BearBull Group Research: Global GDP Growth in 2025 Will Support a General Increase in Raw Materials
BearBull Global Investments Group (DIFC)
BearBull Global Investments Group is a leading independent Swiss wealth advisory firm based in the DIFC
Key Points:
Global GDP growth could exceed +4% in 2025
The global macroeconomic scenario for the end of 2024 and 2025 takes into account the implications of our forecasts for declining inflation and the implementation of increasingly accommodative monetary policies in the coming quarters. The resilience of developed economies in an environment characterized by high interest rates over the three long years from 2022 to 2024 can be seen as particularly encouraging. Indeed, when restrictive policies were announced in 2022, it was far from certain that these economies would overcome the obstacles created by such policies without major impact. The rise in financing costs was generally massive, but economies were ultimately able to handle it with varying degrees of success. The risks of recession, constantly mentioned during these three years, did not fully materialize. Except for very brief periods in Japan and the United Kingdom, Europe has seen more stabilization of GDP. The United States demonstrated exceptional resilience, managing to achieve consistent growth without significant weakness, avoiding the recession that many economists and strategists had predicted.
The expected environment of interest rate cuts and the overall reduction in financing costs for consumption, real estate investment, and productive investment should now promote a global economic rebound. The next few quarters are also expected to see an increase in international trade and a recovery in exchanges. The macroeconomic environment should thus support global GDP growth of around +3.6% in 2024 and nearly +4% in 2025, with significant support from emerging markets.
The Fed pivot is a "game changer"
September finally witnessed the long-awaited shift in monetary policy by the U.S. Federal Reserve. The central bank ultimately decided that the time had come to lower its key interest rates and initiate a policy pivot in September after seeing some improved statistics, both in terms of inflation and the labor market. After previously fearing, perhaps excessively, that the U.S. economy would not respond to interest rate hikes and the tightening monetary conditions largely implemented in 2022 and during the first half of 2023, the Fed now seems ready to acknowledge that it could have already lowered rates for the first time during its June meeting. By reducing rates by 50 basis points, the Fed has effectively erased its last two hikes from May and July 2023, implicitly admitting, in our view, that it could have acted earlier with a 25 basis point cut in June.
The central bank has now set a new course of rate cuts for 2025, aiming for a target between 3.25% and 3.5%. Following the U.S. presidential elections, we expect the Federal Reserve to lower rates again on November 7 by a standard increment of 0.25%.
The Fed’s reversal is truly a "game changer" for the global commodities market. The reduction in financing costs that has begun will sustainably revive various investment projects that had to be postponed during the 2022-2024 period due to high costs. Sectors and projects requiring significant capital investment will benefit from better conditions to revisit postponed plans, particularly for alternative energy projects. This environment will also favour capital expenditure (Capex) investments in the energy and metals extraction sectors.
A resurgence in demand from the world's largest economy, which is the top consumer of crude oil (accounting for 20% of global demand, just ahead of China at about 15%), will have direct and indirect implications for global demand for raw materials.
US 10-year yields, US CPI and Fed Key Rate
The new global cycle of rate cuts is a key factor
September finally witnessed the much-anticipated shift in monetary policy by the U.S. Federal Reserve. The central bank ultimately decided that the time had come to lower its key interest rates and initiate a policy pivot in September, following some improved statistics, both in terms of inflation and the labor market. After fearing, likely excessively, that the U.S. economy would not respond to the rate hikes and tightening monetary conditions implemented in 2022 and the first half of 2023, the Fed now seems ready to acknowledge that it could have already made its first rate cut during its June meeting. By reducing rates by 50 basis points, the Fed effectively erased its last two rate hikes from May and July 2023, though it implicitly acknowledges that it could have acted in June with a smaller 25 basis point cut. The Fed has now set a new course for rate cuts in 2025, aiming for a target between 3.25% and 3.5%.
We anticipate that the Federal Reserve will lower rates again on November 7 by a standard increment of 0.25% following the U.S. presidential elections. The Fed's policy reversal is a real "game changer" for the global commodities market.
Spot Dollar/Oz Currency Gold vs Silver
Global oil markets favour price increases
The global crude oil supply has stabilized due to the production cuts by OPEC countries, which have reduced their output by 6 million barrels, representing about 5-6% of current global demand. OPEC's stance doesn't seem likely to change in the short term, as the goal remains to maintain higher crude prices at the expense of production volumes. These production cuts are expected to continue at least until the end of 2024, with production stabilized around 27 million barrels per day. In the U.S., the unconventional oil sector is also seeking to improve profitability, contributing to a focus on more profitable shale oil sectors. According to Baker Hughes, the total number of active wells in the U.S. has been declining since early 2023, while production seems to have stabilized at around 13.3 million barrels per day (DOE). In Russia, production appears to have fallen below 10 million barrels. Globally, crude oil supply is now below 82 million barrels (DOE).
