Overview

• Inflation in advanced economies remained essentially stable for the third straight month, at around 2.7% yoy. The stickiness of advanced economy inflation so far this year has reduced the likelihood of rapid policy rate cuts by central banks in 2024, which could negatively impact growth rates in 2025 and 2026.
• Trends in advanced economies were mixed in Q1 – with overall growth outside the US rebounding (despite a contraction in Japan), while US growth decelerated. Overall, we see weaker growth from the AEs in both 2024 and 2025, in large part due to restrictive monetary policy and fiscal policy headwinds.
• Recent months have seen a surge in China’s export volumes – in stark contrast to the trends for the rest of the world – which has fuelled trade tensions with a range of other countries. In mid-May, the Biden Administration announced a range of tariff increases on Chinese imports, most notably a quadrupling of the tariff on electric vehicles. An EU investigation into China’s EV subsidies is due to be completed by early July. China’s response to both regions will be closely watched, with the risk of tit-for-tat tariff increases (much like 2018) triggering an economically damaging trade war.
• At a high level, our global economic outlook is essentially unchanged – with slightly stronger conditions for both the Euro-zone and United Kingdom in 2024 offset by a weaker forecast for Japan. Restrictive monetary policy is set to slow global growth to 2.9% in 2024, before growth edges marginally higher in both 2025 and 2026 – to 3.0% and 3.1% respectively.
• Beyond the uncertainty around the path of policy rates and potential disruptions from tariff increases, there remain a broad range of geopolitical risks, with conflict and tensions in the Middle East, Eastern Europe and South East Asia. The outcome of the US Presidential Election could substantially impact foreign and trade policy, as well as how monetary policy is conducted.

For further details, please see The Forward View Global (May 2024)