ECONOMISTS ARE HIGHLY POSITIVE ABOUT RATE EASING IN THE EUROPEAN AREA, AMERICA, AND CHINA.

The image from the World Economic Forum details chief economists' expectations for monetary policy in 2024 across different regions. The analysis focuses on whether monetary policy will be tighter, unchanged, or eased. Before we go into that, let’s understand the monetary policy rate and its effects on the economy, especially on businesses and the capital market.

Monetary policy is a tool a central bank uses to control the total amount of money in circulation (money supply), encourage economic expansion, and use techniques like raising interest rates and modifying bank reserve requirements(). In other words, central banks use this tool to preserve economic growth, stabilize prices (inflation), preserve the value of a currency, and keep unemployment low. The trickling-down effect of the policy rate is that it influences borrowing, spending, investment, and savings rates through three main strategies. They are open market operations, reserve requirements, and interest or discount rate manipulation (MATHAI, 2021). Since we have been able to dissect the meaning of monetary policy, let’s turn our attention to the sentiments of chief economists worldwide on monetary policy in various economic regions.?

Economic and Financial Analysis

The Americas

The monetary policy expectation is predominantly looser (61%), with 32% unchanged and 7% tighter for the United States. This means that economists expect the Fed Chair to ease the policy rate in 2024, even though the US Fed rate has stayed unchanged for the past 12 months. If implemented, this implies that looser monetary policy typically indicates lower interest rates, which can spur economic growth through increased borrowing and spending by businesses and individuals. In this regard, companies that envision business expansion as its products, and market share by entering other economic territories, should consider and plan for such investment opportunities as borrowing costs are expected to be lower. Investors, on the other hand, might look into growth stocks, particularly in technology and consumer discretionary sectors that benefit from lower interest rates.

According to?recent surveys by the World Economic Forum, there is a general anticipation of monetary relaxation; 54% of respondents anticipate looser monetary policy, while 46% anticipate no change in policy for Latin America and the Caribbean. This is most likely intended to boost economic growth so that a more accommodating monetary policy would soon be implemented. This may result in reduced borrowing rates for households and companies, which would promote investment and expenditure.

Given the likelihood of monetary easing, when economic circumstances improve, businesses should assess whether to make new technology, infrastructure, or capacity expansion investments in order to position themselves for growth, which is crucial for long-term sustainability. Investments in businesses involved in infrastructure projects?can be especially profitable, as these industries frequently gain directly from government expenditure programs that go hand in hand with monetary easing policies.

Europe

In the Eurozone, the policy rate is predominantly looser (86%) with 14% unchanged, topping all the other economic zones. This looser policy usually results in lower interest rates, potentially stimulating economic growth. Meanwhile, the ECB has eased the policy rate from 4.5% to 4.25% in June 2024. This shows that the sentiments of the economists may be materialized by the close of the year 2024, ceteris paribus. Business Firms should prepare and consider taking advantage of cheaper capital because of lower borrowing costs. This will enable business growth and development, leading to more jobs for its inhabitants. Also, investments like bonds are not attractive since interest will drop. But stocks like dividend-paying stocks in stable industries such as utilities and healthcare may be considered because of their attractive defensive nature.

Asia Area

Monetary policy expectations for Central Asia show the majority unchanged (63%), with 37% looser. Stability in monetary policy suggests a balanced approach to economic management, with some concerns about inflation.

For businesses, I will recommend continuing current operational strategies with a focus on inflation monitoring. On the investment front, investors should consider diversified investments, including local equities and bonds, with a cautious eye on inflation trends in 2024.

In China, the monetary policy expectation from economists is predominantly looser (67%) as opposed to 33% unchanged. Similar to the US, a looser policy in China aims to stimulate economic growth through lower borrowing costs. Amidst global inflationary challenges, China’s inflation has fallen for the past five years, from 5.4% in 2020 to 0.3% in 2024. This, I believe, affirms the sentiments of economists. It will be proper and prudent for businesses to explore opportunities to expand production and market reach, leveraging the anticipated lower interest rates. The investment outlook for the three stock markets with a market cap of more than $12.2 trillion (Huld, 2021), in China looks brighter.? Investors around the globe can look into sectors like technology, manufacturing, and consumer goods that are poised for growth at the back of the AI revolution and with this supportive monetary policy.

