Global GDP Themes and Forecasts

The US economy has continued to grow at an exceptional level. The wealth effect on consumer spending has been a strong tailwind. US equities and credit spreads reflect market expectations for a soft landing. Inflation has been a little sticky of late but should decelerate, in our view. We expect more Fed cuts, potentially down to approximately 3.5%, if the labor market softens. The global easing cycle continues. China and Europe may be experiencing disappointing growth, but their policy makers appear to be making efforts to support expansion. The European Central Bank cut rates another 25 basis points in October, and again in December.

USA & CANADA

CONTRASTING GROWTH PROFILES

• We expect earnings growth to broaden out into lagging sectors, including healthcare, materials and energy later this year and into 2025.
• Nonfarm payrolls bounced back in November after hurricanes and the Boeing strike depressed October job gains. We think payrolls will continue to grow, but the monthly pace of gains is likely to ease. The unemployment rate should remain in a tight range near 4.0%, in our view.
• With the US presidential election behind us, tariff and tax policy are gaining investor focus, but details are limited.      
• In Canada, growth continues to be soft and inflation is trending down. In our view, changes to the immigration program, increased fiscal spending and the trade debate with the US will be the key things to focus on over the next quarter.
  
  

LATIN AMERICA

GEOGRAPHY BENEFIT 

• Despite negative headlines on trade and migration, our medium-term view remains that the region, especially Mexico, has a role to play in US economic and national security strategy.
• We believe geographical proximity, distance from global conflict zones, production of valuable commodities and broad political/institutional alignment should benefit the region.
• With the notable exception of Mexico, LatAm countries tend to have commodity-heavy export profiles and run trade deficits with the US. To the extent that future trade policy will target large bilateral imbalances, particularly in manufacturing, the region ex-Mexico should not be susceptible, in our view.

UNITED KINGDOM

CAUTIOUS, FOCUSED CHANGE 

• The Labor government delivered its budget in late October. It included a significant change in fiscal rules. We believe this should open space for more investment spending.
• We feel the government has effectively diagnosed the problem of insufficient public (and private) investment. We believe a cautious, multi-year effort to address this problem should be good for growth.
• The Bank of England is easing very cautiously, as inflation is well-contained but upside risks have remained.

EURO AREA

GERMAN ELECTIONS COULD BRING A POLICY PIVOT

• A more thorough policy response to economic woes in Germany could boost growth, in our view. We are watching the February 23 elections for a possible shift in this direction. In particular, efforts that boost investment and improve energy market efficiency we would view as positive.
• We think that the European Central Bank will likely continue to ease cautiously. The extent of easing will be affected by any fiscal change and external drivers. We believe that policy rates will gradually drop to between 2.5% and 3% by mid-2025.

CHINA

SHARP GROWTH REBOUND UNLIKELY 

• In the wake of China’s stepped-up efforts to boost economic growth, uncertainty has remained regarding the scale and effectiveness of future stimulus measures.
• Our conviction for a strong fiscal-led recovery in China remains low.
• In our view, China is likely to remain a source of global disinflation, which could invite trade protectionism.
• Trade war risk is likely to escalate.

CENTRAL AND EASTERN EUROPE, MIDDLE EAST, AND AFRICA
(CEEMEA)

CONTRASTING OUTLOOKS PERSIST

• South Africa's outlook benefits from continued durability of the Government of National Unity and the continued turnaround in key state-owned enterprises, notably Eskom.
• Turkey continues to show commitment to macroeconomic discipline, with the upcoming minimum wage decision a key litmus test in an environment where inflation has remained stubborn.
• We believe the US election outcome will likely increase economic uncertainty for CEE. The region is not insulated from the risk of tariffs due to its low direct trade with the US Tariffs on Western Europe will likely harm the external demand of CEE's largest trading partner and could disrupt supply chains, in our view.
• In MENA¹, geopolitical risk has remained an overhang, with the collapse of the Assad regime in Syria emerging as the region's latest variable. The largest economy in the region, Saudi Arabia, is seeing strong non-oil growth from massive public expenditures, however it faces the headwind of a slowing China.

JAPAN

SCANDAL UNDERMINED SUPPORT FOR LIBERAL DEMOCRATIC PARTY

• The 2024 Lower House General Election brought significant changes and uncertainties to the country's political and economic scene.
• If PM Ishiba is forced to resign, there may be expectations of a more dovish economic policy stance, potentially exerting downward pressure on the yen.
• In October, the Bank of Japan unanimously voted to keep short-term rate around 0.25%.

ASIA PACIFIC

EMBRACING AN UNCERTAIN 2025

• We believe an expected increase in trade tensions could weigh on growth as many Asian countries are export-oriented and deeply embedded in the global trade network.
• In our view, regional central banks may recalibrate their pace of easing given renewed acceleration in food prices in select countries, broad-based foreign exchange weakness and the potential for gradual Fed rate cutting.
• The technology upcycle has remained narrowly focused on AI and is starting to show signs of moderation given tepid consumer electronics demand.

Endnotes

¹  Middle East and North Africa.

Disclosure

Views as of 30 November 2024. This marketing communication is provided for informational use only and should not be considered investment advice. The forecasted views and opinions expressed reflect those of the Loomis Sayles Macro Strategies Group and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. All statements are made as of the date indicated and are subject to change at any time without notice. Descriptions assume normal market conditions. Numbers are approximate.

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Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.