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Loosening the reins: Global Economics Quarterly (Q4 2024)

  • The Fed has finally started to loosen the monetary reins…
  • …but with major uncertainties relating to labour markets, trade flows, fiscal dynamics and the US election…
  • …we examine the risks to our new global growth, inflation and policy rate forecasts

The main act has finally started

In September the US Federal Reserve joined other G10 central banks in starting to cut policy rates, and with a bumper 50bp move. Just a few days later China announced a slew of monetary, property and market measures and signalled more fiscal stimulus. With the world’s two major economies now loosening, an array of emerging market central banks can, too.

But while the Fed is now more confident that inflation its heading back to its 2% target on a sustainable basis, it is unclear how loose policy needs to be. The world is still a highly uncertain place. In the past two months we have seen volatile moves in equities, commodity prices and currencies. More tariffs have been implemented, two major conflicts continue, and a close race for the US presidency looms for November.

Remarkably, though, global growth continues to muddle through. Our global economic forecasts for 2024-2025 are little changed. We have in fact upgraded our expectations for the US and India, and lowered them for Europe. Our 2025 global GDP growth forecast is unchanged at 2.6%, while we have edged up our 2024 forecast by 0.1% to 2.7%.

2.7%
Global GDP growth forecast, 2024 (HSBC)
2.6%
Global GDP growth forecast, 2025 (HSBC)

Our long-held view is that the US will avoid recession. Certainly, Fed Chair Jerome Powell has warned that the downside risks have increased given the rise in the unemployment rate. However, looking at a range of labour market data, we do not hear alarm bells ringing yet – nor are corporate profits data showing early warning signs for recession. And while we expect US consumer spending growth to moderate, we also expect it to continue to outpace that of Europe, where savings rates remain stubbornly high.

One possible tailwind for consumers in commodity-importing economies is the recent fall in commodity prices, particularly for oil. If sustained, this is less good news for oil producers. The trade story is also uneven, with the global industrial cycle already starting to falter again. The improvement in exports is still most evident in electronics demand and in countries with a high exposure to US imports.

On inflation, meanwhile, the news has been mostly good – particularly in the advanced economies. We keep our 2024 global inflation forecast unchanged at 5.5% while our 2025 forecast has fallen from 3.7% to 3.3%. We now expect each of the Fed and European Central Bank to cut at every meeting from, gradually lowering rates to a level that is close to our estimates of the current “neutral” rate by mid-2025 before stopping.

5.5%
Global inflation forecast, 2024 (HSBC)
3.3%
Global inflation forecast, 2025 (HSBC)

We have also, for the first time, set out our initial forecasts for 2026. They paint a picture of what might be summarised as trend-like GDP growth forecasts and inflation that is close to target.

As always though, there are risks on both sides. Aside from the unpredictable evolution of the regional conflicts under way, a key one is the consequences for both the US and the rest of the world of the forthcoming US elections. Many potential post-election policy changes could alter the outlook for growth, inflation, and monetary policy in 2026.

2.7%
Global GDP growth forecast, 2026 (HSBC)
2.8%
Global inflation forecast, 2026 (HSBC)

Overall, then while our growth forecasts are relatively stable, the number of uncertainties continues to grow.

Would you like to find out more? Click here to listen to Janet discuss the global outlook on a special edition of The Macro Brief podcast.

Alternatively, click here to read the September 2024 Global Economics Quarterly report. Please note, you must be a subscribed to HSBC Global Research to access the report.

To find out more about HSBC Global Research, including how to subscribe, please email us at AskResearch@hsbc.com

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