The global economy has been resilient over the first half of 2024

Summary

Forecast changes

Despite challenges—mostly geopolitical and monetary policy related—the global economy has been resilient over the first half of 2024. With that said, we have lowered our 2024 global GDP growth forecast marginally, to 2.9% from 3.0% last month. A softer outlook for the U.S. economy accounts for most of the downward revision, although we have also lowered our GDP growth forecasts for Canada, Australia and India relative to last month's publication.

Given lingering inflation concerns, especially around services inflation, we forecast later or more gradual monetary easing from several central banks, including the European Central Bank, Bank of England, Norges Bank, Reserve Bank of Australia and Reserve Bank of New Zealand. We also forecast a slower pace of rate cuts from central banks in Mexico and Chile, while we expect the Bank of Japan to raise interest rates again in 2024 and also in 2025.

We have made only modest changes to our outlook for the U.S. dollar. The current phase of elevated U.S. rates means the greenback can strengthen through Q3-2024, though the tendency for more gradual easing from foreign central banks could limit foreign currency declines over the next few months. Longer term, we forecast an extended period of greenback depreciation as U.S. growth slows more noticeably, the Fed lowers interest rates and global financial conditions ease.

Key themes

The economic growth divergence between the U.S. and G10 economies that was apparent early this year may be turning to convergence. There are tentative signs of an approaching U.S. economic slowdown, while European economies remain on an overall gradual upswing. We also observe a convergence on the inflation and interest rate front. Encouraging U.S. inflation readings means our view for Fed easing to begin in September is unchanged. Internationally, low productivity combined with labor cost pressures is contributing to lingering inflation risks, which could lead to later or more gradual easing from many foreign central banks.

Converging growth trends are paired with a global economic outlook that has softened and become modestly more uncertain. Election outcomes across many emerging economies, and approaching elections in France and the U.K., have injected temporary uncertainty; however, we expect a fair degree of policy continuity and only moderate deviations from previous policy paths resulting in little prolonged economic or market impact. Fiscal policy dynamics have become less favorable in select Latin American economies, which has contributed to FX depreciation pressures building on currencies in Brazil and Colombia.

With the Fed maintaining elevated interest rates for now, we continue to see dollar strength over the next several months, although more gradual easing from international central banks could limit foreign currency declines. Once the Fed begins easing from late this year we believe depreciation pressures can build on the greenback, and a downtrend in the dollar can persist for most of 2025. The yen, Australian dollar and Norwegian krone could perform well versus the U.S. currency during 2025, while we are not phased by recent volatility in Mexico and still see the Mexican peso as a long-term outperformer on lessening domestic political risk and attractive carry.

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