This part of Asia has monetary policy anticipation balanced between looser (45%) and unchanged (45%), with a small percentage tighter (9%). this is interesting for the region, implying that there is a mixed feeling about monetary policy rate, indicating varied economic conditions and policy responses. Business Firms should adopt flexible strategies to adapt to both potential easing and stable monetary conditions. Diversification across investment instruments across different industries and countries within the region can be implemented to mitigate potential risks with balanced monetary policy sentiments.

South Asia holds a monetary policy expectation majority unchanged (57%), with 38% looser and 5% tighter. Implications are very clear, stable policy with a leaning towards easing suggests cautious optimism for growth, even though economists are 100% sure of moderate to strong growth (World Economic Forum, 2024).

Businesses can maintain current strategies with potential growth plans if monetary easing materializes. Investors’ focus can be on equities with a balanced approach, considering both growth and stability.

Africa Area

MENA & Sub-Saharan Africa

In the Middle East and North Africa(MENA),60% of economists remained mostly unchanged, with 35% being looser and 5% being tighter.?

The MENA area is expected to see a period of economic stability with little changes in the monetary supply and interest rates due to the widespread expectation of steady monetary policy. Planning and investment choices depend heavily on a predictable corporate environment, which may be fostered by this stability. The sizeable minority that does anticipate monetary easing, however, suggests that should the necessity arise, policy changes targeted at boosting economic activity may be made.

Businesses should keep pursuing strategies of sustainable expansion, leveraging the current state of stability in the economy to strengthen their positions in the market. Businesses should be ready for any possibilities that may result from any relaxing measures since these might include more credit availability and cheaper borrowing rates. Investors can keep a watch out for any signs of easing in policy rates, which could offer opportunities in industries like real estate and infrastructure, which benefit from more accommodating financial circumstances.

In Sub-Saharan Africa, a majority (70%) expect monetary policy to remain unchanged, with 25% anticipating a looser policy and 5% expecting tighter conditions. Sub-Saharan Africa's economy is expected to be mainly steady with the possibility of modest stimulation due to the anticipated monetary policy that is primarily stable with a little softening tendency. This stability gives companies a good foundation on which to build long-term plans while also allowing them to adjust to small shifts in monetary policy that may spur economic expansion. ?

Businesses’ attention should be given to emerging opportunities that may arise from potential easing measures, such as lower interest rates and increased lending capacity. This can include exploring new markets, expanding operations, and investing in productivity-enhancing technologies. Sectors such as telecommunications and agriculture, which benefit from steady growth, are particularly attractive. These sectors are likely to see sustained demand and investment, driven by both domestic and international interest.

The World Economic Forum's survey reveals varied expectations for monetary policy in 2024, with significant regional differences. Most regions anticipate stable policies, while some expect easing to stimulate growth, reflecting diverse economic conditions and priorities globally.

References

1. Investopedia Team (2024, February 21). Monetary Policy Meaning, Types, and Tools. Retrieved June 18, 2024, from https://www.investopedia.com/terms/m/monetarypolicy.asp#:~:text=Monetary%20policy%20is%20enacted%20by,%2C%20spending%2C%20and%20savings%20rates.
2. MATHAI, K. (2021). MONETARY POLICY: STABILIZING PRICES AND OUTPUT. Imf.org. Retrieved June 18, 2024, from https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Monetary-Policy
3. World Economic Forum. (2024, May). Chief Economists Outlook, May 2024. Retrieved from [World Economic Forum](https://www.weforum.org).
4. Huld, A. (2021, September 24). China’s Stock Markets – An Introductory Guide for Foreign Investors. China-Briefing. Retrieved June 18, 2024, from https://www.china-briefing.com/news/chinas-stock-markets-an-introductory-guide-for-foreign-investors/