Global growth has momentum now

[Francesco, 7-8-2024, Reuters, “Global economy finds new ways to keep growing,” https://www.reuters.com/breakingviews/global-economy-finds-new-ways-keep-growing-2024-07-08/#:~:text=Despite%20widespread%20predictions%20of%20a,in%20an%20ideal%20economic%20environment., accessed 7-12-2024, CM]

LONDON, July 8 (Reuters Breakingviews) - The world economy is defying the Cassandras. Despite widespread predictions of a slowdown, global GDP growth is accelerating. The United States is still the star performer but as it flags other regions are picking up the slack. Risks of damaging geopolitical confrontations abound. But for now investors can bask in an ideal economic environment.

“Steady but slow”. “Weak pace”. “Modest growth”. The latest predictions by, respectively, the International Monetary Fund, opens new tab, the World Bank, opens new tab and the Organisation for Economic Co-operation and Development, opens new tab do not make for cheery reading. Their common concern is that the global economy has been unable to regain its pre-pandemic cruising speed. As the World Bank points out, in 2024 and 2025 nearly 60% of countries, comprising over 80% of the global population, will grow by less than their average rate in the 2010s.

Look under the bonnet of the world’s economic engines, however, and the perspective is more optimistic. For a start, global GDP is accelerating. When economists at UBS last tracked 320 monthly data series from 28 economies for April, they found that the global economy was growing at an annual rate of 3.5%. If maintained throughout the year, this pace would be faster than the 3.2% expansion in 2023 and not far from the 3.7% yearly average in the decade before the Covid-19 pandemic struck in 2020.

In practice, such a heady pace is unlikely to last. Nevertheless, it is still a sign of the positive momentum behind global output. Just as importantly, this pickup is taking place as price rises are abating. Median headline inflation peaked at 9.4% in 2022 as the health emergency and lockdowns sent prices spiking around the world. But after supply chains, energy markets and consumer behaviour adapted, and central banks belatedly but aggressively raised rates, global inflation is on track to fall to 2.8% this year and 2.4% in 2025, the IMF forecasts.

The United States is the key driver of these benign conditions. While the other two big engines – Europe and China – sputtered, it was the world’s largest economy that provided the thrust. Unlike most other countries, the U.S. has already resumed its pre-pandemic growth trajectory, with GDP expected to grow by 2.7% this year, compared with just 1.7% for advanced economies, IMF data shows, opens new tab.

But the rest of the world seems ready to pick up the baton. Within the 28 economies tracked by UBS, the growth momentum is coming from emerging markets such as India, Turkey and Poland. The domestic economy in these and other countries is providing much of the impetus, as falling inflation and steady job markets are prompting more people to spend. Booming consumer confidence, for example, will power the Indian economy to a 7.2% growth rate in 2024 and 6.5% next year, according to Fitch economists. That’s way above the annual average of 4.6% between 2019 and 2023.

Of course, the size of those economies means that their absolute contributions to global growth are relatively small. But there are other positive signs. After economic stagnation caused by high energy prices and a lack of investment, the euro zone is recovering. A survey of 5,000 companies in the single currency area by S&P Global found, opens new tab that their expectations for output growth in the second quarter of 2024 were at the highest in a year. Even China grew at an annual rate of 5.3% in the first quarter, much better than the 4.6% forecast in a Reuters poll. That solid start was helped by fiscal and monetary stimulus from the government.