Economic Outlook - July 2024

Executive Summary

The global economy seems on track for a soft landing, as inflation is coming down while a recession can be avoided. Global GDP projections for 2024 have been revised upwards due to a surprisingly resilient US economy, while the effects of monetary tightening are less severe than expected. For 2025 the outlook is also slightly better, mostly due to upward revisions for the US.

• Global growth is estimated to be 2.6% in 2024, an upward revision of 0.5% compared to the December Economic Outlook. The US economy stands out in its resilience due to a stronger demand outlook and higher immigration. Growth is likely to improve slightly in 2025, to 2.8%, with improvements in purchasing power as inflation continues to decline.
• Inflation has been coming down in the past two years and is now closing in on central bank targets. At the same time there are signs that the last mile of disinflation could be a challenge, especially in the US where inflation appears stickier. Eurozone inflation, by comparison, is on a clearer downward trajectory and can be expected to fall below 2% in 2024.
• We forecast global trade growth to improve to 2.5% in 2024 and 3% in 2025, in line with GDP growth. This comes after a rather downbeat 2023, when trade shrank by 1.2%. Eurozone trade was hit hard in 2023 as high energy prices hit the manufacturing and demand from China was relatively weak. Trade growth in 2024-2025 does remain slow, however, by historical perspective. While the Red Sea crisis does weigh on the trade outlook, we think the risk is relatively contained at the moment.
• Advanced economies are expected to grow by 1.6% in 2024, an upward revision. The US economy is displaying resilience, due to lower inflation driving consumers’ purchasing power and higher immigration driving up labour supply. The delayed effects of monetary policy tightening can be felt, but less vigorously than previously expected. For 2025 we predict a growth rate more or less on par with this year.
• The outlook for emerging market economies (EMEs) is on average stronger than that for advanced economies, but it remains weak by historical standards. We expect GDP growth to stay in a lower gear at 3.9% this year and 4.0% in 2025. Many EMEs continue to face spending pressures related to ongoing geopolitical tensions (defence spending) and fiscal support to address negative effects from disruptions to international trade.
• We have also looked at an alternative scenario that rests on higher geopolitical tensions. Rising tensions could lead to increased shipping costs and higher oil prices, which then pushes up inflation. This will trigger further tightening by central banks, leading to lower demand from firms and households, and lower GDP growth.