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 long-awaited policy rate easing cycle has begun in some advanced economies as inflation continues to decline toward target; the U.S. Federal Reserve remains on hold for now, and some emerging markets are dialing back their monetary easing as a result.
Our soft-landing narrative remains valid as labor markets remain tight and consumer spending on services remains robust; indeed, Europe has already landed and a recovery is taking hold.
Our GDP forecasts are broadly unchanged from the previous round with growth in some of the more open emerging markets revised upward; the risks around our baseline include a sharp reduction in labor demand and spillovers from a strong U.S. dollar, as well as geopolitics.
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S&P Global Ratings expects the U.S. economy to expand 2.5% in 2024 (unchanged from its March forecast) and 1.7% in 2025 (up from 1.5% in its March forecast).
Businesses continue to face higher costs of capital, which will limit capital expenditure and hiring, and the unemployment rate will likely rise in the next two years--to 4.4% from 4.0% currently.
We forecast inflation to cool further in the coming months, after jumping in the first quarter.
We expect the Fed, in response to a slowdown in inflation, to start reducing its policy rate in December and then pick up the pace of easing in 2025 as economic growth slows below potential.
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Lower energy prices have enabled the eurozone economy to return to growth and the European Central Bank (ECB) to cut rates. We expect a return to potential growth by 2025, with inflation at 2% by mid-year.
This would permit the ECB to cut rates by 25 basis points each quarter until the deposit rate bottoms out at 2.5% in the third quarter of 2025.
We have revised our growth forecast for Spain upward to reflect rising productivity, increased manufacturing, robust household balance sheets, and rapid disinflation, among others.
The risks associated with a divergence between the monetary policies of the ECB and the U.S. Federal Reserve (Fed), political uncertainties in Europe, and deteriorating economic relations with China have intensified since our last projections in March 2024.
These risks could affect business and investor confidence, financial stability, and the smooth transmission of the ECB's monetary policy to the eurozone economy. They could also translate into lower growth and higher inflation.
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We raised our 2024 China GDP growth forecast to 4.8%, from 4.6% but see a sequential slowdown in the second quarter. Also, the combination of subdued consumption and robust manufacturing investment will weigh on prices and profit margins.
In the rest of Asia-Pacific, export-intensive economies will see growth improve this year while those that are more sensitive to higher interest rates and/or inflation will see momentum weaken. Solid domestic demand growth should help Asian emerging markets to expand robustly.
Inflation pressure has eased in the region. But the prospect of delayed U.S. policy rate cuts is leading Asian central banks to do the same, and take other measures to protect domestic currencies. Emerging markets could be tested if U.S. rates were to rise further and capital outflows intensified.
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Our macroeconomic baseline for EMs remains broadly unchanged from the second quarter, with most EMs' GDP growth set to be moderately stronger in 2024 than in 2023.
A later-than-anticipated start to interest rate cuts by the Fed will contribute to slower monetary policy normalization in most major EMs, though our view on terminal benchmark interest rates remains unchanged.
Policy-related risks have risen following electoral outcomes that generate uncertainty over reforms, fiscal trajectories, and institutional frameworks 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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