Overview

• Stimulus measures announced by China, and expectations of more to come, have boosted the Chinese equity market and global commodity prices. Announcements to-date are, in our view, insufficient to get growth back on track. If the government fails to deliver on expectations of material stimulus, the gains in equity and commodity markets may unwind.
• The US economy continues to motor along but, in contrast, the Euro-zone economy looks to be going through another soft patch, in part due to the ongoing struggles of the German economy.
• Even as the US economy remains resilient, the Federal Reserve cut its policy rate last month by 50 bps. As with other major central banks that have cut rates, the substantial progress made in reducing inflation, well anchored inflation expectations and a better supply and demand balance (particularly in the labour market) means less restrictive interest rate settings are needed.
• While the Fed is expected to cut rates (and our central case is for 25bp cuts per meeting until rates return to neutral), stronger than expected employment and inflation data for September have tempered market expectations about how quickly this may occur and raised the possibility of the Fed pausing in the near term. This is a reminder that inflation remains high and that if it does not come down as expected, central banks will need to maintain restrictive policy settings in place for longer.
• Our global growth forecasts are unchanged this month. We see the global economy expanding by 3.1% in both 2024 and 2025, and then 3.2% in 2026, a subdued pace by historical standards.
• There remain a range of risks around this central outlook. As noted above, there is uncertainty over the pace with which central banks reduce rates. There remain a number of geopolitical tensions, including an expanding conflict in the Middle East which has recently led to an increase in oil prices. US elections could bring with them large changes in trade and, potentially, fiscal policies depending on results.

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