Global economic outlook: July 2024 (2024)

BLOG Jul 15, 2024

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Global growth is being supported by moderating inflation,more accommodative financial conditions and a pickup in globaltrade. Still, growth rates are not forecast to reach theheights of prior expansions owing to a combination of headwindsincluding elevated debt burdens, higher interest rates and variousgeopolitical uncertainties. At the regional and national levels,our forecast narrative remains one of divergent near-term trends.The forecast includes a continuation of the gradual slowdown in theUS economy, reflecting factors including tighter bank lendingstandards, less supportive fiscal policy and the strong dollar. Incontrast, economic conditions have been improving in WesternEurope, although growth is expected to remain rather tepid.

S&P Global Market Intelligence analysts' forecast ofglobal real GDP growth in 2024 is unchanged at 2.7% in July'supdate. Downward revisions to our growth forecasts forCanada and Japan have been broadly offset by upward revisions toprojections for the UK particularly, as well as for India andRussia. The 2025 global growth forecast has been edged down, from2.8% to 2.7%, primarily reflecting a weaker US forecast.

June's global Purchasing Managers' IndexTM (PMI®) datashowed a mixed picture. The composite global output indexlost ground for the first time in eight months. Global manufacturingand services output indexes both weakened, as did the compositeaggregates for advanced and emerging economies. Businessexpectations also fell to the lowest level for seven months, linkedto political uncertainty surrounding various elections.Nonetheless, PMI data continued to signal stronger global growthmomentum compared with late 2023 and all subsectors reported stableor rising output in June for the first time in three years. Althoughmanufacturing growth dipped, June's rate of expansion was still thesecond strongest in two years.

Global consumer price inflation is forecast to continueits gradual decline. From an estimated 4.5% in May,inflation is forecast to decline below 4% in the final quarter of2024 before settling at around 3% from the second half of 2025.In-house forecasts for Brent crude oil prices in late 2024 and in2025 have been lowered, which reflect expected excess supply,contributing to the downward revision of the 2025 global consumerprice inflation forecast. Underlying price pressures should alsocontinue to ease, in tandem with moderating wage and unit laborcost growth.

Core goods have been the primary source of underlyingdisinflation to date. This situation reflects weak demandand improving supply conditions, including shortening deliverytimes. The core goods inflation rate in the Group of Five (G5)economies turned negative in April and May, according to MarketIntelligence estimates. However, leading indicators, including ourglobal manufacturing PMI price indexes, suggest the rate willbottom out in mid-2024 before rising gradually in line with higherproducer price inflation rates. According to June's PMI data, pricescharged by manufacturers rose at the sharpest rate for 15months.

Upside risks to inflation will need close monitoringgiven the potential implications for monetary policy. Thekey upside risks include continued tight labor market conditions,which are keeping labor cost growth rates elevated; adverseweather; disruptions to supply chains; and increased protectionism.The consumer price inflation rate for services in the G5 economiesedged down to 4.7% in May, according to our preliminary estimates,still well above the levels historically consistent with centralbank inflation targets being met. June's PMI data, however, showedfurther signs of cooling selling price inflation in the servicesectors of most major economies.

Monetary policy easing is forecast to become morewidespread from late 2024. The forecast moderation ininflation and the start of the US Federal Reserve's easing cycleshould pave the way to more accommodative global financialconditions in 2025-26, supporting economic activity. Our base caseremains for an initial US rate cut in December. The chances of asomewhat earlier move have risen given the recent Fed commentaryand improving inflation data. At the time of writing, futuresmarkets were fully factoring in a 25-basis-point cut in Septemberand at least two 25-basis-point cuts by year-end. More dovish USpolicy rate expectations have weakened the dollar, as expected.While various fundamentals factors point to further depreciation,including shifting growth and interest rate differentials,safe-haven flows due to rising uncertainty could interrupt thetrend.

A stream of US rate cuts is forecast in 2025-26, but areturn to pre-pandemic lows remains unlikely. For advancedeconomy central banks, we forecast a return to neutral policy ratesby 2026, implying levels that are well above their pre-pandemicnorms. Policy rates could fall below their estimated neutral levelsif inflation rates fall below targets for a sustained period,although we consider this unlikely owing to various structuralchanges to the global economy.

Listen to our podcast episode onthe US macroeconomic outlook

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.