Mauritania has once again become a crucial departure point for migrants risking the treacherous Atlantic journey to Spain’s Canary Islands, capturing renewed attention from the European Union. This small West African nation is witnessing a significant uptick in migrants using its shores as a launchpad for their quest to reach Europe through the Spanish archipelago, with many tragically losing their lives along the way. 

The period between January and March 2024 saw a significant surge in undocumented migration to the Canary Islands, with over 12,393 migrants arriving compared to just 2,178 during the same period the previous year. This alarming increase underscores the growing role of Mauritania as a transit route for migrants despite the inherent dangers associated with the sea passage. This trend persists even in light of a recent financial agreement between the EU and Mauritania aimed at reducing migrant arrivals.

The Sahel is currently experiencing one of the most complex upheavals in its history

Mauritania’s turbulent neighborhood

The country’s location accounts for part of the story. Positioned in the western end of the Sahel, Mauritania lies between Mali and the Atlantic Ocean, bordered on the north by Western Sahara (a territory claimed by Morocco, with Algeria supporting its independence) and Senegal to its south. The Sahel is currently experiencing one of the most complex upheavals in its history, marked by numerous military coups affecting several countries: Mali, Niger, Burkina Faso, Chad and Sudan. Peace remains elusive at the gates of the Sahara.

Mauritania also connects the Maghreb with the rest of Africa. Freed from French rule in the 1960s, the country was governed mainly by a military oligarchy with an Islamic regime, which kept it on the periphery of international politics for many years. It was only in the new millennium that Mauritania began to cautiously engage with its neighbors and Europe, culminating in the Cotonou Agreement (2000-2023), which was later succeeded by the Samoa Agreement signed in November 2023. This comprehensive treaty governs the EU’s relations with African, Caribbean and Pacific states, establishing shared principles in areas such as democracy, human rights, security, social and economic development, environment, climate change and migration.

The EU’s heightened interest

Over the years, numerous European leaders have visited Mauritania, fostering cordial relations even during the military coups of 2005 and 2008. The goal has been to counter the growing threat of jihadist terrorism within the country.

However, Europe’s primary concern remains curtailing migration flows. In March 2024, European Commissioner for Home Affairs Ylva Johansson visited Mauritania’s capital, Nouakchott, to launch a “partnership and dialogue on migration.” She signed a joint declaration with Mauritanian Minister of Interior Mohamed Ould Lemine, which established a partnership that includes substantial humanitarian aid, amounting to 210 million euros for Mauritania over the coming years.

The agreement followed a dramatic rise in migration, with 7,270 people from West Africa attempting to land on the Canary Islands in January 2024 – a 1,000 percent increase from the previous year. However, three months after its signing, the situation had not significantly improved, as 1,800 more arrivals were recorded in the first two weeks of April. That brought the total landings for the first half of 2024 to nearly 19,000, accounting for 78.5 percent of all irregular entries into Spain during that period.

The most alarming consequence of the surge in migration is the sharp increase in fatalities. From January to June 2024, at least 5,054 people, including women and children, lost their lives attempting the dangerous sea crossing. 

Migrants’ ocean route

The Atlantic route to the Canary Islands is nothing new. As early as the 1980s, thousands of African migrants, primarily from Guinea, Mali, Ivory Coast, Gambia and Mauritania, attempted the risky trek from the Atlantic beaches of Senegal and Mauritania. Over the following decades, migration routes shifted within Africa, with the notorious Niger-Libya, Burkina Faso-Algeria-Libya, Ethiopia-Sudan-Libya and Egypt-Libya routes gaining prominence. That was due to the fact that Mediterranean crossing is significantly shorter, even if one had to cross much desert before reaching its shores. But migration is an ever-changing phenomenon and lately, the trend has shifted again.

Mauritania has not experienced any jihadist terrorist attacks since 2011, and this stability is a crucial strategic factor for its partners.

Several factors contribute to this, including the harsh conditions of desert crossings and the brutal realities of Libyan prisons, as well as new agreements between European and African nations such as Libya, Tunisia and Egypt that have made it harder to cross there. Notably, the increase in ocean migration contrasted with a 60 percent drop in landings on Italian shores in the first half of 2024.

