Global economic outlook

Promising growth despite headwinds

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EIU GLOBAL OUTLOOK
PROMISING GROWTH DESPITE HEADWINDS

EIU Global Outlook

• We are now forecasting 2.5% global real GDP growth in 2024 (compared with 2.4% previously),
meaning growth will be unchanged rather than slowing from 2023. Growth is proving surprisingly
resilient in the face of high interest rates and geopolitical risks.

• The change in global growth reflects another upward revision for US growth in 2024 to 2.2% (from
2% previously), upward revisions for several European economies that have pushed euro area
growth to 1% (from 0.8%) and an upward revision for Brazil to 2.1% (from 1.8%).

• We have reduced our expectations for future monetary policy loosening, removing one 25-basis-
point cut from the loosening cycles of both the Federal Reserve (the US central bank) and the
European Central Bank in 2024-25. In contrast, we now expect the Bank of England (the UK central
bank) to cut quicker than previously forecast, lowering its rate to 3.5% by end-2025 (compared with
4.25% previously).

• The US dollar effective exchange rate is now forecast to appreciate for a third consecutive year in
2024—we previously expected a mild depreciation. This reflects a stronger depreciation in the yen’s
value than previously forecast and the fact that we are no longer forecasting euro appreciation.

Global power changes are leading to greater conflict and competition

The global geopolitical environment is characterised by increasing competition and conflict. The
confrontation that has emerged between Israel and Iran highlights the ongoing risk of a regional war

Rising global weight of emerging economies will strain geopolitics

Nominal GDP; US$ trn
G7 BRICS+ 140
Forecast
120
Crossover in mid-2040s,
as India's economic heft 100
expands
80

60
Gap between G7 and BRICS+ members
has stayed consistent in recent years 40

20

0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Source: EIU. Copyright © The Economist Intelligence Unit 2024. All rights reserved.

1 © The Economist Intelligence Unit Limited 2024

EIU GLOBAL OUTLOOK
PROMISING GROWTH DESPITE HEADWINDS

in the Middle East as the conflict in Gaza continues. Russia’s invasion of Ukraine, now in its third year,
shows no sign of resolution. Flash points in Asia, such as in relation to the South China Sea and Taiwan,
will pose a persistent threat to the fragile stability that has developed in US-China relations. The
diffusion of global power and uncertainty over the direction of US foreign policy underpins this rise in
geopolitical risk.

Geopolitics will lead to reconfigurations in the global economy

EIU forecasts more fragmentation and regionalisation in the world economy in 2024-28 as alliances
tighten and competing blocs form. The return of industrial policy, including sanctions and the provision
of new incentives, will push firms to adopt more inefficient supply chains, stoke trade tensions in
strategic sectors and make it difficult to compete across the global marketplace. These developments
will drag on growth potential. We expect that global real GDP will expand by 2.8% a year on average
over the next five years—below the 3% of the 2010s, which was hardly a stellar decade for the global
economy.

Despite headwinds, the immediate growth outlook is fairly rosy

In the near term, however, the global economy is showing resilience in the face of international conflict
and higher interest rates. This mainly reflects the remarkable strength of the US economy, which
is driven by strong household finances, a rising trend in manufacturing investment and a booming
technology sector. Elsewhere, the picture is less dynamic but short of a downturn. Momentum in
Europe will build gradually in 2024. Modest government stimulus in China is helping the economy to

Resilient global growth in 2024 as US economy outperforms

Change in real GDP, 2024; %

NO SE FI A lower intensity war −4.0% 8.0%

in Ukraine but far
IE
E GB NL DK from resolution
Asia export
CA BE DE CZ PL recovery, supply- End of deflation
chain investment in Japan!
US FR CH AT SK RU
China’s economy
MX PT ES IT
T HU RO UA AZ KZ is weak but
stabilising
CO VE BG TR CN KR JP
Mexico will be a winner
EC PE from nearshoring of GR IQ
Q IR
R PK IN
N BD MM VN HK TW
supply chains
CL BR ILL SA LK TH KH
More difficult economic
AR conditions in the euro zone MA DZ EG QA MY PH
will lead to earlier rate cuts
than in the US GH NG ET AE India is forecast SG
to be the fastest
Resilient US UG KE growing major ID
D
economy, but Convergence prospects for economy in PG
political risk is the emerging markets held AO TZ 2024-28
rising ahead of back by debt, climate AU NZ
close elections change and technology ZA Spike in oil prices from Middle East
challenges conflict could lead to global recession
Source: EIU. Copyright © The Economist Intelligence Unit 2024. All rights reserved.
2 © The Economist Intelligence Unit Limited 2024
EIU GLOBAL OUTLOOK
PROMISING GROWTH DESPITE HEADWINDS

emerge from a property-related slump. Emerging markets will benefit from a rebound in global trade
and firm commodities demand, even though they will face challenges from a strong US dollar and high
debt-servicing costs. We forecast global real GDP growth of 2.5% in 2024 (at market exchange rates),
unchanged from the rate in 2023.

