每周经济评论

US China Eurozone Despite employment data surprising to the upside, aslowingeconomy may keep the path open to threerate cuts this year. In May, the Non-manufacturing PMIrosefrom 49.4 in April to 53.8 and so back intoexpansionaryterritory.Non-farmpayrollsjumped272,000, up from 165,000 in April, and average hourlywages were up 0.4% MoM and 4.1% YoY against rises of0.2% and 4.0% in April. However, other data point to aslowdown, including the drop in ISM Manufacturing PMIfrom 49.2 to 48.7 in May, the rise in unemployment rateto 4%, the highest since January 2022, and the fall injob openings (JOLTS) to a 3-year low of 8.05m in April. China's real estate problems slightly subsided. Exportsimprove but face risks from rising trade tensions.Thecontractionin sales of new homes by 100 largestdevelopers slowed from-44.9% YoY in April to-33.6%inMay.Meanwhile,the government has implementedadditional measures to support the real estate sector: (i)USD 41.5bn in soft loans for state enterprises to be usedto soak up some of the glut of new housing; and (ii)cuts in the down payment ratio required for buyers offirstand second homes.Export growth in May alsoaccelerated to 7.6% YoY from an average of 1.5% in Q1,exceeding market expectations of 5.6%. ECBcut rates as expected but inflation in servicesector raises uncertainty over rate outlook for 2H24.The Manufacturing PMI rose from 45.7 in April to 47.3 inMay,but the Services PMI inched down from 53.3 to53.2,meaning that the Composite PMI climbed to ayear-high of 52.2. In addition, Q1 GDP growth came in at0.3% QoQ, up from the previous quarter’s flat growth of0%. However, retail sales slipped-0.5% MoM in April. The European Central Bank (ECB) has made its first cutto interest rates since 2019, reducing the benchmarkdepositrate by 25bps to 3.75%at June meeting inresponse to a fall in inflation. However, ECB PresidentChristineLagarde has said that going forward,inflation will likely remain above the 2% target (this isforecast to average 2.5% for 2024 and 2.2% in 2025)andso further cuts will depend on development ofgrowthand inflation.Thus,with May’s Eurozoneservicesinflation print coming in at 2.9%YoY,it isuncertainwhether the ECB will cut the rates at itsevery meeting. Against this uncertain background, weexpect that the ECB may decide to cut the benchmarkrate two more times this year to 3.25% by the end of2024. Although home sales have slightly improved, sentimentremains weak and the market is continuing to struggleunder the weight of oversupply, which is expected totake2-3 years to clear.The real estate sector willtherefore continue to contract through 2H24, thoughat a slower pace given recent government assistance.Meanwhile, improving exports will help support a near-term recovery in manufacturing. However, increasingrelianceon foreign markets,amid weak domesticdemand,may expose the Chinese economy to therisksarising from rising trade protectionism acrossmany countries in the periods ahead. A range of indicators point to a cooling economy: (i)quarterly GDP growth slowed from 3.4% in Q4 to 1.3%QoQ annualized in Q1; (ii) consumer confidence fell toa6-monthlowinMay;(iii)inflation-adjustedconsumption contracted-0.01% MoM in April; and (iv)the ratio of job openings to unemployed workers fellto 1.24, close to its pre-Covid level. Meanwhile, Moody’sis warning of possible downgrades to 6 regional banksthat areheavily exposed to commercial real estate.Demand-pull inflation is also softening.Given theoutlookfor inflation and growth,we see the Fedpotentially starting rate cuts in September, with 3 cutsbringing policy rates to 4.50-4.75% by the year-end. Thai officials move to boost domestic tourism. Inflation returns to the target range, supporting MPC to leave rates unchangedthis year. Thegovernment is rolling out a set of initiatives toprovide a short-term boost to domestic tourism.At acabinet meeting held 4 June, the government agreed tomaketemporary changes to the tax system that willhelp to lift domestic tourism: (i) Individuals can deductup to THB15,000 per person from their personal incometax for expenses on tour guides, hotel, homestay, orothertypes of temporary accommodation when thismoney is spent in any of 55 second-tier provinces. (ii)Companies can deduct expenses from their corporateincome tax for organizational training and seminars witha deduction for 2 times for events held in second-tierprovinces and 1.5 times for events held in leading touristareas. These measures will be in place between 1 Mayand 30 November 2024. Claimants will need to submitan e-tax invoice and e-receipt to qualify. May inflation climbed back into the target range for thefirst time in 13 months, potentially supporting the MPCto hold rates steady at its 12 June meeting.Headlineinflation rose from 0.19% YoY in April to a 13-month highof1.54%in May,staying in positive territory for thesecond straight month. Price rises were a result of: (i)temporaryfactorsconnectedtolastyear’slowelectricitybil