Mauritania’s domestic politics

Mauritania, with a population of 4.9 million (nearly three-quarters of whom are under 35), has faced recurring political instability, including six successful or attempted military coups since 1980. In the June 2024 presidential election, incumbent Mohamed Ould Ghazouani secured a second term with over 56 percent of the vote, despite accusations of fraud by opponents.

As is typical for leaders in the Maghreb-Sahel area, President Ghazouani (aged 67) has a military background. However, he has established good relations with neighboring countries and the EU. 

Mauritania has not experienced any jihadist terrorist attacks since 2011, and this stability is a crucial strategic factor for its partners. Nouakchott was home to the now-defunct G5 Sahel, a regional organization uniting Mauritania, Mali, Niger, Burkina Faso and Chad. In 2010, Mauritania’s stringent anti-terrorism law came into force, empowering military units to combat active terrorist cells. Its Islamic society has assisted in the effort.

Foreign factors 

For years now, Moscow has been expanding its influence across the Mediterranean, primarily through Africa, operating on two fronts: political and economic (official) and military and security (unofficial), often utilizing private military contractors. This dual strategy, coupled with aggressive disinformation tactics, has contributed to the disengagement of Western Europe and the United States from several countries governed by coup juntas. Mauritania may be the next target for Russian influence, as evidenced by Russian Foreign Minister Sergei Lavrov’s visit in February 2023 – the first in over 50 years – following similar trips to Morocco, Tunisia and Mali. This visit likely aimed not only to improve conditions for Russian fishermen in Mauritanian waters, but also to bolster support against terrorist cells operating in the Gulf of Guinea.

Russia and Europe are not the only players interested in Mauritania. China and Gulf states, particularly Saudi Arabia and the United Arab Emirates, are also keenly engaged. Between 2022 and 2023, China’s President Xi Jinping met with President Ghazouani twice to sign cooperation agreements and provide national debt relief of $21 million, partly thanks to Mauritania’s membership, since 2018, in Beijing’s Belt and Road Initiative.

The number of migrants to Europe will likely increase, even if their country of departure is not Mauritania.

NATO, for its part, has activated military collaborations aimed at territorial control and training local security forces in Mauritania. The country’s invitation to the Madrid summit in June 2022 underscored this commitment, followed by the August 2024 series of agreements with Spain to stem the surge in migrants. The World Bank Group emphasizes the need to “maximize the return on human capital in Mauritania for increased wealth and shared prosperity.” This highlights the root causes of migration that the country is grappling with: the lack of investment in youth and educational facilities, compounded by ongoing conflict and climate change.

Source: GIS

Indonesia

Our growth model suggests that switching to loose fiscal and monetary policy could help raise growth, but only partially. 

Moving further up the manufacturing value chain, and graduating from exporting just ores and metals, to exporting EV batteries and EVs, and thereby reducing the impact of commodity price shocks on the economy, could push potential growth to 5.8% by 2028.

Malaysia

At full steam

After slow growth in 2023, Malaysia’s economy has been roaring again, expanding by 5.1% y-o-y in 1H24. The momentum has also been impressive, hitting 2.9% q-o-q, seasonally adjusted, in 2Q. Beyond strong headline numbers, what is more encouraging is the breadth of the recovery.

Electronics shipments have returned to growth

For one, the long-anticipated revival in manufacturing is rather outstanding. Albeit delayed compared to peers, Malaysia’s manufacturing and trade sectors have finally turned the corner, riding the global tech upturn. After a long stretch of annual declines, electrical and electronics shipments returned to growth on a three-month moving average basis, albeit this remains at a nascent stage. Meanwhile, there is a mixed performance in commodities, with palm oil and LNG exports leading.

