International economic outlook: In the US, signs of economic slowdown are becoming more apparent

Summary

Forecast changes

• Our outlook for 2024 global GDP growth is 2.9%, unchanged from a month ago, albeit with some shifts beneath the surface. Among the primary drivers of global growth, we have lowered our China GDP forecast to 4.8%, while revising higher our growth forecast for India to 7.3%. We have also raised our 2024 U.K. GDP growth forecast modestly, to 1.0%.

• Our forecast for the path of monetary policy around the world is essentially unchanged from a month ago. Given lingering inflation concerns, we expect most advanced economy central banks to lower interest rates at only a gradual pace. We see slightly earlier monetary easing in Canada, where softer sentiment and activity combined with overall contained inflation should see the central bank deliver a rate cut in July.

• We forecast a slightly slower pace of medium-term U.S. dollar depreciation than previously. While we still expect slower U.S. growth and Fed easing to weigh on the U.S. dollar in 2025, we acknowledge a risk scenario of more expansive fiscal policy and increasing tariffs could provide a more extended period of support for the greenback than we currently anticipate.

Key themes

• The transition from economic divergence to greater economic convergence appears to be continuing. In the United States, signs of economic slowdown are becoming more apparent, while China's economy is also slowing after a solid start to the year. Meanwhile, despite some temporary and election-related uncertainties, the Eurozone and United Kingdom remain on an overall economic upswing, in our view. In addition to economic convergence, restrictive monetary policy is contributing to a gradual global growth slowdown. After global GDP growth of 3.3% in 2023, we forecast global growth of 2.9% in 2024 and 2.7% in 2025.

• We also observe some convergence on the inflation front. Encouraging U.S. inflation readings mean our view for Fed easing to begin in September is unchanged. Internationally, lingering price pressures, especially for services inflation, have seen our forecast shift to a more gradual pace of international central bank rate cuts over the past few months. For some key international central banks, including the European Central Bank and Bank of England, we think the risks are still tilted toward a potential further delay to monetary easing.

• Our forecast remains for moderate U.S. dollar depreciation through much of 2025, based on our forecast of slower U.S. economic growth and an extended period of Federal Reserve easing. The yen and Australian dollar could perform well against the U.S. currency next year and, should global financial conditions remain benign, that should also be supportive of risk-sensitive emerging market currencies. In terms of politics and policy, a risk scenario that incorporates more expansive fiscal policy and increasing tariffs, stemming from the U.S. elections, appears to be gaining prominence. Should that scenario transpire, we may see a more extended period of U.S. dollar strength than we currently anticipate.

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