Disinflation on track, rate cuts have a way to go
Global: We are increasing our global GDP growth forecast slightly to 3.1% this year from 2.9%. This is below its 2012-19 average of 3.4%, as high real interest rates, weakening resilience in labor markets and geopolitical tensions weigh on economic activity. Manufacturing is likely to show gradual improvement, while the services industry will probably lose some of its shine, mostly in the US. We forecast a slight acceleration in GDP growth to 3.2% next year, amid easier financial conditions. Annual inflation rates in advanced economies will likely continue to decline to target, or slightly below, in 2025. Goods-price inflation is likely to remain contained, assuming no major geopolitical shock, while services-price inflation should gradually slow thanks to cooling wage growth and firms finding it harder to pass on input price rises to customers. Global monetary policy is likely to ease through next year.
US: We forecast the economy to grow by 2.2% this year and by 1.3% next year. The quarterly trajectory is unchanged, with growth slowing to around 0.8% annualized in 2H24 before picking up to about 1.6% annualized in 2025. The main drivers of consumption have lost steam, while business investment is unlikely to be a big support amid election-related uncertainty and high interest rates. We expect core inflation to decline to around 2% by mid-2025 and for the Fed to cut rates by 75bp this year, starting in September, and by 125bp next year. The risks are skewed towards fewer cuts this year. The 5 November election is too close to call. In our baseline we have assumed no major shock to geopolitics and trade, but risks are tilted towards policies that could damage growth and raise inflation.
Eurozone: Activity surprised to the upside in 1Q24 but with domestic demand still weak, the eurozone is not out of the woods yet. We forecast GDP will rise by 0.6% this year and by 1.2% in 2025 as the drag from monetary policy eases while growth in real wages supports private consumption. A resilient labor market mitigates downside risks to activity. Disinflation has slowed but the trend remains intact. Wage growth has peaked, while companies are increasingly absorbing their high labor costs into their profit margins. The ECB cut interest rates at its June meeting without giving guidance about the future rate path. We expect a slow easing cycle at a pace of 25bp per quarter through the end of 2025.
CEE: We forecast GDP growth of 2.7% this year and 2.9% in 2025 in EU-CEE1, and above 3% in both years in the Western Balkans and Turkey. Domestic demand will remain the strongest growth driver, helped by real wage growth, fiscal transfers and falling interest rates. We expect net exports to contribute to growth in 2025, when capex might accelerate. We forecast cautious rate cuts this year, with more to come in 2025.
UK: We are increasing our GDP growth forecast for this year to 0.7% from 0.2%, while our 2025 forecast is unchanged at 0.8%. Underlying growth remains subdued. If the opposition Labour party wins a majority at the 4 July election, it will likely increase borrowing to fund higher public investment, but some taxes will probably have to rise. Headline inflation should stay close to 2% for the rest of this year and fall below target next year. We still expect the BoE to cut the bank rate in August and make a total of 75bp of cuts this year.
China: On the back of stronger-than-expected 1Q24 performance, we are raising our GDP-growth forecast for 2024 to 4.8% from 4.5% while leaving our projection for 2025 unchanged at 4.3%. The outlook on the demand side is not bright. Consumer confidence is not recovering and remains stuck at historically low levels. The main growth impulse is from exports and state-driven investment. There are no signs of major all-in policy stimulus. We think the PBoC is unlikely to cut policy rates but rather to keep using ad-hoc lending facilities to support specific industries.
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UniCredit Economic Chartbook (PDF)
Source: UniCredit Research - UniCredit Economics Chartbook, 26 June 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