While construction expanded in double digits

In addition to manufacturing, what was a great surprise is the performance of construction, which expanded by a double-digit y-o-y pace for the second consecutive quarter. Coupled with the expenditure side of the gross fixed capital formation data, this is not only related to the government’s recent increase in public investment but also reflects rising interest in FDI-related large-scale projects. Meanwhile, services continue to show strength. Not only has private consumption shown resilience, but tourism has also added much-needed fuel, as Malaysia has welcomed tourists equivalent to 90% of its pre-pandemic levels.

Given the upside surprise in 2Q, we recently upgraded our GDP growth for 2024 to 5.0% (previously: 4.5%), while keeping 2025 growth at 4.6%.

We expect interest rates to stay on hold for a while

Outside of growth, inflation pressure remains largely muted, despite diesel subsidy rationalisation in June. Headline inflation averaged around 1.8% y-o-y in the first seven months of the year. Even after taking into account unfavourable base effects, we expect manageable inflation. We forecast inflation at 2.3% in 2024 and 3.0% in 2025, though acknowledge uncertainty from the potential subsidy rationalisation on the petrol RON95. Our base case is for Bank Negara Malaysia (BNM) to keep its policy rate steady at 3.0% for a prolonged period.

As long as inflation falls within BNM’s 2-3.5% forecast range, we do not expect the central bank to move. That said, the risk of a hike is higher than a cut in Malaysia, compared to regional peers.

Philippines

The Philippines started its easing cycle in August

The Philippine central bank, Bangko Sentral ng Pilipinas (BSP), embarked on its easing cycle in August, cutting its policy rate by 25bp to 6.25% – even before the Federal Reserve (Fed) had lowered its policy rate.

It is good to look back to see how impressive this was. From 2022 to 2023, not only was inflation in the Philippines the highest in ASEAN, but the economy’s current account deficit was as wide as it was in the run-up to the Asian Financial Crisis. Many, including HSBC, thought that monetary policy in the Philippines had the least independence from the Fed when compared to others in ASEAN.

As headline inflation dropped below 3% y-o-y

However, the Philippines in 2024 held itself together and turned the corner. The authorities cut the tariff for rice – the country’s most ubiquitous staple – from 35% to 15%, setting the stage for headline inflation to ease to below 3% y-o-y, or to within the lower bound range of the BSP’s 2-4% target band. The current account deficit is also moderating at a pace faster than expected, thanks to the economy’s Business Process Outsourcing (BPO) sector booming over the past year. This provides the BSP with inflows to help strengthen the peso and some support to wiggle away from the Fed. And, given how far inflation can still ease, the BSP already signalled that more rate cuts are to come.

Rate cuts should stimulate growth in 2025 & 2026

The easing cycle comes at a good time. Although growth in the Philippines has held up relative to therest of Asia, some cracks are already showing. For instance, growth in household consumption dipped to its lowest level since the Global Financial Crisis, barring the COVID-19 pandemic, while growth in durable equipment investment has fallen for the second consecutive quarter. Credit in the economy also remains weak with the cost of borrowing high. That said, we expect the BSP’s easing cycle to reinvigorate small- to medium-scale investments and reduce the debt burden of households, bolstering growth in 2025 and 2026. We are even more bullish on next year’s prospects, with the tariff rate cut on rice potentially freeing-up 1.1% of the economy for growth.

With inflation on its way down but nothing terrible happening to GDP, we expect the BSP’s easing cycle to be gradual. We expect only one more 25bp rate cut (to 6.00%) in 2024 and pencil in a total of 100bp worth of rate cuts in 2025, bringing the year-end policy rate to 5.00%. We think the easing cycle will end in 2025, so we expect the policy rate to remain at 5.00% throughout 2026.

Singapore

A mixed bag

Singapore has made good progress in its economic recovery in 2024. While the possibility of a technical recession was still on the cards in 2Q23, the recovery momentum continues, helping Singapore to emerge from a severe downturn in the trade cycle to see healthy growth of c3% y-o-y in 1H24.

Consumer electronics is set to lead Singapore’s recovery

While manufacturing remained in contraction, the magnitude was much smaller, and it is also a mixed story. The culprit was falling pharmaceutical output, which is volatile in nature, and could swing back to growth later. Electronics output still saw a decent recovery, though the pace lags behind other tech-exposed economies like Korea and Taiwan Region. But this is because they have heavier exposure to Artificial Intelligence (AI)-related production, and Singapore is set to ride a broader recovery in consumer electronics.

