International economic outlook: February 2024

Summary

Forecast changes

• We have revised our global GDP forecast higher this month, and now believe the global economy can grow 2.8% in 2024. Upward revisions to our U.S. GDP forecast are mostly responsible for the more optimistic global growth outlook, while technical recessions in the U.K. and Japan, along with sluggish growth in the Eurozone, continue to act as restraints on overall global growth.
• The majority of our forecast revisions are related to our outlook for central banks. In the G10, while we continue to forecast the first Fed rate cut to be delivered in May, persistent price pressures and a strong labor market tilt the balance of risk toward the easing cycle starting in June. Sticky inflation should lead to the Reserve Bank of New Zealand (RBNZ) starting rate cuts later than we previously expected, while an abundance of caution and strong economic activity should also result in delayed easing from India's central bank. At the same time, we expect easing to pick up pace in Chile, Colombia and China as inflation slows and activity wanes.
• Dollar strength may now persist into Q2-2024; however, we believe our core long-term forecast for prolonged dollar depreciation is still likely. With U.S. growth set to slow and the Fed on track to cut interest rates in the coming months, we believe depreciation pressure will build on the greenback in the second half of this year and persist into 2025. Risks to our dollar outlook exist, primarily in the form of a potentially more protectionist policy agenda following U.S. elections later this year. For now, we are not baking U.S. election risks into our forecasts but are flagging risks to our currency views as early as possible.

Key themes

• Growth prospects around the world are on diverging paths, with the U.S. clearly outperforming peer advanced economies and most emerging market economies. However, as 2024 progresses, we expect these diverging paths to flip and for international economies to outperform the U.S. in the second half of this year. Slower U.S. consumer spending should lead to subdued U.S. activity, while foreign economies currently in recession or experiencing modest growth should be in recovery mode in the latter quarters of 2024.
• Diverging growth prospects should also lead to diverging monetary policy paths. In that sense, central banks are likely to move at differing speeds when considering pivots to easier monetary policy. We believe receding inflation and weak growth could prompt the European Central Bank to be one of the earliest major G10 institutions to lower policy rates, while the Swiss National Bank and Bank of England may not be far behind. Chile and Colombia are also heading toward quicker rate cut cycles, while strong growth and prudence should lead to more gradual rate cut profiles in India and New Zealand.
• U.S. economic outperformance, both relative to U.S. forecasts and to peer economies, along with a cautious Fed, has driven and should continue to drive dollar strength in the early parts of this year. But longer term, we believe a foundation for foreign currency strength will be built as international economies begin to recover and as U.S. exceptionalism starts to fade. In addition, we believe Fed rate cuts combined with a U.S. soft landing and easing financial conditions should lead to an overall dollar downtrend against G10 and emerging market currencies that persists into mid-2025.

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