May 23, 2024
Written By: Allianz Trade Economic Research
The 2024 and 2025 global economic landscape remains one of a world grappling with sluggish growth and evolving geopolitical dynamics, while central banks and policymakers navigate through inflationary pressures and economic uncertainties.
Global GDP growth is expected to be modest, staying below 3% over the next couple of years. Advanced economies are projected to maintain a steady growth rate of 1.6% in 2024, whereas emerging markets will experience a slowdown, growing at around 4%. The economic gap between the US and Europe, which was significant in 2023, is anticipated to narrow. The US economy is forecasted to grow by 2.4% in 2024 and 1.7% in 2025, while the Eurozone will see slower growth at 0.7% in 2024, picking up to 1.5% in 2025.
Inflation is expected to trend closer to target by mid-2024. Europe will benefit from reduced domestic demand and easing supply constraints, while the US will see cooling aggregate demand helping to control inflation. Central banks are poised to adjust their policies accordingly. The Federal Reserve is likely to start cutting interest rates late in 2024, with a total reduction of 100 basis points by year-end. The European Central Bank (ECB) is expected to move even sooner, reflecting different economic conditions, and the Bank of England (BoE) might follow suit in August 2024.
Geopolitical tensions, particularly involving China, are expected to hinder a robust rebound in Chinese exports. In response, Chinese policymakers are likely to increase fiscal and monetary support to mitigate the slowdown. This global environment of geopolitical uncertainties and economic adjustments is expected to influence trade dynamics and growth patterns.
In the realm of capital markets, long-term interest rates are projected to decline through 2024 and 2025. US 10-year yields are forecasted to be at 3.8%, and German 10-year Bunds at 2.2% in 2024. Corporate credit markets are expected to remain stable, supported by strong balance sheets and a normalization of default rates. Credit spreads are likely to stay around 100-120 basis points for investment grade and 350 basis points for high-yield debt.
Equity markets are anticipated to perform well, with near double-digit returns driven by technological advancements, reshoring efforts, and the transition to a greener economy. However, growth in 2025 might slow to mid-single-digit returns as these effects moderate.
For the corporate sector, profitability will face challenges due to reduced pricing power in manufacturing. However, service sectors such as transportation, warehousing, and hospitality might fare better. Capital expenditure is expected to decelerate amid slow growth, high interest rates, and lower capacity utilization. Business insolvencies are predicted to rise further in 2024 before stabilizing at high levels in 2025.
Regionally, the US and Eurozone show divergent but interconnected paths. The US economy will benefit from robust domestic demand, whereas the Eurozone will deal with lower inflation and weaker domestic conditions. Emerging markets, particularly China and India, show strong but slightly decelerating growth rates. China’s growth is projected at 5.2% in 2024, slightly dipping to 4.8% in 2025, while India’s growth remains steady around 6.4% to 6.5%.
Global trade is set to recover gradually from the recession, with volumes expected to increase by 3.0% in 2024 and 3.1% in 2025. However, this recovery is tempered by high inventory levels and underutilized capacity in several sectors.
The report also highlights significant political risks, noting that 2024 is a year of major elections in countries like the US, India, Mexico, the EU, South Africa, and the UK. These elections could introduce substantial uncertainty and exacerbate societal tensions and political polarization.
In conclusion, the global economy is on a path to a “soft landing” with slower growth and stabilizing inflation. While there are optimistic signs in capital markets and certain sectors, geopolitical tensions, political uncertainties, and rising business insolvencies present notable risks. The outlook remains cautiously optimistic, driven by ongoing technological advancements and shifts in global trade dynamics.
The Allianz Group is one of the leading integrated financial services providers worldwide. With over 157,000 employees worldwide, Allianz Group is one of the world’s leading insurers and asset managers with 125 million* private and corporate customers in almost 70 countries.
In fiscal year 2023 the Allianz Group achieved a total business volume of approximately 162 bn euros.
Allianz is one of the world’s largest asset managers, with third-party assets of 1,712 bn euros under management at year-end.
Allianz Group Economic Research – https://www.allianz.com/en/economic_research
Adam Wiswell
Pacific Northwest Agent
Mobile: (443) 334 7071
Adam.wiswell@allianz-trade.com