Global inflation easing but growth uncertain

Feb 06 | 2024

Yael Selfin, Vice Chair and Chief Economist at KPMG in the UK, looks at the prospects for global inflation and GDP growth in 2024.

Global inflation easing but growth uncertain  A significant uplift in global growth is unlikely in 2024 with no short-term end in sight to geopolitical uncertainty and tight monetary policies, according to the latest KPMG Global Economic Outlook.

Produced by leading economists from KPMG member firms around the world, this year’s report looks at the economic prospects for 37 countries and economic areas in 2024 and 2025, including the potential for the world economy over the next two years.

With global trade plateauing in recent years, driven in part by the pandemic, geopolitical tensions and rising protectionist measures, the KPMG report warns of potentially large output losses from geoeconomic fragmentation over the longer term. The report forecasts global GDP growth of 2.2% in 2024 – down from 2.6% in 2023, with a return to 2.6% growth anticipated in 2025.

Inflation and supply chain pressures easing
Weaker economic momentum has helped ease supply chain pressures and reduce broader cost pressures, with energy prices dropping significantly from their 2022 peak when Russia invaded Ukraine. Median CPI inflation for the G20 countries fell to 3.9% in October 2023 after peaking at 7.7% in July 2022, and KPMG expects further deceleration in coming months.

The Global Economic Outlook forecasts see world inflation averaging 5.0% in 2024 and 3.9% in 2025, down from an estimated 6.5% in 2023 and 8.0% in 2022. Risks are on the upside, however, as any further shocks to energy prices – or a more persistent domestic inflation in some countries – could derail the relatively smooth return to central banks’ inflation targets next year.

Monetary policy has largely reached the height of the current tightening cycle. However, many central banks are likely to hold on before starting to ease again. The big question at the moment is when interest rates will start falling and how far down they will go. While central banks such as the National Bank of Poland and Banco Central do Brasil have already begun to cut rates, KPMG economists’ view is that most central banks – including the US Fed and the Bank of England – would not start acting until well into 2024 with rates settling at a significantly higher level in the medium term that during the decade prior to Covid.

The latest forecast from KPMG’s Global Economic Outlook reflects the multiple underlying factors driving uncertainty and sluggish growth across the world. In the short term inflation may be easing, but it’s coming at a cost, with consumer spending dropping and the cost of debt rising.

Businesses are having to navigate a changing geopolitical environment, new hybrid working preferences, ESG adoption, as well as emerging technologies such as AI and big data. All these changes require increased investment, but most of them could potentially increase productivity and economic growth in the long term.