National Institute Global Economic Outlook – Summer 2024 – Summary

With the global economy on the verge of a gradual shift in policy mix, we forecast GDP growth to moderate at around 3 per cent this year and next. The combination of tight monetary policy and loose fiscal policy has kept the global economy resilient to economic and geopolitical challenges, while contributing to falling inflation in advanced economies. This policy mix is about to change, with many central banks having already reduced, or signalled a possibility of reducing, policy rates. In contrast, fiscal policies will be constrained due to higher borrowing costs and surging debt levels following years of fiscal stimulus. Overall, we forecast global GDP growth to remain lacklustre at 3.1 per cent in 2024 and 3.2 per cent in 2025. Among the advanced economies, growth in the Euro Area continues to under-perform, at 0.8 per cent, with its largest economy, Germany, barely recovering from recession. Despite some signs of slowdown, the US economy is still expected to see growth of around 2.6 per cent this year. GDP growth in major emerging economies has held up with BRICS+ countries forecast to grow by 4.7 per cent in 2024. China and India, the two major emerging economies, will see growth of around 5 and 7 per cent respectively this year and next. Headline inflation rates have fallen close to target levels in the major advanced economies, in part thanks to the effects of rapid monetary policy tightening. However, underlying inflation rates still have some way to go, leading to caution in reducing policy interest rates. We forecast that OECD annual inflation (excluding Turkey) will fall from 5.8 per cent last year to 3.5 per cent in 2024 and 2.2 per cent in 2025. We expect the Federal Reserve (Fed) to start cutting interest rates in September, following the first rate cut from the European Central Bank (ECB) in June. We expect one more rate cut from the Fed in the last quarter and two cuts from the ECB in the second half of this year. These rate cuts will, to a large extent, be dependent on the developments of geopolitical tensions, which remains a threat to the commodity prices. The increase in interest rates over the past two years, particularly higher government bond yields, has put pressure on fiscal balances in advanced economies. Increased costs of debt service, at a time when debt-to-GDP ratios are already extended, leave governments with little room for positive fiscal policy actions in 2024 and 2025. Continued uncertainty over the war in Ukraine and developments in the Middle East mean that the outlook for economic activity and inflation remains subject to considerable risks. Our forecast and revisions since our Spring Global Economic Outlook are summarised in table 1 and our fan charts for global GDP and (OECD) inflation are shown in figures 1 and 2.