Overview

• Global inflation remained at an elevated 5.0% yoy in April (unchanged from March), although inflation in advanced economies edged lower to 2.6% yoy.
• While overall progress in lowering inflation has slowed, some central banks have seen enough to start cutting rates, given policy is clearly restrictive. This month the European Central Bank and Bank of Canada cut rates, the first of the major advanced economy (AE) central banks to do so. Japan, in contrast, is moving to gradually tighten policy. We expect further major AE rate reductions, including by the US Fed and Bank of England, later this year and into next. The risk is that cuts occur later or at a slower pace if there are inflation disappointments.
• Real household income growth has picked up in Western Europe which will sustain consumption but it has slowed in the US and is negative in Japan. Easing policy headwinds (both monetary and fiscal) should see major AE growth strengthen over 2025, although upcoming elections could change the fiscal outlook.
• EM business surveys strengthened in May, with the S&P Global composite PMI at its level in a year, although this was largely driven by China where alternative surveys are weaker. India’s economy expanded by 7.8% yoy in Q1, and it remains the fastest growing major EM economy.
• We have slightly revised our global economic outlook this month – with growth of 3.0% expected in 2024 (was 2.9%), mainly reflecting strong growth in Russia in Q1. This is still soft by historical standards, and we expect the same in 2025, before moving marginally higher in 2026.
• Highlighting the trend towards trade restrictions, this month the EU announced tariffs on electric vehicle imports from China. There is a risk of further trade measures by other countries, particularly by the US if Trump is elected. At the same time geopolitical tensions persist – including the Russia-Ukraine war and conflict in the Middle East which has contributed to a large increase in freight rates.

For further details, please see The Forward View Global (June 2024)