Services came in better-thanexpected

Despite still subdued manufacturing activity, better-than-expected services came to the rescue. But it is also a mixed bag. On a sequential basis, domestically oriented sectors fared better, while consumer-facing and travel-related ones saw large corrections in 2Q. But this was largely expected, as a busy line-up of large-scale international concerts was concentrated in 1Q. That said, there is still potential to grow further. Singapore has welcomed visitors equivalent to almost 90% of 2019’s level in 1H24. July saw for the first time the return of Chinese tourists exceeding the monthly 2019’s level.

All in all, we recently upgraded our growth forecast to 3.0% (previously: 2.4%) for 2024 and maintain our 2025 growth forecast at 2.6%.

Core inflation continued to decelerate in July

In addition, the disinflation progress also continues with core inflation decelerating to 2.5% y-o-y in July. Services inflation like education and healthcare continued to trend down, but entertainmentrelated costs barely budged. Most importantly, fuel and utilities cost momentum was muted, and oil prices are likely to stay relatively range-bound for now. As such, we recently revised down our core inflation forecast to 2.8% for 2024 (previously: 3.1%) and 1.9% for 2025 (previously: 2.2%).

Although we do not think the MAS will cut rates soon

Despite cooling inflation, we do not believe this will prompt the Monetary Authority of Singapore (MAS) to ease anytime soon; at least inflation trends on their own may not be enough to warrant an easing bias from the MAS.

Thailand

It’s complicated

Manufacturing and goods exports picked up steam Thailand’s GDP growth accelerated to 2.3% y-o-y in 2Q 2024, with its fiscal engines finally up and running, despite delaying the release of its budget for six months. The manufacturing production index in July also at last turned positive after falling for roughly 21 months, while goods exports leaped by 21.8% y-o-y as Thailand benefitted from the global tech upcycle. This coincides with the PMI new orders index, which just turned expansionary for the first time in 12 months back in July. All in all, it seems the economy is finally revving up. We expect Thailand to stage a V-shaped recovery for the remainder of 2024, growing 2.7% and 3.7% y-o-y in 3Q and 4Q 2024, respectively.

However, a lot happened before the economy got to where it is now. Amidst tough competition from mainland Chinese imports, headline inflation dropped back to below the Bank of Thailand’s (BoT) 1- 3% target band, while the trade balance swung back into deficit. Thailand also saw its political landscape change quickly: in less than 48 hours after Srettha Thavisin was removed from office, parliament elected Paetongtarn Shinawatra as Thailand’s youngest Prime Minister in history.

Although progress hasn’t been a straight line, the general direction is improving. In fact, amidst the political volatility, financial markets in Thailand finally ticked up after underperforming for 12 straight months. The SET index in September jumped for the first time this year, while the THB nominal effective exchange rate (NEER) is nearing its pre-pandemic levels.

Government spending and tourism are fuelling growth, but headwinds persist

The Thai economy, however, isn’t all in the clear. Yes, government spending and tourism continue to fuel growth. But headwinds persist in manufacturing and consumption. Competition from mainland Chinese imports may limit how far manufacturing can improve while Thailand’s high household debt will likely be a major drag on private consumption.

We expect rates to stay on hold until at least 2027

That’s the complicated part. Although headwinds are strong and inflation is weak, we do not expect the Bank of Thailand (BoT) to ease monetary policy from now until 2027. Keeping the policy rate at 2.50% should help guide Thailand’s much-needed deleveraging cycle, particularly on household debt.

Vietnam

Waiting for further lift

Vietnam’s growth surprised on the upside in 2Q. Vietnam’s economic recovery continues to firm up as the Year of the Dragon progresses. Growth improved and surprised on the upside in 2Q24, rising 6.9% y-o-y in 2Q24. The recovery in the external sector has started to broaden out beyond consumer electronics, although the pass-through to lifting the domestic sector still remains to be seen.