Estimating global crude consumption remains particularly challenging and varies by source. According to OPEC estimates, crude demand is expected to reach 112.3 million barrels per day by 2029, around 10.1 million barrels more than in 2023. The International Energy Agency (IEA) offers a more moderate estimate, suggesting an increase to 106 million barrels per day. As for the world's largest crude consumer, China is making significant efforts to revitalize its economy in anticipation of a global economic recovery that will boost its manufacturing sector and energy demand. Regarding its crude imports, customs statistics suggest continued stabilization at a relatively high average level.
In the short term, rising tensions in the Middle East over the past year haven't visibly impacted crude prices. Beyond this crisis, the number of armed conflicts globally is at its highest in a decade, and any concrete escalation that affects oil production or delivery could quickly impact prices.
The fear of an escalation of the Middle East conflict is legitimate, especially as we approach the end of the third quarter of 2024. The risks to crude production and delivery are significant and could have major repercussions at various levels. A price increase would likely raise the probability of an inflation rebound and jeopardize central banks' anticipated rate cuts. A deterioration in consumer and business sentiment in the final part of the year would undoubtedly have negative consequences for financial markets.
While not entirely dismissing this risk, our forecasts for crude prices remain bullish, primarily based on a positive outlook for global demand in the context of economic recovery in 2025 and inventory levels that are at their lowest in the last decade, according to the DOE. We estimate that WTI prices could return to the $90-$95 per barrel range in 2025.
Data on the total number of drilling rigs in the United States
Crude Oil Total Inventory
Precious metal prices are still rising
Since February 21, when we suggested a probable increase in silver prices towards $30 per ounce, prices have risen by +40%, surpassing gold's evolution (+30%) over the same period. Fundamentally, industrial and jewelry demand is expected to grow significantly over the next decade. The demand for silver in the solar sector is booming, as is the demand related to the production of electric vehicles. These sectors will strongly influence overall demand, and industrial needs could exceed current production and reserves. The physical market imbalance has been a reality for three years, which has finally, as we anticipated, driven the sharp price increase in recent months.
The conditions for gold are somewhat different. While it also benefits from positive factors related to industrial and jewelry demand, it is more influenced by the outlook for interest rate cuts and the strong growth in Asian monetary reserve demand, as well as the increasing demand from BRICS and other countries seeking to reduce their dependence on USD reserves. As for investment demand, after a long period of decline, investor interest has returned since U.S. interest rates began to fall. The volume of physical gold and silver ETFs has been rising since June 2024. We expect this interest to strengthen further as more accommodative monetary policies unfold in 2025. While gold and silver prices have partly anticipated these trends, we believe further increases are likely after a period of price stabilization, which could materialize again in the coming weeks.
Total ETF Holding Gold vs Silver (tons)
China announces measures supporting industrial metals
Since our shift to a more favorable outlook for the industrial metals segment at the end of March, the Bloomberg Industrial Metals Index has surged by 25% and is still up about 14% after some temporary disappointments over the summer related to the relative weakness of the Chinese economy. Today, the latest measures announced by the Chinese government are rekindling hopes for a recovery in manufacturing and industrial activity. However, the interest rate cuts, the lowering of banks' reserve requirements, or the reduction of minimum equity amounts needed to acquire real estate are not likely to provoke strong demand expectations or a significant rise in industrial raw material prices.
These measures will help strengthen the positive sentiment that should develop when developed economies show stronger momentum after some rate cuts positively affecting consumption. The fight against global warming and climate change has major impacts on the consumption of industrial metals. This underlying trend will intensify in the coming years, resulting in increased overall demand for industrial metals. Investments related to the energy transition, the development of alternative energies, the forced shift towards replacing the fleet of vehicles with electric cars, and the demand for metals essential to battery production will simultaneously contribute to the rising demand for metals.
The demand for copper and aluminum is expected to see a significant increase in the coming years. The end of the central banks' restrictive cycles is a "game changer" for many projects deemed too costly over the past three years, particularly in the field of energy transition. We believe these projects will be relaunched by the declining financing costs that will continue into 2025. Whether it's wind farm projects, photovoltaic power plants, or other metal-intensive projects, this additional impact on overall demand will have a positive effect on prices.
Furthermore, the drop in capital expenditures in recent years will continue to weigh on supply levels in the medium term, effectively limiting the risk of inventory increases, which remain relatively low. They will not serve as an adjustment variable in the face of a demand rebound.
The anticipated upward trend is underway. Our outlook is positive and supports a continued increase in metal demand, as well as further price rises by the end of 2024 and into 2025.
Evolution of the Bloomberg Industrial Metals Index
Prices of zinc, aluminum and copper
Volume of Chinese imports of raw materials