Inflation will settle at a higher trend level owing to labour market changes
Although the worst of the recent cost-of-living crisis is over, inflation is not forecast to return to the
low trend of the pre-pandemic era. A tightening in labour markets, reflecting demographic changes
and tighter immigration controls, will keep demand firm through higher wages. Meanwhile, the
reconfiguring of supply chains and the likelihood of increasingly unpredictable climate conditions will
apply upward pressure on prices. Inflation in developed markets is forecast to average 2.6% in 2024 and
2.1% over our five-year forecast period, up from 1.5% in the 2010s. A major geopolitical confrontation,
such as in the Middle East, would cause renewed price increases similar to what occurred in 2022, with
a disproportionate impact on lower-income economies.

Geopolitical risk will keep a floor under oil prices in 2024-25

Dated Brent Blend; US$/barrel
120
Forecast
100

80

60

40

20
Russia- Israel-
Ukraine War Hamas war
0
2020 2021 2022 2023 2024 2025
Source: EIU. Copyright © The Economist Intelligence Unit 2024. All rights reserved.

Stubborn inflation will limit the scope of monetary policy loosening

The strong economic performance of the US will be reflected in relatively sticky inflation, which
we expect will delay the first cut to interest rates by the Federal Reserve (Fed, the US central bank)
until September. We forecast that the European Central Bank (ECB) and the Bank of England (BoE,
the UK’s central bank) will move earlier, from June, given more favourable inflation conditions and
greater urgency to support growth. Still, none of these central banks are expected to lower their policy
rate below 2% over the next five years. In China, a loose policy stance will be maintained to fend off
deflation risk, whereas the Bank of Japan (BOJ, the central bank) is forecast to gradually normalise

3 © The Economist Intelligence Unit Limited 2024

EIU GLOBAL OUTLOOK
PROMISING GROWTH DESPITE HEADWINDS

policy after finally exiting its negative policy rate. Japan’s emergence from years of deflation will
highlight the changes in the global inflation environment.

Limited monetary policy loosening will begin around mid-2024

The Fed will delay its first rate cut until September 2024
Policy interest rate, %; end-period
US Japan Euro area UK
6
Forecast
5

2
ECB and BoE are forecast to
lower rates in June, earlier 1
than the Fed 0

Japan's fiscal position will limit −1

how far BoJ can raise rates
−2
Q1-22 Q3-22 Q1-23 Q3-23 Q1-24 Q3-24 Q1-25 Q3-25
Source: EIU. Copyright © The Economist Intelligence Unit 2024. All rights reserved.

Debt and high borrowing costs constrain the space for fiscal expansion
Elevated government bond yields mean that the space to pursue fiscal expansion will also be
constrained. Governments will be more reluctant to borrow, and debt-servicing costs will absorb
larger portions of budgets. In this context, some revenue-raising measures are likely, but appetite to
implement spending cuts will generally be limited. Areas of public spending that are likely to prove
protected will relate to defence, healthcare and industry policy. We expect further sovereign defaults
among frontier markets, and these will generally prove complex to resolve, given a diverse set of
creditors and the weakening influence of global institutions such as the IMF.

Climate change and AI threaten global convergence prospects

The green transition and technological change will be among the major trends shaping global
economic prospects over the next five years. In both cases, they seem set to diminish convergence
prospects for developing economies. Poorer countries will be disproportionately affected by climate
change and will struggle to secure financing to mitigate its impact. Although we are sceptical about
the scale of productivity gains from artificial intelligence (AI), those improvements that do emerge
will accrue mainly to developed economies; this will create challenges for countries aiming to move
up the manufacturing and services value chains. We still expect some emerging markets to stand
out, however, helped by being fairly insulated from geopolitical tensions and rising trade barriers.
India is forecast to expand the fastest of any major economy in 2024-28, and Mexico will benefit from
nearshoring trends.

4 © The Economist Intelligence Unit Limited 2024

EIU GLOBAL OUTLOOK
PROMISING GROWTH DESPITE HEADWINDS

Indian growth is forecast to outpace that of China

Change in real GDP; %
China India
12
Forecast 10
8
6
4
2
0
−2
−4
−6
−8
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Source: EIU. Copyright © The Economist Intelligence Unit 2024. All rights reserved.

Global economic divergence will seep into politics

Attitudes towards immigration will harden in North America and Europe as difficult conditions in
many parts of the world encourage more to seek economic opportunities elsewhere. Policymaking will
generally push in a more insular direction, to the disadvantage of international co-operation on climate,
technology and trade issues. The 2024 US election will stoke political and cultural division, and would
prompt sweeping policy changes if the former president, Donald Trump, were to win the presidency
for the Republicans (this is not our core forecast, but the risk of it occurring is very high). Authoritarian
regimes will face challenges of their own, and governance in many parts of the world will be challenged
by threats ranging from climate change to terrorism.

5 © The Economist Intelligence Unit Limited 2024

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