Helped by manufacturing and industrial production

For one, the manufacturing sector has emerged strongly from last year’s woes. PMIs have registered five consecutive months of expansion, while industrial production (IP) has registered a bounce-back in activity for the textiles and footwear industry as well. This has supported robust export growth at double digits, with structural forces, such as expanding market access for Vietnamese agricultural produce, also underway.

However, retail sales are still lagging

However, the domestic sector is recovering more slowly than initially expected, with retail sales growth still below the pre-pandemic trend. Encouragingly, the government has put in place measures to support a wide range of domestic sectors that is expected to shore up confidence with time. Environment tax cuts on fuel and value-added tax cuts for certain goods and services will last until year-end 2024, while the revised Land Law effective from August will buttress the outlook for real estate. Albeit still early, the latter seems to have already contributed to a boost in foreign investment in the sector, with recent FDI showing broad-based gains.

We believe the potential upside risks can offset the temporary economic disruptions from Typhoon Yagi. All in all, we forecast GDP growth at 6.5% for both 2024 and 2025.

Inflation is cooling as unfavourable base effects fade

On inflation, price developments are turning more favourable in 2H24, as unfavourable base effects from energy have faded. An expected Fed easing cycle will also help to alleviate some exchange rate pressures. Taking all these into consideration, we forecast inflation at 3.6% in 2024 and 3.0% for 2025, both well below the State Bank of Vietnam’s target ceiling of 4.5%.

A predicted slide in Halloween consumption is the latest blow for heavily-indebted retailers battling mounting overheads and the trend of consumers trading down to cheaper products.

US spending for the holiday will drop by 5 per cent to US$11.6 billion (S$15.1 billion) this year, according to the National Retail Federation. Sales of greeting cards and costumes are likely to see the greatest decline, a hit to merchants reliant on seasonal splurges in what’s already been a tough year for the industry.

Households on the lower end of the income scale are broadly struggling as unemployment has edged higher this year and underlying inflation has remained persistently high. Retailer Michaels Cos. said on a recent earnings call that households earning less than US$100,000 are retrenching, resulting in lower basket sizes.  

“2024 has been a perfect storm for retailers of all stripes,” said Erica Weisgerber, a partner at law firm Debevoise & Plimpton. “Inflation, high operational costs, and reduced consumer spending have been especially challenging for brick-and-mortar retailers, and online retailers have struggled with steep competition from e-commerce giants like Amazon.”  

Many of the troubled firms, including Michaels and At Home Group, are owned by private equity managers after buyouts during the pandemic proved ill-timed when interest rates rose and inflation crimped household budgets. Home, clothing and hobby retailers dominate the list of distressed retailers because the size of their debt means they lack the liquidity to compete with better capitalised competitors, according to Moody’s Ratings. 

Still, Michaels and At Home are hopeful that they can win a larger slice of the holiday spending. At Home saw a strong start to Halloween spending after flat second-quarter net sales of about US$443 million, chief financial officer Jerry Murray said on a September earnings call.

Michaels also saw a revenue pop tied to Halloween as customers began to buy inventory earlier this year, according to people on last month’s earnings call. That’s a fillip for the firm whose earnings declined by about 20 per cent to US$50 million in the second quarter from a year earlier, the people said, asking not to be identified as the information is private. 

The pullback is creating challenges for the wider industry and has contributed to several high-profile bankruptcies this year, including Joann Inc., Big Lots and Conn’s Inc. It also makes it harder to turn around firms simply by slashing costs. 

With capital markets shunning troubled firms, more retailers turned to bankruptcy rather than distressed exchanges over the past year as the companies require deeper restructuring that is best done in court, Moody’s Ratings said in a report last month. It’s part of a wider trend that saw quarterly filings for Chapter 11 bankruptcy protection rise to the highest level since 2012 in the three months through June.

Private equity’s widespread failure to hedge against rising borrowing costs also means it’s less able to come to the rescue of troubled firms, which could have knock-on effects for the economy and jobs. 

Source: Straitstimes