Global monetary policy approaches turning point

Global GDP will likely grow by 2.9% this year and by 3.1% next year. This is subdued compared to historical averages, reflecting the lagged effects of tight monetary policy, reduced household savings buffers, softening labor markets, and less supportive fiscal policy. Disinflation remains on track, despite core inflation being stronger than generally expected at the start of the year. Services will likely contribute more to disinflation ahead as labor markets are softening, short-term inflation expectations of firms and households have eased meaningfully, and firms report finding it harder to pass on rising input costs to consumers. Most central banks are getting closer to cutting interest rates, while the BoJ bucked the global trend by exiting negative rates. 

We continue to see US GDP growth slowing to 1.8% this year and to 1.0% in 2025, down from 2.5% last year, as the strength of the consumer is likely to wane. We expect CPI inflation to fall to slightly above 2% by the end of this year, with core inflation following one quarter later. Further progress on disinflation is likely to come from housing and non-housing core services. The Fed will likely cut interest rates by 125bp this year, starting in June, and by 100bp next year. We expect an announcement on slowing the pace of Quantitative Tightening (QT) in May for a June start.

Our growth forecasts for the Eurozone of 0.5% for this year and 1.2% for 2025 remain on track. We see a slow improvement in the quarterly GDP path as real-wage growth turning positive should support private consumption, while monetary policy will continue to restrain activity. The resilience of the labor market contains downside risks to activity and buys time for the ECB. Headline inflation will likely ease to 2% in 2H24 and fall below the ECB’s goal in 2025. June remains the most likely timing for the first rate cut, but the path thereafter is highly uncertain. We still expect three 25bp rate cuts this year, one per quarter, followed by similar steps next year until a more-neutral level is reached, probably in the 2% area.

We forecast EU-CEE economies will grow by 2.6% in 2024, helped by private consumption and public investment amid EU transfers, and by 3% in 2025, when foreign demand and capex are likely to rebound. We expect GDP to grow by 3.2% in 2024 and 4.0% in 2025 in Turkey, and by 2.8% in 2024 and 1.3% in 2025 in Russia as the fiscal impulse fades and real monetary conditions remain tight. Central banks in Czechia, Hungary and Russia will likely cut rates this year, while those in Poland and Turkey could start easing in 2025.

GDP in UK will likely broadly stagnate this year (-0.3%) followed by modest growth in 2025 (0.8%). The labor market is clearly deteriorating, and household savings buffers have been exhausted. The Spring Budget tax cuts are unlikely to change this. Inflation will fall below 2% in April, with core inflation easing to around 2.5% in 2H24. We expect the BoE to cut the bank rate by 75bp this year, starting in August, and by 175bp next year.

We confirm our GDP growth forecast of 4.5% for 2024 and 4.3% in 2025, down from 5.2% in 2023 in China. Although the National People’s Congress set a growth target of “around 5%” for 2024, in line with last year, we believe that low consumer confidence, high youth unemployment, timid policy support across the board, a bloated real estate sector and an unfavorable geopolitical context will weigh on China’s economic performance. The PBoC will likely continue to recalibrate different lending facilities at the margin.
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UniCredit Economic Chartbook (PDF)

Source: UniCredit Research - UniCredit Economics Chartbook, 26 March 2024, Executive summary

1 EU-CEE refers to CEE countries that are members of the EU: Bulgaria, Croatia, Czechia, Hungary, Poland, Romania, Slovakia and Slovenia