Fitch Ratings: Fitch Ratings has raised its forecasts for world growth in 2024 in its latest Global Economic Outlook as confidence in European recovery prospects improve, China’s export sector revives and domestic demand in emerging markets excluding China (EM excl. China) shows stronger momentum. The US is slowing but only gradually and our 2024 growth forecast is unchanged at 2.1%.

The expected pivot to global monetary policy easing is now taking shape, with the ECB recently cutting rates and the US Federal Reserve and the Bank of England (BOE) both expected to follow suit in 3Q24. But inflation is surprisingly persistent and we now expect global rates to decline at a shallower pace over the next 12-18 months.

We have raised our forecast for world growth in 2024 to 2.6% from 2.4% in the March 2024 Global Economic Outlook. We have revised up eurozone growth by 0.2pp to 0.8%; China’s growth to 4.8% from 4.5%; and EM excl. China growth quite sharply, by 0.5pp to 3.7%. However, for 2025, we forecast world growth to edge down to 2.4% as US growth slows to a below-trend rate of 1.5% and growth in the eurozone picks up to 1.5%. We also expect growth in China to fall to 4.5% next year as exports and government spending decelerate.

European recovery prospects are on a firmer footing as the terms-of-trade and energy shock reverses, energy-intensive industries start to pick up in Germany and real wages rebound. Stronger real incomes will boost spending by households with robust financial buffers, while the drag from earlier ECB tightening diminishes.

The US economy is slowing as last year’s outsized fiscal impulse fades, imports recover and credit growth remains weak. But household-sector labour income continues to grow at a decent clip and robust household finances do not point to a sudden jump in the saving ratio.

Domestic demand has weakened in China as the property market collapse worsens and private consumption growth remains anaemic. But fiscal policy is being loosened and exports have rebounded, helping real GDP. Deflationary pressures are, however, widespread.

The global monetary policy cycle is entering a new phase, in which rates will be falling slowly but to levels that will still be restricting demand. We expect the ECB to cut rates twice more this year, and the Fed to start cutting rates in September with another cut in December. This is later than we had expected, reflecting stalled disinflation momentum in the first four months of the year. But US wage growth is gradually cooling.

Nevertheless, central banks remain cautious about loosening policy too rapidly, particularly in light of high services inflation. Pressures from rising labour costs and housing rents and the normalisation of relative price trends are keeping services inflation elevated.

“Global Economic Outlook - June 2024” is available via the link above or at www.fitchratings.com