Broadening global growth, resurgent inflation define outlook

Six months ago, the consensus outlook for the global economy in late 2024 featured steadily falling inflation amid a slide toward recession that would trigger aggressive central bank rate cuts. The best outcome would be a “soft landing” slowdown that dodged a recession thanks to central bank action. Investor hopes for this scenario led to simultaneous rallies in equities, high‑quality government bonds, and bonds with credit risk. What a difference a few months make: Consensus now expects continued expansion, resurgent inflation pressures, and limited easing from central banks. We’re not quite as sanguine on growth as this “no landing” scenario, but it looks like recession is off the table for at least the next six months.

Broadening of global growth

The consensus also still involves U.S. exceptionalism, with U.S. expansion easily outpacing anemic growth in other developed markets. But U.S. first‑quarter growth disappointed. With leading indicators in the eurozone moving smartly higher, we could easily see an overall broadening of global growth, undercutting the U.S. exceptionalism narrative.

“...recession is off the table for at least the next six months.”

Nikolaj Schmidt, Chief Global Economist

As of April 30, 2024.
Source: Bloomberg Finance L.P.
There is no guarantee that any forecasts made will come to pass. The consensus forecasts are for full-year 2024 GDP and CPI figures, taken at the end of December and the end of April, respectively.

The European Central Bank at its June meeting became the first major developed market central bank to cut interest rates. The Bank of England (BoE) looks poised to be the next to ease ahead of the UK general election on July 4, followed by the Federal Reserve. Because of the weaker starting point for the eurozone economy, we think the ECB will cut the most in 2024, with sticky inflation keeping the Fed to only one or possibly two rate reductions of 25 basis points each.

Which way for monetary policy in 2025?

The overarching question is: Where will this bring monetary policy in 2025? Even modest rate cuts this year could easily lead to reaccelerating growth—and inflation that would force the Fed to raise rates next year, with other major central banks following close behind. This could mean that central banks will be tightening policy as the labor market weakens going into the next recession. In this unusual scenario, we would expect more divergence in returns as investors sort through the implications for sectors and individual securities. Active portfolio management, with a focus on fundamental analysis and relative value, would be vital in this environment.

Active investing may have higher costs than passive investing and may underperform the broad market or passive peers with similar objectives.
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