January was a complicated month around the world, with an indefinite prolongation of war conflicts, the beginning of electoral campaigns in 43 countries (47% of the world’s population will elect a new government this year, the highest % in history) and economic pressure in many countries, where the eternal conflict between growth and inflation does not allow monetary authorities to define an interest rate policy that encourages economic activity without affecting prices.
The United States demonstrated an incredible combination of growth (3.3% in the 4th quarter), with inflation dropping from 8.6% to December’s annualized 2.9%. However, it is still felt that the country has not returned to pre-pandemic stability. The premature start of an election campaign that will culminate on November 5 came with a clear definition that it will be a new showdown between Biden and Trump, as both went through the semifinals with almost no competition. As I have stated, I am not 100% sure that Biden will not retire before the Democratic convention since his approval rating is at 33%, the lowest in the history of a sitting president. The Democrats themselves do not believe that he can overcome his cognitive impairment and repeat in office.
The problem of illegal immigration has reached an unimaginable level. It is estimated that 11 million people of all kinds of nationalities have entered the country, many completely illegally and very many under the pretense of requesting political asylum and receiving a date to appear before a judge after 3 to 6 years on a waiting list, but already interned in the country. Of those with such an appointment, only 19% appear before the immigration judge.
An interesting piece of information is the economic polarization of the United States. This country grew up with a vast middle class, a minimal low-income class supported by government social programs, and a small but very successful high-income class. Today, 1 out of every seven retirees lives exclusively on their Social Security pensions. 44% of the population does not have savings to face a $400 emergency. The credit card debt of those earning less than $60,000 a year reaches 91% of their authorized credit; people who can hardly manage to pay the very high interest on the balances owed can no longer buy more things by deferring payment.
2023 was the worst year for creating new companies in the last five years. The number of initial public offerings was the lowest since 2016, and the real estate crisis in the office sector is a severe problem. Over $1 trillion of loans are coming due in the next three years. The value of real estate with a high vacancy (18.8% nationally and growing, the highest in 40 years) is below what they owe, and they will not be able to refinance enough to pay off past-due loans. This could lead to a new banking crisis, especially in second-tier banks, which could spread throughout the financial system.
The U.S. industrial recovery has been astounding and is the leading cause of the drop in inflation, which, by definition, is when there is more money than goods to buy. The supply chain is back to normal, and the only remaining pressure is on labor, which remains scarce, with unemployment at only 3.8%. The projected growth for the country is 2.3% for 2024 and 2.0% for 2025, quite acceptable figures that negate the idea of an imminent recession. I believe there will be one or two months of job losses this year, but if that is considered a recession, it will be very short and not significantly impacted.
There is still $8.8 trillion left in the money markets or in very short-term instruments such as bank CDs and Treasury Bills, which will prevent a significant liquidity crisis. The U.S. central bank, the FED, lost 114.3 billion dollars last year since it was dedicated to buying debt at 60 billion dollars a month. As interest rates rose, the values of the bonds it acquired were reduced, causing this significant loss for the treasury. However, the figure is of little relevance within the enormous government debt, 34.1 trillion dollars or 127% of GDP.
Remember that “solvent” governments never pay their debt but refinance it at maturity, making the growth of liabilities less serious. Modern Economic Theory says that liabilities in the country’s currency are irrelevant since more money can always be printed, taking care only of the balance between liquidity and products or services that can be acquired with that money. A serious problem is when the debt is in foreign currency, which, when maturing, may cause devaluations and serious economic crises.
Today, Social Security and Medicare expenses represent the most significant outlay of the federal government and are the leading cause of the enormous deficit it faces. Clean energy, which the current government has promoted so much, has faced a serious crisis due to a lack of permits and financing. Several wind and solar projects have been canceled. However, the largest wind turbine energy project in history has just been announced, where 900 propellers will produce 3000 MW, enough to satisfy the total needs of a city of 1.5 million inhabitants. It will be interesting to see if this project can be brought to fruition.
The stock markets had a good month in January, with the indices reaching record highs, but growth continues to be based on the seven largest stocks, which rose 20%+, while the other 493 components of the S&P index only increased 2.6%—except TESLA which was down almost 20%, the other 6, Microsoft, Google, Amazon, Apple, Nvidia and Facebook accounted for nearly all of the increase in the indexes. By the way, Wall Street decided to change that “magnificent seven” group. It will now be 8, taking TESLA and Apple out of the group and adding VISA, United Health, and Berkshire Hathaway to represent the whole economy and not only the technology sector. By the way, during the month, Microsoft surpassed $3 trillion in market value, surpassing Apple, which had done so in 2023, and becoming the most valuable company in the world.
