Global Economic Outlook 2024-2026 – The great balancing act; updated country risk reports & a new Tomorrow podcast episode

Without freedom of action, freedom of thought is but a glass half-full. In addition to thinking freely about our analysis and findings, you have the freedom to act upon it and share your thoughts and feedback with us, if you like. Quite a lot to digest in terms of insights this week with our autumnal update of our economic and capital market outlook for the 2024-2026 period: surely a great balancing act given the new normal of increased volatility and level insecurity. As usual, there’s our slide deck in addition to the publication for your convenience. No What to Watch this week, but a fresh episode of our Tomorrow podcast on how to make companies demography-proof plus a batch of revised country risk updates.

Global Economic Outlook 2024-2026: The great balancing act

The comprehensive report for you here and the slide deck here .

• Steady (not stellar) global growth ahead at +2.8% until 2026, in line with the long-term average. The US economy is slowing but will remain the main support to the global economy in 2024. Momentum is gradually building in Europe, though Germany will remain the exception, with the economy only exiting recession by the end of 2024. Domestic demand continues to slow in China as policy easing can only partly compensate for the headwinds brought on by the continued real estate crisis.
• Recession risks in the US are rising but the economy is still within the range of a soft landing. Strong household and corporate finances, a rising trend in manufacturing investment and the technology sector support this view. However, US consumption is expected to slow further next year, in line with the slowdown of earnings growth. In Europe, leading indicators still show recession risks but are improving from low levels.
• It’s austerity time (again). The fiscal consolidation ahead will be the big elephant in the room as it will represent a drag on GDP growth of around -0.3pp on average until 2027 in both the US and Europe. Tax hikes, mainly on corporates, are more likely than spending cuts. In addition, quantitative tightening (QT) will transfer more than 3pps of debt/GDP per year to investors in Europe.
• Inflation should reach the 2% target in H1 2025, allowing for a strong(er) easing cycle ahead. Inflation surprised on the downside during the summer, and we expect sticky services inflation to soften slowly, driven by decelerating wages, while energy and goods will continue to drag inflation down. Oil prices should remain below 80 USD/bbl in 2025-26 in the absence of a stronger recovery in demand and no supply shock. Gradual central bank easing should continue until terminal rates are reached next year, with the Fed cutting down to 3.5%, the ECB to 2.25% and the BoE to 3.0%. Emerging market central banks will cautiously proceed with their easing cycles as portfolio inflows should pick up again on more favorable interest rate differentials.
• Real wage growth revives consumers’ purchasing power, but excess savings continue to build up in Eurozone countries amid subpar confidence. Consumer spending has favored services over goods, but services sales in volume have started to slow amid high inflation. Some durable goods are likely to be replaced in the next quarters, especially in Europe, in line with the replacement cycle. Nominal wage growth is set to normalize by 2025 in line with the cooling down of labor markets once some corporates (mainly in food, auto, materials and machinery & equipment) reduce labor hoarding.
• Restocking has started and is likely to be a tailwind for the global trade recovery. H1 confirmed the exit from 1.5 years of trade recession, and we expect the recovery to be more sustained going forward, along with the rebound in consumption. Overall, we expect global trade to increase by around +3% in 2025-26 in volume terms, but to remain below the long-term average.
• Corporates are recovering by digging into inventories. In Q2, revenues and earnings growth were fueled by corporate destocking. The Europe-US divide persists; despite a slight improvement in corporates’ financials in Q2, Eurozone fixed capital investment fell to 7% below pre-pandemic levels and far behind peers such as the US and the UK. Major insolvencies continued to accelerate, mainly in retail, construction, and services. Overall, we expect business insolvencies to rise by +10% in 2024 and by +1% in 2025.
• Capital markets remain under the spell of central banks. Markets are now pricing a strong policy rate-cutting cycle for most Western central banks, dragging long-term government bond yields lower. This provides some tailwind to riskier investments, with government bond spreads in Southern Europe narrowing further. As we see slightly less easing by the Fed and the ECB compared to market pricing, we do not expect long-term yields to fall below current levels in the near term.
• Risky assets at the mercy of political uncertainty. After a relatively weak Q2 earnings season, which has partially deflated some market imbalances (e.g. AI boom), market participants have quickly lowered expectations for corporates’ growth capabilities. Nevertheless, decent single-digit earnings and revenue growth, paired with declining financing rates, should help maintain a decent single-digit return profile over the next three years. However, still elevated (geo)political uncertainty will keep investors awake as periods of heightened volatility are to be expected.
• Geopolitical tensions pose downside risks to our scenario. A potential surge in US protectionism if Donald Trump wins the US elections is the largest risk, along with high political uncertainty in major European countries (France, Germany, Belgium, Netherlands) as well as the ongoing conflicts in Russia-Ukraine and the Middle East, and tensions in the South-China-Sea and with Taiwan. Overall, our downside scenario translates to -1.5pp lower global growth and +1pp higher inflation, which would keep interest rates higher for longer.

The comprehensive report for you here and the slide deck here .

Fresh digital content for you

A new episode of our Tomorrow podcast just aired : With the workforce population set to decline and workers getting older, how can we make companies demography-proof? We find out in this episode with Arne Holzhausen, Head of Insurance, Wealth and ESG Research, and Senior Economist Michaela Grimm. Read the full report "Fostering age inclusion at work to make companies demography-proof ".

Revised country risk reports

• Algeria : Rated C2 (medium risk for enterprises), a stable rent economy with the country being the top natural gas producer in Africa.
• Bulgaria : Rated BB1 (low risk for enterprises), with a high degree of economic resilience despite government instability.
• C?te d’Ivoire : Rated C2 (medium risk for enterprises) and one of West Africa’s success stories (though still highly vulnerable to exogenous shocks).
• Lithuania : Rated A2 (medium risk for enterprises), with consumer spending drives gradual recovery in 2024-2025.