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Opinion

Global economic outlook: GDP growth upgrades, downgrades and sticky inflation

Our latest quarterly outlook sees China and India’s forecast upgraded, US services extend its boom, sticky inflation tempering rate cut expectations and a delayed pivot to investment and industry

3 minute read

Political uncertainty is high in 2024. Numerous key elections are slated for this year – and the outcomes will determine paths for fiscal and trade policy. Meanwhile, geopolitical shocks, such as Israel-Hamas and Russia-Ukraine conflicts, continue to dominate the headlines.

How are these factors – and more – shaping the economic outlook? Where are the growth hotspots? Visit the store to read our latest Global economic outlook in full. And read on for a few selected highlights.

Global GDP growth to slow in 2024

Global growth is forecast to slow to 2.5% in 2024, from 2.7% in 2023. We expect 2024 to be a pivotal year as consumption rebalances from services to goods and investment accelerates with easing monetary conditions.

These drivers, and the inventory cycle, will aid a recovery in industrial production (IP), which slumped to 1.3% growth in 2023. IP is forecast to accelerate to 2.8% in 2024 and 3.5% in 2025.

Sticky inflation tempers rate cut expectations

Interest rate cuts in developed economies may be delayed and tempered, as inflation looks sticky in the 3% to 4% range. The European Central Bank (ECB) could beat the US Federal Reserve and Bank of England to rate cuts, with Eurozone inflation at 2.4% in April.

Interest rate cuts will be incremental as major central banks balance the final mile of getting inflation back to target rates – while avoiding a late sting in the tail.

How does a high interest rate era affect the cost of investing in the energy transition? The April edition of Horizons explored the uneven impact across energy and natural resources sectors.

US services extend its boom

In the US, Q1 growth was driven by strong consumption of services funded by real wage growth and a dip into household savings. This boosts our outlook for 2024. We forecast real GDP growth of 2.1% in 2024 up from 1.8% in our previous update.

However, the strength of services consumption is supporting inflation, which is sticky around 3.5%. It also means the inevitable rebalancing from services to goods and from consumption to investment is yet to pick up pace.

Despite weak economic growth the Eurozone is set to emerge from recession

The EU is downgraded in our latest outlook, after Germany suffered a deeper contraction in Q4 2023. Eurozone economic growth is forecast to expand by 0.7% in 2024, revised down from 0.9% in our previous update.

Leading indicators are still in contractionary territory, but Germany and the Eurozone will emerge from recession this year. Growth will, however, stay very weak. France, which has made a habit of outperforming its leading indicators, will see the economy accelerate through the year, with a boost from the Olympics in Q3.

China’s GDP forecast gets a (modest) upgrade

Better-than-expected Q1 performance has seen China’s 2024 GDP forecast upgraded to 4.7% from 4.6%. However, we don’t expect momentum to continue in the following quarters – March data suggests a slowdown for both industrial production and consumer demand.

China has entered another cycle of supply-side discipline. Overinvestment in property and infrastructure has already led to the default of property developers and local government debt issues. As a result, construction activity in both real estate and infrastructure has slowed significantly.

China’s manufacturing sector is also facing oversupply. Industrial capacity utilisation has fallen to a similar level to the last round of supply-side reform in 2015. Back then, the reform mainly focused on energy-intensive sectors such as steel, cement and glass. This time, the energy transition supply chain could see more challenges.

Robust upgrade for India’s economy in the short term

India’s 2024 (fiscal year) GDP forecast got an upgrade in our Q2 update from 6.9% to 7.6%. This was driven by the stronger-than-expected Q3 result. While the pre-election infrastructure boost has since showed signs of a slowdown, exports have started to recover.

With the uncertainty of the election diminishing, we expect government investment to accelerate after June. Consumer spending will offer an extra push to growth as sentiment continues to recover.

Non-macroeconomics risks remain elevated

Geopolitical shocks, such as Israel-Hamas and Russia-Ukraine conflicts, continue to top the risk list. Meanwhile, political uncertainty is high with numerous key elections slated for this year – and the outcomes will determine paths for fiscal and trade policy.

All eyes are on the US, for instance, where a change of administration would signal a radical shift in energy policy. Read our latest Global economic outlook in full for our view of what a second term win for Donald Trump could mean for the US economy.

Visit the store to get this report in full.

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