Global consumer price inflation forecasts for 2024-25 have been slightly reduced. We expect the downward trend to continue at a more gradual pace given diminishing base effects. Our forecasts for annual global consumer price inflation in 2024 and 2025 edged down to 4.6% and 3.1%, respectively, versus an expected 5.6% average in 2023. While the recent disruptions to shipping in the Red Sea could slow the expected moderation in core goods inflation, crude oil prices remain well below the September 2023 peaks. Purchasing Managers' Index™ (PMI™) data compiled by S&P Global have also continued to show a moderation in service sector input prices.

An early monetary policy pivot in the US is now our base case. Following recent favorable reads on November consumer and producer prices, our estimate of US core Personal Consumption Expenditure (PCE) inflation for the final quarter of 2023 has been cut from 2.5% to 2.0%. These revisions, as well as their legacy effects in our inflation models, have led us to revise down our forecast of US core PCE inflation for 2024 overall, from 2.6% to 2.3%. This, along with the revelation that the Federal Reserve (Fed) discussed rate cuts in 2024 at the December 2023 policy meeting, has led us to bring forward our forecast of the first Fed rate cut to March from June. Four 25-basis-point cuts are forecast over the year in total.

Rate cuts are still forecast to begin somewhat later in Western Europe. Consistent with continued weakness in economic activity and improving signs from recent inflation data, we continue to expect the European Central Bank (ECB) to begin cutting rates in the first half of 2024. Our base case remains for an initial 25-basis-point cut in June, with 100 basis points of cuts forecast overall during 2024. Financial markets had been fully pricing an initial 25-basis-point cut as soon as March, and well over 150 basis points of cuts in total during 2024 — which we considered premature given lingering concerns over wage growth and core price pressures — but those expectations have subsequently been tempered by the ECB's communications. A slightly earlier start to the easing cycle is feasible should activity data disappoint and inflation surprise to the downside. Broadly the same applies to the Bank of England, with an initial cut in policy rates forecast only in August, given ongoing concerns over domestic wage and price pressures.

Our global growth forecast for 2024 is unchanged at a sub-potential 2.3%. S&P Global Market intelligence's estimate is marginally above the market consensus expectation (of 2.2%), which has been drifting up toward our forecast in recent months. Our forecast for the global growth rate in 2024 has been broadly stable since mid-2023, with the lagged effects of tighter financial conditions expected to continue to weigh on economic activity but a global recession unlikely in the absence of a significant adverse shock. In the four quarters from third quarter 2023 to second quarter 2024, quarter-over-quarter global real GDP growth is forecast to average 0.5%, down from the 0.8% average during the first half of 2023, when activity was boosted by pent-up demand for services (which has subsequently faded). A gradual pick-up in growth momentum is forecast from the second half of 2024 as lower inflation lifts household real incomes and financial conditions ease, driving an expected acceleration in annual global real GDP growth in 2025 to 2.6% (again slightly above the current market consensus).

Growth prospects for 2024 remain mixed both across, and within, regions. The stability of our global real GDP growth forecast masks significant regional and national variations. Forecasts for the US and Canada, for example, remain indicative of weaker annual growth rates in 2024 than 2023, although January's estimate for the US has been raised slightly (to 1.7%) to reflect more accommodative financial conditions than previously assumed. This is offset at the global level by January's minor downward revisions to 2024 growth forecasts for Western Europe (0.3%), Japan (0.7%) and Russia (1.9%). Policy stimulus will continue to support the recovery in mainland China in the near term, but annual growth rates in 2024 and 2025 (of 4.7% and 4.5%, respectively) are still forecast to fall short of the expected 5.4% expansion in 2023. Nonetheless, with many economies in the region on track for relatively strong performances in 2024, Asia-Pacific remains a key source of support for the global economy.

Global PMI data continue to signal challenging economic conditions overall. The JPMorgan Global Composite Purchasing Managers' Index™ (PMI™) compiled by S&P Global edged upward for the second successive month in December 2023. Still, at just 51.0, it remained well below its long-run average (of a little over 53) and consistent with below-potential global real GDP growth. Composite data for the eurozone remained consistent with real GDP contraction, while a sustained — albeit modest — expansion was again signaled for the US. By key sector, the rate of contraction in global manufacturing output appears to be leveling off (49.5), and activity in global services picked up, although the level in December (51.6) was still almost 4 points below the spring 2023 high.

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.