The global economy defies expectations

08 April 2024

Please note: All data referenced in this article is sourced from Bloomberg unless otherwise stated, and is accurate at the time of publishing.

The global economy has defied expectations so far in 2024 – starting the year stronger than anticipated. inflation control is working, too, paving the way for central banks to loosen their grip on interest rates – despite robust jobs markets worldwide and healthy consumer spending.

Still, global growth forecasts (currently at 2.9% for 2024), while improved, remain below historical averages – and regional variations paint a complex picture: the US and India are bright spots, while China, the eurozone and the UK face headwinds.     

Inflation retreats

Inflation is finally starting to come down, and at a faster rate than many economists expected. This is thanks to a few things: cheaper energy costs, rate hikes by central banks and supply chain issues finally easing up.

Globally, prices are forecast to cool significantly this year, with yearly inflation expected to rise by a much more manageable 2.4%. That’s a far cry from the eye-watering 8.8% jump we saw in 2022, and forecasts point to inflation staying around 2.5% in 2025.

US outperforms 

Despite some earlier worries, the US economy grew at a robust 3.2% in the last quarter of 2023, due to strong domestic demand and government investment. Consumer spending remains healthy, allied to low unemployment and supportive fiscal policies.

Infrastructure spending is also booming, while the housing market remains resilient. And although some of these supportive factors are expected to fade, US growth is still projected at a respectable 2.6% for 2024.

Inflation has dropped significantly from its peak of 9.1% in June 2022, settling at 3.2% in February 2024. Experts predict inflation will continue to fall, reaching 2.8% by year-end and 2.4% by late 2025. This trend could lead the US Federal Reserve to first cut interest rates around June/July, potentially bringing them down to 4.5%-4.75% by December.    

Europe trundles along 

The European economy isn’t exactly setting the world on fire, but if you look – bright spots are also emerging despite the challenges. 

The European Central Bank (ECB) may have recently downgraded its growth and inflation forecasts due to a weak domestic market. However, the service sector is gaining momentum (February’s purchasing managers’ index, or PMI, was recorded at its highest in eight months), helping to balance out the sluggish manufacturing industry.   

And while the first half of 2024 might be a bit stagnant, things are expected to pick up later in the year. Wages are finally outpacing inflation, and the ECB’s loosening grip on interest rates could encourage spending and investment. Overall, eurozone growth is forecast at a modest 0.4% this year, rising to 1.3% in 2025.

Inflation is also starting to cool, although a little slower than expected. Prices are still rising, but at a slower pace, and are expected to continue moderating. Consumer prices rose 2.4% year-on-year in February, slightly below expectations (2.5%). While core inflation slowed to 2.9%, exceeding forecasts.

The ECB is already discussing potential rate cuts, with the first possibly happening in June, which could bring the deposit rate down to 2.75% by year-end.   

The UK sluggish 

The UK economy is struggling to gain momentum after a short-lived recession. There was, however, a small bounce back in January, driven by activity in services and construction. But the overall picture remains uncertain. Geopolitical tensions, the timing of potential interest rate cuts, and stubbornly low productivity all cast a shadow.   

GDP growth is forecast at just 0.1% in 2024. There’s some positive news on inflation, though. It’s finally coming down (3.4% in February) and is expected to dip below the Bank of England’s 2% later in the year. This could pave the way for rate cuts as early as June, potentially bringing borrowing costs down to around 4% by year-end.

India the growth leader 

Meanwhile, India’s economy is currently the star of the show. After a stellar 7.7% growth spurt in 2023, it’s expected to stay strong (forecast at 6.8% in 2024 and 7% in 2025). This is driven by robust consumer spending, rising investments and supportive government policies. And while inflation remains high (6.5% in February), if prices cool later in 2024 then rate cuts could be on the horizon.

India's recent economic boom has transformed the country into a major player on the world stage. It’s been opening up its markets and striking trade deals, which has helped reduce poverty levels and create a thriving middle class – with the ambitious goal of becoming a high middle-income economy by 2047.

However, continued future success hinges on India tapping into its full potential: notably, its population advantage and getting more women into the workforce, as well as boosting domestic consumption.  

Chinese growth looks optimistic 

China has set an optimistic 5% growth target for 2024, alongside keeping government spending in check (a 3% fiscal deficit) and unemployment low (at 5%). Achieving all of this seems a challenge, however.

Right now, manufacturing and construction are under pressure, and consumers are tightening their belts, while household debt is still a concern. Longer-term challenges also loom – like a shrinking population, high debt burdens, and a slowdown in people moving to the cities. 

To keep the economy on solid ground, China might need to keep on reducing debt and make further policy adjustments to address these imbalances.  

The global picture 

Despite the regional variations, the global economy continues to hold up better than many experts thought only a few months ago. Of course, geopolitical risks persist, but the commodity and supply-chain shocks of recent years haven’t derailed progress – and were thankfully short-lived and manageable. 

And while pandemic savings are dwindling, there’s a lot to be optimistic about. The jobs market is strong, wages are rising, and interest rates may finally be coming down, giving consumers some much-needed wriggle room. But policymakers still need to tread carefully: easing restrictions without letting inflation surge again.     

Overall, though, the global growth picture seems steady. This could lead to a ‘soft’ landing for the economy, maybe even avoiding a recession altogether. But this won’t be by accident: keeping things on track will require careful attention and well-timed policy decisions.

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