Macro at a Glance Latest Views and Forecasts

• Globally, I expect real GDP growth of 2.6% yoy in 2024, reflecting tailwinds from strong real household income growth, a smaller drag from monetary and fiscal tightening, a recovery in manufacturing activity, and an increased willingness of central banks to deliver insurance cuts if necessary. I anticipate global core inflation to fall back to 2-2.5% by the end of 2024 as core goods inflation continues to decline, shelter inflation falls further, and the supply-demand balance in the labour market continues to improve.
• In the US, I expect real GDP growth of 1.8% in 2024 on a Q4/Q4 basis, reflecting a reduced drag from monetary and fiscal tightening and strong real disposable income growth. I continue to see a below-consensus 15% probability of entering a recession over the next 12 months. I expect core PCE inflation to decline to 2.4% by Dec 2024, reflecting disinflation from the advanced stage of rebalancing in the Labor, housing rental, and car markets. I expect the unemployment rate to decline to 3.7% in 2024 and remain there for the next few years.
• I believe the Fed’s hiking cycle is complete, and I think the Fed will remain on hold at the current Fed funds rate range of 5.25-5.5% into 2024. I expect the first rate cut to only come in 4Q24 and to proceed at a pace of 25bp/quarter, with the Fed funds rate range likely ultimately stabilizing at 3.5-3.75%, a higher equilibrium rate than last cycle.
• In the Euro area, following a period of stagnation in 2H23, I expect real GDP growth to increase to 0.9% yoy in 2024, reflecting a pick-up in real disposable income, a fading credit drag as the ECB remains on hold, and an improvement in manufacturing activity, which should more than offset the building headwind from fiscal policy. I expect core inflation to slow further to 2.2% yoy by December 2024, reflecting continued declines in services inflation and normalizing wage growth. I believe the ECB’s hiking cycle is complete, and I think the ECB will remain on hold at 4.00% until the first rate cut in 3Q24, after which I expect rate cuts to proceed at a 25bp/quarter pace until the policy rate reaches 2.5% in 4Q25. On balance sheet policy, I expect the ECB to limit PEPP reinvestments in 2Q24 to EUR 10bn/month, before stopping all reinvestments from 3Q24.
• In China, I expect real GDP growth of 4.8% yoy in 2024, reflecting a material step up in policy easing and a pick-up in investment growth. I expect policy easing to be front-loaded, and growth momentum to be stronger in the first half of 2024. That said, I maintain my cautious view on China’s medium to long-term growth outlook given deteriorating demographics, property and local government deleveraging, and global supply chain de-risking.
• WATCH WAR IN THE MIDDLE EAST, A HIGHER-FOR-LONGER RATE ENVIRONMENT, AND DETERIORATING DM PUBLIC DEBT PROFILE. A potential escalation of the war in the Middle East that interrupts trade through the Strait of Hormuz could lead to significant increases in energy prices that would likely lower global growth, on net. Across DM and EM economies, a higher-for-longer rate environment presents several growth challenges, although I continue to think higher rates will be a manageable headwind to growth, not a recessionary shock. The deteriorating public debt profile in DMs is a growing concern, though I think markets will remain patient unless next year’s US elections bring the possibility of fresh unfunded fiscal expansion.

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