Our economists are responsible for developing the macroeconomic forecasts and risk scenarios used by S&P Global Ratings' analysts during the ratings process, as well as leading key cross-sector and cross-divisional research projects.
The global policy rate easing cycle is now in full swing following a 50 basis point cut by the U.S. Federal Reserve in mid-September; this creates space for a swath of central banks to follow suit, particularly in emerging markets.
Economies remain more resilient than we had expected, but outcomes are diverging across the main regions. The U.S. is slowing, the eurozone is recovering, and China faces property-related headwinds.
Global GDP growth remains subdued. We are forecasting 3.2 expansion in 2024, and 3.1% in 2025. The bright spots are economies with strong domestic demand or exposure to the global tech cycle.
The risks to our baseline remain on the downside. These include sharply lower labor demand and a spike in bond yields and geopolitical risks; terminal policy rates (and r*'s) remain key unknowns.
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We continue to expect real GDP growth to slow from above-trend growth this year to below-trend in 2025, accompanied by a further rise in unemployment rate and lower inflation.
The Fed looks set to embark on a steady series of interest-rate cuts--we have penciled in policy rates to reach the terminal rate of 3.00%-3.25% by the end of 2025, with risks in both directions.
We view the upcoming gradual easing period as more of a preventative measure for growth from slipping too far below potential than instantly juicing the real economy.
We kept our probability of recession starting over the next 12 months unchanged at 25%. With consumption still healthy, for now, near-term recession fears appear overblown.
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We forecast that economic growth in the eurozone will strengthen, reaching the potential in 2025. Inflation will moderate, reaching 2.0% in the second half of 2025.
Against this backdrop, the European Central Bank (ECB) is likely to keep cutting rates once per quarter until the deposit rate reaches 2.5% in the third quarter of next year.
Consumers should become more cognizant of disinflation, and lower interest rates should make saving less appealing. Consumer spending should therefore pick up and align more closely with purchasing power, driving GDP growth.
Private-sector loan demand is showing signs of life about six months earlier than previous interest rate cycles would have suggested. That said, the credit impulse--the change in new credit as a percentage of GDP--is likely to remain modest as long as monetary policy remains restrictive, which should be the case until late 2025.
Visibility on the economic outlook is relatively poor, with a downturn in the labor market, more restrictive fiscal policy, and less supportive foreign trade all still possible.
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We have reduced our 2024 China GDP growth forecast to 4.6% from 4.8%. This reflects the country's sluggish property sector, weak domestic demand generally, and reluctance among policymakers to ease fiscal policy. We project 4.3% growth in 2025.
Growth elsewhere is largely tracking our expectations. We continue to see mostly solid expansion, particularly in the emerging markets of Asia. We anticipate 4.4% GDP growth in Asia-Pacific, this year and next, slightly down on three months ago.
Central banks will only gradually reduce policy rates, in our view. Interest rates are low compared with the U.S., and currencies cheap. In certain economies, rising house prices and household debt contribute to a cautious approach to rate cuts.
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Monetary policy easing by the U.S. Federal Reserve, as long as it is accompanied by an orderly softening of the U.S. economy, is a positive for emerging markets (EMs)--especially ones with strong economic fundamentals, such as those in Southeast Asia.
In several major EMs, particularly in Latin America, policy uncertainty could keep risk premiums elevated, which in turn could reduce the magnitude of capital flows those economies receive relative to past Fed easing cycles.
Key downside risks for our EM growth outlook include the implications of the U.S. election on trade and fiscal policy, a more rapid-than-expected slowdown in the U.S., ongoing economic weakness in China, a further escalation of the Middle East conflict, and persistent uncertainty over domestic policies in several EMs.
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The climate policy paradigm has moved from a doom-and-gloom view, where economic growth isn't possible, to a more constructive model in which growth and a sustainable environment can coexist.
With this, the focus of climate policy has expanded to include not only the costs of the energy transition but also opportunities for innovation and growth.
Decarbonizing fossil-fuel-reliant sectors and expanding renewable energy capacity is complicated by additional hurdles, in particular trade frictions, budget constraints, and distribution issues.
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