Global GDP Themes and Forecasts

At this point in the third quarter of 2024, the global economy continues to expand; however, the rate of growth has slowed modestly. Our analysts still believe inflation is likely to fall further, even though the pace of disinflation eased significantly over recent months. Turning to global politics, we believe uncertainty related to elections could be a source of volatility across developed and emerging markets.

USA & CANADA

DISINFLATION LIKELY TO CONTINUE

• The pace of monthly job gains has slowed, but overall labor market strength has been underpinning consumption in the US economy. We believe that the expansion is likely to continue so long as new jobs are created month after month.
• The unemployment rate may rise slightly from here, which we think will lead the Federal Reserve (Fed) to consistently reduce its key policy rate through spring 2025.
• We find the US to be within the mid-to-late expansion phase of the credit cycle.
• In September, the Bank of Canada undertook its third consecutive rate cut in July citing soft economic growth and a trend of declining inflation. This trend is continuing and we expect further policy rate cuts in the quarter ahead. 
  
  

LATIN AMERICA

POLITICAL RISKS IN FOCUS

• We believe Latin America is well-positioned to benefit from nearshoring and distance from current or potential geopolitical conflicts over the medium term.
• Higher political risks have the potential to undermine otherwise solid macroeconomic prospects in Mexico and Brazil.
• We are increasingly concerned about the deterioration in government finances in the region despite solid growth, contained inflation and minimal external imbalances.

UNITED KINGDOM

RECOVERY BUILDING

• The Bank of England’s Monetary Policy Committee voted to reduce the bank rate to 5%. We expect further reductions to be gradual and limited in size.
• In our view, the newly elected Labour government has diagnosed economic issues effectively and will likely have significant power and internal cohesion to address them.
• Economic momentum over the past few months has been positive, but we think that more substantial performance will likely be more gradual.
  
  

EURO AREA

ECONOMIC MOMENTUM AND/OR INFLATION ARGUE FOR LIMITED CUTTING CYCLE

• Significant structural economic challenges remain. Policy and fiscal action are required to drive a meaningful recovery.
• We continue to expect policy rates to reach 3% by mid-2025, but the European Central Bank will likely cut more gradually than the market anticipates.
• We expect inflation to range close to target, but see upside risks persisting, which informs our view of a relatively limited cutting cycle.
  
  

CHINA

PERSISTENT DEFLATIONARY PRESSURES AND UNEVEN FRAGILE GROWTH

• Domestic demand continues to soften amid the ongoing housing market slump and weak labor market. 
• Exports/manufacturing may be the only growth engines and the growth outlook for the second half looks uncertain given potential escalating tariff risk.
• Our 2024 growth forecast is unchanged at 4.5%.
  
  

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

WAR AND TAIL RISKS IN SOME AREAS STAND IN CONTRAST TO POSITIVE MOMENTUM ELSEWHERE

• Middle East tension remains at a fever pitch, with risk of a regional conflict weighing heavily on countries within the region. The GCC continues to see a significant amount spent on the carbon transition, particularly in Saudi Arabia, which is seeing strong non-oil growth but also larger-than-expected fiscal deficits.[1]
• The outlook in South Africa continues to improve, benefiting from both the continued improvement in the electricity sector and consolidation of the Government of National Unity. The upcoming Medium Term Budget Policy Statement will be a key signal to watch, in our view.

• Turkey continues to show fundamental improvements, notably on the external front, but inflation remains stubborn and is the key variable to watch heading into December.
• Central and Eastern Europe continues to slowly emerge from below-trend growth, while Poland remains the growth outperformer due to government and private consumption.
  
  

JAPAN

EXPANSIONARY FISCAL STANCE LIKELY TO CONTINUE

• As the Bank of Japan’s (BoJ) confidence grows regarding the achievement and sustainability of 2% inflation, we expect the bank’s tolerance level to rise for higher 10-year yields.
• The BoJ made the hawkish move of raising the interest rate by 15 basis points (bp) versus the 10 bps that was expected. This took the interest rate to 25 bps and prompted an unwinding of some yen carry trades, which weighed on global equities.

ASIA PACIFIC

RATE CUTS ON THE WAY

• More central banks in the region are set to cut policy rates following the Fed’s move amid continued progress in domestic disinflation.
• US elections, and associated tariff risks, are a wild card given the region’s increasing trade linkages to China via the reconfiguration of supply chains.
• The technology upcycle remains intact given strong demand on high-end AI chips and more green shoots from a pickup in demand for consumer electronics.

End Notes

[1] GCC – Gulf Cooperation Council.

Disclosure

Views as of 11 September 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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