Mexico is still amid political turmoil, with elections only four months away. Five percentage points reduced Claudia’s lead, but she still has a 17% advantage over Xochitl. Still, I feel it is almost impossible for the candidate with the president’s support, with 20 states plus CDMX governed by MORENA, with all the political and economic machinery of the party in power, to lose on June 2.
The struggle between AMLO and the control bodies such as the National Electoral Institute (INE), the Institute of Access to Information (INAI), the Electoral Tribunal, etc., reached its peak today, February 5, when the President sent his proposals for elimination or change. Still, I do not believe that the famous Plan C will come to anything because he does not have the qualified majority in the Senate to allow him to modify the Constitution. We have already seen that the Supreme Court almost definitively overturned the 2021 electricity reform, a clear defeat for the Executive’s initiatives.
On the one hand, the country showed admirable economic strength, with the highest new car sales since 2019, a GDP increase of 3.4% for 2023, and considerable strength of the peso (although January was not very good for the currency). Another positive data was that the trade balance achieved the best favorable result in the last three years and second best in the previous 10.
On the other hand, the three airport groups showed a reduction in passengers, formal employment had the lowest growth in the last three years, industrial production was the weakest in the previous 26 months, and the survey on insecurity continues to indicate that 59.1% of the population feels insecure in Mexico, with a range from 91% in Naucalpan to 15.2% in the municipality of Benito Juarez. On the country’s beaches, the count was 22%.
I do not doubt that the next government will have to make important changes in spending and taxes. The increase in the deficit in 2024, the proposed and future increases in the pension system, and the new minimum wages will affect the budget for the following years. I do not want to fail to mention the severe water crisis in Mexico City, one of the main reasons why my family and I decided to emigrate to the United States 40 years ago, which has been solved with patches and temporary measures that are almost exhausted. In Mexico, 80% of the population lives at an altitude with only 20% water, an unbearable situation that is difficult to solve.
Growth and parity forecasts for Mexico from the International Monetary Fund, IMEF, and large banking institutions coincide in projecting a 2.4% growth for GDP in 2024, inflation between 3.9 and 4.1%, and parity of $18.60 per dollar by the end of the year.
Israel remains in a frightening crisis that began on October 7. With 360,000 reservists called up to the war front, businesses have run out of young people, economic activity has all but ground to a halt, foreign investment has been postponed pending resolution of the conflict, and tourism has been reduced to less than half of what it was before the brutal Hamas attack. There is no doubt that the government’s response to the Hamas attack is justified and will not stop until the total destruction of the terrorist group. The collateral damage where many Palestinian civilians have been killed, a very unfortunate situation that Israel would have liked to avoid, but occurs when the terrorist leadership hides in schools, hospitals, and among the civilian population, has provoked demonstrations around the world, primarily based on the ignorance of the masses of the cause of the conflict.
In the rest of the world, China has been making headlines with an 11% drop in production, 1.6% deflation, and the two largest bankruptcies in its history, Zhongshi with $43 billion and Evergrande with $77 billion. China injected $275 billion into its languishing stock market and lowered the reserve requirements of its banking system, which is already in serious trouble with $6.6 trillion in non-performing loans. Their goal is to achieve GDP growth of 5.2%, almost half of what they averaged over the past 15 years. On the other hand, Xi Jinping, the president since 2013, is doing a political purge that entrenches his power but sets back the standard progress of the republic. Its population during 2023 contracted by 2 million, with 11 million deaths and 9 million births. We already know what happens when the population shrinks, as is the case in Japan, which has been in recession for 20 years and where there is already one retiree for every 0.9 people in the labor force. In that same region, it is interesting that the population of the world that recognizes Taiwan as an independent and sovereign country is only 0.52% of the total, representing 0.17% of the world’s GDP.
In Latin America, we see a resurgent Brazil with economic growth close to 4% and inflation under control, although still high. Argentina is in full crisis, President Milei is fighting with the unions and the courts, and inflation is still above 200%. The rest of the countries, such as Chile, Peru, and Colombia, are beginning to reduce their very high inflation figures and are already lowering interest rates, which has not yet started in Mexico but will happen soon.
What are the risks for the world economy in 2024? The Chinese recession, the consumer in the United States, the recession in Germany, and the increase in interest rates in Japan. If we add the war’s possible escalation of the conflict in the Red Sea and possible retaliation against Iran for its economic support to all the terrorist groups in the Middle East, we foresee a complicated year. The IMF forecasts a final global growth of 2.6% for 2023, 2.4% for 2024, and 2.1% for 2025, depending on what happens in India, where a growth of more than 8% per year is expected for the next three years. In January, the stock markets had a good month; bonds were stable with a minimal contraction, gold returned to record highs, but without exceeding $2,075/oz, and bitcoin had huge volatility, having fallen 18% to $38,000 but returning to $43,000 levels.
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