Global economic outlook: strategies to thrive in a new normal

We foresee a bifurcated consumer spending outlook where modest real disposable income growth forces low- and median-income households to dial back on their outlays amid persistently elevated prices and more expensive credit. Rising election uncertainty will likely curb capex even as easing financial conditions remain supportive of high-return investment opportunities and deal volumes. Overall, we anticipate real GDP growth will moderate below 2% in the second half of the year on slower private sector activity even as the drag from inventories and international trade dissipate. We foresee average GDP growth around 2.4% in 2024 and 1.7% in 2025. We expect two Fed rate cuts of 25 basis points (bps) in 2024 and 125bps of easing in 2025.

The Canadian economy remains sluggish, with real GDP growth at only 0.5% year over year (y/y) in Q1 2024. While elevated costs and interest rates are expected to limit the upside to growth in the coming months, we foresee gradually easing inflation and a gentle easing of monetary policy by the Bank of Canada leading to average growth of 1.0% in 2024 and 2.0% in 2025.

The eurozone economy is no longer in stagnation, though growth was modest in the first half of 2024. Cross-country divergence in performance persisted, with Germany lagging behind Southern Europe, while most mid-sized economies began to recover. Inflation has stabilized slightly above the 2% target due to sticky price pressures in services. This did not prevent the European Central Bank from initiating the easing cycle in June, with two more rate cuts expected this year. We continue to foresee that rebounding real incomes, a gradual recovery in world trade and monetary policy easing will translate into a more meaningful growth uplift from the second half of the year onward. Thus, while real GDP will advance by only 0.8% in 2024, growth will accelerate to 2.2% in 2025.

Stronger economic momentum in the first half of this year has led us to revise our UK real GDP forecast up 0.4 percentage points to 1.1% in 2024. We still expect GDP growth of 2% in 2025 and 2026. The boost to household spending power from lower inflation will be the main driver of stronger activity over the next few years. With Consumer Price Index (CPI) inflation back at the 2% target for the first time in nearly three years, we anticipate the Bank of England cutting rates by 50bps in 2024 and 100bps in 2025.

We anticipate real GDP growth will average 0.4% in 2024 and 1.1% in 2025 supported by rebounding automotive output and tourism activity, along with moderate consumer spending growth. A gradual improvement in real incomes stemming from higher wages and lower inflation should support a measured rebound in spending into 2025. However, modest global demand for Japanese exports will limit the upside to GDP growth. We anticipate the Bank of Japan (BoJ) will start reducing Japanese Government Bond purchases in August to ensure long-term rates are more market oriented. The BoJ is also likely to consider a policy rate hike from the current 0%–0.1% range toward year-end as yen weakness persists.

The Australian economy has continued to slow as monetary conditions remain restrictive. Real GDP grew just 0.1% in Q1 2024 and 1.1% y/y, as households were constrained by higher mortgage repayments, taxes and inflation. After a modest 1.6% advance in 2023, real GDP will likely only advance 1.1% in 2024, before accelerating to 1.8% in 2025. The re-acceleration in CPI inflation supports our view that interest rates will need to remain at current levels at least until early 2025.

Real GDP growth of 8.2% YoY in FY24 (April 2023 to March 2024) turned out to be much higher than expected, supported by strong public investment and statistical factors (including a lower deflator and higher net indirect taxes). On the expenditure side, strong exports offset slower private consumption growth and business investment momentum. From the production side, growth moderated across all sectors except agriculture. The Reserve Bank of India has maintained the repo rate at 6.5%, and its “commitment to a durable alignment of headline inflation with the target” of 4% means any policy easing cycle will be measured and shallow.

Mainland China continues to face a combination of structural and cyclical headwinds that will likely limit the upside to GDP growth for years to come. Following a fiscally stimulated 5.2% real GDP advance in 2023, the economy will likely grow around 4.8% in 2024, with a further moderation to 4.2% in 2025. Authorities are expected to adopt targeted fiscal policy support measures and slightly increase the budget deficit beyond the usual 3% in 2024, with a focus on supporting the property sector and households. The People’s Bank of China is likely to allow for some currency depreciation to prevent an excessive tightening of domestic financial conditions.

Economic growth is expected to remain subdued across the LatAm region in 2024, with Brazil and Mexico growing at below-trend pace and Argentina experiencing a deep recession. With a notable exception of Argentina, inflation has subsided, though local food price shocks and hikes in regulatory prices will temporarily amplify price pressures in some countries. Coupled with market volatility and political instability, this is likely to sway central banks to pause or slow down the pace of monetary policy easing.

We expect real GDP growth across almost all ASEAN economies to accelerate in 2025, resulting in average GDP growth increasing from 4.0% in 2024 to 4.2% in 2025. The growth will be mainly driven by robust domestic demand, a tight labor market, a recovery in tourism, stable prices and a rebound in merchandise exports.

Real GDP growth in the MENA region should accelerate from 2.3% in 2024 to 3.8% in 2025–26 as the Organization of the Petroleum Exporting Countries plus other oil-producing countries look to unwind oil supply cuts and non-oil GDP growth in the Gulf Cooperation Council region accelerates.

The outlook for the SSA region is promising, notwithstanding pockets of stubborn inflation, exchange rate pressures and a push for fiscal consolidation amid generally elevated debt levels. Aggregate real GDP growth across the region is forecast to reach just over 3.5% per year in 2024–26, while inflation is expected to slow from 10% in 2023 to 5%–7% in the coming years. As a result, monetary policy is expected to ease gradually.