National Institute Global Economic Outlook – Autumn 2024 – Summary

Global economic growth is expected to remain somewhat weaker than pre-pandemic levels, but still stable in 2024 and 2025. With financial conditions easing and interest rates declining in major advanced economies, the global economy is not showing a broad-based recovery, nor a sharp slowdown. As a result, global economic growth is forecast to maintain a steady rate of 3.2 per cent for both years. Significant disparities remain in the economic performances across both advanced and emerging market economies. Growth in advanced economies is mainly driven by the United States, which is expected to achieve a soft landing following its strong post-pandemic recovery, while the Euro Area continues to underperform. India and China continue to lead emerging markets, although the medium-term growth prospects in the latter have weakened due to several structural challenges. Headline inflation rates have fallen below the target levels in most advanced economies, while core inflation rates still show some stickiness. We forecast that OECD annual inflation (excluding Turkey) will fall from 5.9 per cent last year to 3 per cent in 2024 and 2.1 per cent in 2025. Higher oil prices and shipping costs due to a potential escalation of the conflict in the Middle East, as well as faster falls in interest rates could still keep inflation a concern for many economies. We expect gradual interest rate cuts from the Federal Reserve (Fed) and the European Central Bank (ECB) until the second half of 2025. We have seen three interest rate cuts from the ECB since June amid lower inflation and stagnant activity and an arguably belated but strong rate cut from the Fed in September. The Bank of Japan (BoJ) is likely to raise rates slightly due to inflationary pressures, whereas the People's Bank of China (PBOC) is expected to remain cautious about making further monetary policy moves. Although accommodative fiscal policy supported the post-pandemic recovery, this is not sustainable given higher interest payments and escalated public debt levels. Although the budget deficit is expected to remain high in the United States, especially given the election campaign pledges of tax cuts and increased spending, most advanced economies are expected to adjust their fiscal positions going forward. Policy uncertainties in the post-election period in the United States and potential escalation of the Middle East conflict pose major downside risks to our forecast. However, a rapid stabilisation of the situation in the Middle East and/or Ukraine, faster monetary policy normalisation and potential gains from the faster adaptation of AI present upside opportunities. Our forecast and revisions since our Summer Global Economic Outlook are summarised in table 1 and our fan charts for global GDP growth and OECD inflation rate are shown in figures 1 and 2.