Global economy: Soft landing reinforces the prospect of higher long-term interest rates

We forecast global growth of 3.2% this year and 3.4% next year, and 3.2% in 2023. Our growth estimates are 0.1-0.2pps higher than our outlook at the end of last year and higher than estimated global annual growth potential. Economic growth of 2.6% has repeatedly beaten consensus expectations of a recession. Soft landings help anchor basic and transactional credit, spending and investment, and keep unemployment and non-performing loans at low levels.

The euro-area economy has been assessed in recent months by Q1 GDP growth and purchasing manager surveys, so we forecast growth of 1.0% this year and 1.7% in 2025. , which we believe will improve to 1.4% next year. France and Italy are growing slightly below potential rates. Spain and several former crisis-hit euro-area periphery economies continue to grow at rates above the euro-area average. Outside the EU, the UK economy will grow by 0.8% this year, up from 0.1% last year.

Growth in Europe is significantly slower than in the United States, which is set for a strong 2.7% increase in output in 2024, 0.5pps better than our aforementioned consensus forecast at the end of last year. Among emerging economies, China’s output is expected to grow by 5.2% this year, now in line with the government’s annual target of 5%. Growth in Europe will be stronger next year than this year, although the opposite may be true outside Europe.

Balanced Macro Risks to 2024

The downside risks we identified to the global economy have been partly crystallized by better-than-expected growth, particularly in China, the world’s largest economy by purchasing power. We forecast a „symmetrical” risk curve for the global and European economies this year. 2024 overview. But macroeconomic risks persist. More stubborn inflation than expected could keep rates at current levels longer than our hawkish assumptions and/or further tighten monetary policy in an adverse scenario.

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The economic consequences of geopolitical tensions can be unpredictably worse. Financial instability will re-emerge given higher-longer rates. Finally, investors may further reassess sovereign risks amid growing policy uncertainties and financial challenges.

Budget-stability concerns in France (rated by Scope AA and Negative Outlook), for example, could destabilize euro-area markets if the incoming parliament does not address them after snap elections called in the coming weeks. Eurosystem policymakers may be less able to address sustained market volatility if inflation remains above target and some countries, such as France, breach EU fiscal rules.

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