Navigating Global Macro Developments: Key Insights for 2024

As we approach the latter half of 2024, the global macroeconomic landscape remains largely in line with our baseline expectations. While GDP growth has moderated across many economies, the U.S. stands out with its continued robust performance. Despite this, a broad avoidance of recession and easing inflationary pressures suggest a cautiously optimistic outlook for global growth.

Key Trends in Policy Rate Adjustments

The global macroeconomic narrative is increasingly centred on the recent shifts in policy rates. After a prolonged period of elevated rates due to persistent core inflation, major central banks have begun to ease monetary policy. Notably, the European Central Bank (ECB) and the Bank of Canada each implemented a 25 basis point cut in early June, marking the beginning of a broader rate-cut cycle.

This shift reflects varied inflation dynamics across regions. In economies where inflationary pressures have receded more significantly, such as the eurozone and Canada, central banks are acting to stimulate growth. Conversely, in the U.S., where inflation remains more persistent amid strong growth, central banks are maintaining a cautious stance.

U.S. Economy: A Continued Outperformer

The U.S. economy continues to outperform its advanced-economy peers, with growth averaging nearly 3% over the past four quarters. This performance is driven primarily by strong consumption of services, fixed investment, and government spending. Although quarterly growth slowed in early 2024, the overall trajectory remains positive, with private demand showing resilience.

Global Labor Market Dynamics

Labour markets worldwide remain tight, with unemployment rates near historic lows across major economies. This tightness is evident not only in the U.S., where demand for services and investment remains strong but also in the eurozone, despite recent manufacturing recessions. The persistence of low unemployment highlights the diverse economic conditions and policy responses across regions.

Challenges in China

China's economic recovery is uneven, weighed down by property sector challenges and weak consumer confidence. While growth rebounded to 5.3% in early 2024, recent indicators suggest a slowdown. Limited government stimulus and subdued household spending are contributing to slower growth, despite some positive investment momentum in manufacturing.

Revised Economic Forecasts

Our updated GDP growth forecasts largely align with previous expectations. Notable adjustments include upward revisions for Spain and the U.K. due to stronger-than-expected service sector recoveries and robust household balance sheets. Conversely, forecasts for Mexico and South Africa have been downgraded due to slower growth and increased policy uncertainties.

Outlook for Policy Rates

We anticipate a gradual decline in policy rates across major economies, with rate cuts expected to be smaller and spaced further apart compared to the previous hiking cycle. Terminal rates are projected to be reached by late 2025 or early 2026, with policy rates likely remaining on the restrictive side of neutral in a soft landing scenario.

In conclusion, while the global economy is navigating a period of transition with varying regional dynamics, the overall trajectory remains optimistic. As we advance, the interplay between inflation, growth, and monetary policy will be crucial in shaping the macroeconomic landscape.