The Atradius Chief Economist, John Lorié, assesses the economic landscape during this challenging time for the global economy.
- Global growth is estimated to be 2.6% in 2024.
- Worldwide trade growth to improve to 2.5% in 2024 and 3% in 2025, in line with GDP growth.
- Inflation is slowing down and closing in on central bank targets.
The global economy seems on track for a soft landing, as inflation is coming down, while a recession seems to be avoided. Global GDP projections for 2024 have been revised upwards due to a surprisingly resilient US economy, while the effects of monetary tightening are less severe than expected. The US economy stands out due to stronger demand and higher labour supply, which is positively impacting growth. The global economy is likely to improve slightly in 2025, to 2.8%, with improvements in purchasing power as inflation continues to decline. Global growth is estimated to be 2.6% in 2024, an upward revision of 0.5% compared to expectations six months ago, reports Atradius in its semi-annual Economic Outlook.
Inflation has been coming down in the past two years and is now closing in on central bank targets. At the same time, there are signs that the last mile of disinflation might be a challenge, especially in the US, where inflation appears to be more sticky. Eurozone inflation is on a clearer downward trajectory and can be expected to fall below 2% in 2024. Atradius forecasts global trade growth to improve to 2.5% in 2024 and 3% in 2025. This comes after a downbeat 2023, when trade shrank by 1.2%.
Eurozone trade was hit particularly hard last year, as high energy prices hit the manufacturing sector and demand from China was relatively weak. From a historical perspective, trade growth remains slow in 2024, as well as next year. While the Red Sea crisis weighs on the trade outlook, we believe risks are relatively contained at the moment.
“We expect EU inflation to be brought down faster than in the US, as the source of inflation is different. US inflation is driven primarily by services inflation, which is more sticky than other inflation components, such as energy. Wage growth is expected to remain relatively high in advanced markets as compared to current inflation to make up for past real income losses. This effect will die out over time, helped by robust inflation expectations that remain close to central bank targets. Given the expected inflation development during 2024 and 2025, monetary easing is in the cards, especially in the eurozone. This will support growth.
More benign inflation environment in advanced economies
Advanced economies are expected to grow by 1.6% in 2024. According to Atradius, the US economy is displaying resilience, due to lower inflation driving consumers’ purchasing power and higher immigration, which is driving up labor supply. The delayed effects of monetary policy tightening can be felt, but are less vigorous than previously expected. For 2025, Atradius predicts the GDP growth rate in advanced markets to be more or less on par with this year. The outlook for emerging market economies (EMEs) is stronger than that for advanced economies, but it remains weak by historical standards. Atradius expects GDP growth in EMEs to stay in a lower gear at, 3.9% this year and 4.0% in 2025. Many EMEs continue to face spending pressures related to continuing geopolitical tensions and fiscal support to address the negative effects of disruptions to international trade. A further rise in geopolitical tensions might lead to increased shipping costs and higher oil prices, which will push inflation up again and trigger further tightening by central banks, leading to lower demand from firms and households, and lower GDP growth.