Long-term Trend:
- Global economies have experienced a slowdown in long-term GDP growth over the past 15–20 years, a trend expected to continue.
United States
- Inflation is moderating, with disinflation expected to bring inflation to the Fed’s 2% target by 2025.
- Cooling labor markets will likely enable the Fed to cut rates multiple times in late 2024 and throughout 2025.
- The US economy is expected to avoid recession but grow slowly in H2 2024.
- The November election outcome could impact economic policy:
- A divided government may maintain the status quo.
- A Trump win and Republican majority could spur tax cuts but also raise tariffs, potentially pushing inflation higher and slowing growth.
Euro Area
- The region has recovered somewhat post-2023 slowdown, but domestic demand remains weak, especially in Germany and the UK.
- Inflation is approaching targets, but sticky services inflation remains a challenge (4.2% in Europe, 5.2% in the UK).
- Employment remains strong, supporting wage growth and inflation pressures.
- The ECB cut rates in September and is expected to continue gradual easing through 2025, with deposit rates falling to 2.5%. The Bank of England will likely cut rates more cautiously.
- Growth is constrained by monetary policy; southern European countries may outperform due to tourism and less structural drag.
Japan
- Real GDP growth forecast is -0.3% for 2024, below potential growth of 0.5%, but modest recovery expected in 2025-26 driven by domestic demand.
- Inflation is expected to stabilize around 2% supported by rising wages, particularly after strong 2024 spring wage negotiations.
- Population decline is shifting from a deflationary force to a driver of wage inflation, leading the BOJ to adopt a hawkish stance.
- BOJ expected to hike policy rates in Dec 2024, April 2025, and July 2025 by 25 bps each.
Asia ex-Japan
- Despite China’s slower growth and housing crisis, Asia’s economic growth remains resilient, helped by a tech export recovery and strong domestic demand.
- Export growth may moderate in 2025.
- Singapore, Malaysia expected to outperform consensus growth estimates; Thailand below consensus.
- India, Indonesia, the Philippines, and Malaysia are medium-term regional outperformers.
- Many Asian central banks are beginning rate-cutting cycles as inflation eases and domestic demand needs stimulus, including recent cuts in the Philippines and Indonesia.
- Asia’s trade relationship with China is shifting: exports to China are declining while imports from China rise, reflecting supply chain relocations and China’s weaker demand, creating challenges for some emerging Asian economies.
- Medium-term outlook positive with potential strong capital inflows driven by supply chain shifts, AI, and infrastructure investments.
