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 macroeconomic response to the higher rate environment is playing out largely as we anticipated (the U.S. outperformance is the notable outlier) with slower activity and falling inflation pressures.
Resilient labor markets, reflecting relatively strong services demand and hoarding of employees, have tempered the slowdown and helped avoid recessions, at least so far.
We maintain our higher-for-longer view on policy rates and expect the first cuts around mid-2024 from major central banks and expect subsequent cuts to be gradual as the road back to neutral will take time.
Our baseline forecast has higher 2024 growth on the back of upward revisions to the U.S. and India and is predicated on labor demand remaining strong. Aside from sharply weaker services demand and a stronger U.S. dollar, geopolitics including a spate of elections, pose downside risks.
READ MORE
S&P Global Ratings expects U.S. real GDP growth of 2.5% in 2024 as the labor market remains sturdy. We continue to expect the economy to transition to slightly below-potential growth in the next couple of years.
Inflation will likely remain above (but approaching) the Fed's target of 2% through 2024, reflecting persistently higher service price inflation, even as goods prices ease modestly.
Above-target inflation will limit the Fed's ability to ease rates this year. We continue to pencil in 75 basis points (bps) of rate cuts in 2024, with the first cut likely coming in the summer.
Our base case is a sharper easing of 125 bps next year, though we see risks that the pace of easing could be slower in 2024 and 2025.
READ MORE
The European economy remains on track for activity to improve and employment growth to moderate. However, uncertainty over productivity trends and slow implementation of the Next Generation EU recovery package may cause the rebound in growth to be weaker than we expected. We have revised our 2025 GDP growth forecast down to 1.3% from 1.5%.
Record high labor costs are limiting the scope for disinflation. We have slightly increased our inflation forecasts to 2.1% in 2025 and 1.9% in 2026, reflecting prolonged high wage growth against a backdrop of sluggish productivity.
We expect the European Central Bank (ECB) to cut rates three times in 2024, starting in June. The potential for further rate cuts in 2025 seems more limited than we thought. The deposit facility rate could bottom out at 2.5% in 2025 instead of the 2.0% we considered previously.
READ MORE
We see China's GDP growth slowing to 4.6% in 2024 from 5.2% in 2023. Our forecast factors in continued property weakness and modest macro policy support. Deflation remains a risk if consumption stays weak and the government responds by further stimulating manufacturing investment.
Among developed economies, we forecast growth to pick up in trade-dependent developed ones such as South Korea, Taiwan, and Singapore; and fall in relatively domestic demand-led ones such as Japan and Australia. For Asian emerging market (EM) economies, we generally project robust growth, with India, Indonesia, the Philippines, and Vietnam in the lead.
The fall in inflation momentum has so far not been enough to convince Asia-Pacific central banks to start cutting rates. If rates continue to choke demand, the case for lowering will strengthen in coming months. We expect the Bank of Japan to modestly raise rates in the next four years.
READ MORE
We believe resilient global growth, especially in the U.S., and loosening financial conditions have marginally improved macroeconomic conditions for emerging markets (EMs) since the end of 2023.
However, EMs still have to contend with the lagged effects of high interest rates and the consequences of the U.S.' eventual shift to below-trend growth, which we expect in the second half of the year.
We expect growth in EMs will diverge significantly in 2024, moderating for many countries that outperformed in 2023 and slightly increasing for some countries that underperformed.
READ MORE
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.
READ MORE
