation not good for macroeconomic environment: JPMorgan

WHILE a “soft landing” – an outcome in which central banks raise interest rates just enough to ease inflation without causing a severe downturn – seems to be what economists are expecting out of this macroeconomic cycle, those at JPMorgan Chase remain cautious about the longer-term impact of elevated rates.

“A world of sticky inflation and less central bank action creates concerns that a ‘higher for longer’ monetary policy will start to build vulnerabilities in the macroeconomic environment,” said the US bank’s chief economist Bruce Kasman at a briefing in Singapore this week.

For example, the resetting of interest rates at higher levels and the difficulty that small and medium-sized companies face in obtaining credit have already started to build pressures that lead to delinquencies, he added.

“The question is whether we are putting ourselves on a sustainable path” and whether “continuing to have a US central bank that is not able to ease very much would cause problems (as we go beyond 2025)”, said Kasman.

JPMorgan maintained its position that it is “somewhat sceptical about the soft-landing outcomes, but also without much conviction (to the contrary)”, as revealed in its 2024 economic outlook – titled “I am not in love, but I’m open to persuasion” – released last November.

And neither is the bank in love with the prospect of a continued tech-fuelled rebound in Asia.

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Ong Sin Beng, JPMorgan’s chief economist for Asean, said at the same briefing: “Even though we do see some tailwinds coming from the tech sector, we are not seeing a broader-based recovery.”

With the bottoming out of the tech cycle in the second half of 2023, the economists noted that worldwide demand for electronic products continues to recover from the post-Covid low.

This, they said, has particularly benefited the semiconductor sector and key Asian chip producers including Taiwan, mainland China and Singapore.

“However, we have not seen the capital expenditure side of the equation kick in,” said Kasman.

He highlighted the bank’s observation that there are not enough investments across the region to give the tech recovery a firm and broadening base that supports growth in the overall economy.

The lender expects softer growth numbers across Asia in 2024, with a forecast gross domestic product growth rate of 4 per cent for Asia-Pacific and 4.7 per cent for emerging markets in Asia. This is down from the forecast of 4.3 per cent and 4.8 per cent, respectively, for 2023.

“Across Asia, we are detecting a fairly broad-based ‘wait-and-see’ attitude,” due to uncertainty over the US election results, said Ong.

Americans will head to the polls to elect their next president on Nov 5, with the winner taking office in January 2025.

Overall, “we are not looking for strength in 2024, at least not to the same degree as what we got in 2023. We are looking forward to broadening the base of growth”, said Kasman.

The media session was held in conjunction with the annual JPMorgan Asia Macro Conference at the Fairmont Singapore hotel and attended by about 500 of the bank’s clients.