Overview

Our estimates suggest that the global economy grew by a solid 0.9% q/q in 2024 Q4, similar to growth in Q3. While advanced economy (AE) growth eased in the quarter – as the US came off recent highs and Western Europe hit a soft patch – emerging market economies held up, including stronger growth in China.

Despite the improvement in the back half of the year, global growth, in year average terms, eased slightly in 2024 to 3.2% and is likely to slip further in 2025 and 2026. This reflects several factors, including an expected easing in US growth as it moves closer to its longer-term trend rate (in part due to a fading of recent supply-side and fiscal policy boosts) and ongoing structural issues in the Chinese economy.

While looser monetary policy settings will be supportive, fiscal settings are more mixed. Fiscal policy is contractionary in some regions, such as Western Europe (although political pressures are acting to reduce the magnitude) while China may continue to roll-out small-scale stimulus measures but potentially could do more if US tariffs have a major impact.

US fiscal policy direction is unclear – as the administration targets cost savings while Congress discusses tax cuts. Policy uncertainty is high in other areas, notably trade where US tariff policy is likely to be a headwind to global growth.

The US imposed additional tariffs on Chinese imports this month and announced tariffs on all steel & aluminium imports to take effect next month. Other tariff measures are almost certain to be announced but when they will take effect, and at what level, is unclear. Retaliatory measures by impacted countries are also likely, which could be met by escalation. The prospect of tariff increases may see some activity brought forward, but the uncertainty may see business investment deferred and consumers become more cautious.

Progress on reducing inflation led many AE central banks to cut rates last year, to make policy less restrictive. Further rate cuts are likely this year, with the pace likely to vary depending on how close inflation is to target, how far rates are from neutral and the strength of activity. The US Federal Reserve is likely to stay on hold for several meetings due to a strong economy and uncertainty around the inflation outlook. Japan is the main exception – it is gradually lifting rates from their current low levels as its long period of battling deflation appears over.

Geopolitical uncertainty remains elevated, although moves to negotiate an end to the Russia-Ukraine war, if successful, could boost global supplies of energy and agricultural products. Similarly, a sustained Middle East ceasefire could improve sentiment in a range of markets. However, positive outcomes in either region are far from guaranteed.

For further details, please see The Forward View Global (February 2025)