BLOG — Dec 19, 2024
Global economic outlook: December 2024
By Ken Wattret
S&P Global Market Intelligence’s assessment of the economic outlook has changed significantly in December’s update. This is primarily due to the expected domestic and external implications of assumed post-election shifts in US policy. Reflecting a less favorable environment for trade, less accommodative financial conditions than previously forecast, and heightened uncertainty, our growth forecasts for 2025–26 have been reduced across most key countries and regions.
Our US real GDP growth forecasts for 2025 and 2026 have been lowered to 1.9% and 1.8%, respectively, equating to downward revisions of 0.1 and 0.3 percentage points. The increases in tariffs on US imports incorporated into December’s forecast are expected to raise consumer price inflation and pause the Federal Reserve’s (Fed) easing cycle from mid-2025. The related tightening of US financial conditions, including via lasting dollar strength, leans down on domestic demand. Weaker global demand, and the expected retaliatory tariffs, also weigh on US exports. The negative effects on US growth are mitigated by expected tax cuts.
Global financial conditions are likely to be less accommodative than previously forecast. High-for-longer US interest rates and renewed worries about capital flight and currency weakness are expected to reduce the scope for many other central banks to loosen their monetary policies. Still, variations in economic conditions point to some near-term divergence of policy prospects. For example, given continued economic weakness we expect the European Central Bank to continue its gradual easing cycle through 2025 despite the expected Fed pause. This implies a weaker euro than previously forecast. In contrast, Brazil’s central bank hiked its policy rates aggressively in December and its tightening cycle is now forecast to extend through the first half of 2025.
Our global real GDP growth forecasts for 2025 and 2026 have both been cut by 0.2 percentage point, to 2.5% and 2.6%, respectively. Mainland China’s growth is forecast to be significantly impacted by the assumed US tariff increases, although additional domestic stimulus is expected to cushion the blow. Our forecasts of annual real GDP growth in mainland China have been lowered to 4.2% and 4.1% in 2025 and 2026, respectively, reductions of 0.4 and 0.3 percentage points. Many of the largest economies in Europe are forecast to continue to struggle, meanwhile, given their relatively high sensitivity to trends in trade and manufacturing activity, coupled with political and fiscal problems.
S&P Global’s Purchasing Managers Indexes™ (PMIs®) show a mixed picture. Manufacturing indicators generally remain weak. While there have been some recent signs of tentative improvement, in part this reflects the bringing forward of production ahead of the proposed US tariffs. The standout feature of December’s “flash” PMIs was the implied acceleration in the rate of expansion in US services, with the new orders subindex at its highest level since early 2022 — contrasting with a steepening decline in manufacturing.
The crude oil price assumptions feeding into December’s forecasts are unchanged. The forecast average prices for Dated Brent crude in 2025 and 2026, respectively, are $72/barrel (/b) and $69/b, below the 2024 estimated average of a little over $80/b. A crude oil supply surplus is forecast in 2025, with demand conditions to remain soft. In December 2024, OPEC+ postponed for the third time the start of its plan to raise production. Given deteriorating demand prospects, the assumptions for non-energy commodity prices have been revised downward, with an aggregate price decline of close to 3% expected during 2025.
Our global consumer price inflation forecasts for 2025 and 2026 have been revised upward. This primarily reflects markedly higher forecasts for the US, reflecting the expected impact of tariff increases and tight labor market conditions. Core goods price pressures at global level have remained soft, with the rate we calculate for the G5 group of economies sub-zero in October for the seventh straight month. Signals from various indicators, including our PMIs, look benign for goods inflation in the very near term but a tariff-driven pickup is likely during 2025.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.