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The Economist Intelligence Unit (EIU) has revised its global real GDP growth forecast for 2024 to 2.5% up from the previous estimate of 2.4%.
This update suggests that growth will remain steady compared to 2023, rather than slowing down.
"Growth is proving surprisingly resilient in the face of high interest rates and geopolitical risks," the London-based firm noted in its global outlook.
Upward revisions in key economies
The revision is driven by several positive changes in key economies.
The EIU has raised its growth forecast for the US to 2.2% from 2%, and for several European economies, pushing the euro area growth forecast to 1% from 0.8%.
Brazil's growth outlook has also been adjusted upward to 2.1% from 1.8%.
Changes in monetary policy expectations
The EIU also adjusted its expectations for future monetary policies.
It has removed a planned 25-basis point rate cut from the loosening cycles of both the US Federal Reserve and the European Central Bank for 2024-25.
In contrast, it now anticipates the Bank of England will cut rates more quickly than previously forecast, reducing its rate to 3.5% by the end of 2025, compared to an earlier forecast of 4.25%.
Geopolitical impact and economic fragmentation
The EIU predicts that geopolitical tensions will lead to more fragmentation and regionalization of the global economy from 2024 to 2028.
As alliances tighten and competing blocs form, industrial policies, sanctions, and new incentives will push firms towards less efficient supply chains.
This shift is expected to stoke trade tensions in strategic sectors, making it harder for businesses to compete globally and potentially dragging down growth potential.
The EIU projects that global real GDP will grow by an average of 2.8% annually over the next five years, a slight decline from the 3% average growth seen in the 2010s.
Near-term economic resilience
Despite these challenges, the immediate outlook for the global economy is relatively positive.
The EIU highlights the resilience of the global economy in the face of international conflict and high interest rates, primarily driven by the strength of the US economy.
Robust household finances, increasing manufacturing investment, and a booming technology sector are key factors bolstering US growth.
In Europe, economic momentum is expected to build gradually throughout 2024.
Modest government stimulus measures in China are helping the economy recover from a property-related slump.
Emerging markets stand to benefit from a rebound in global trade and strong demand for commodities, although they will face challenges from a strong US dollar and high debt-servicing costs.
Overall, while the global economy faces significant headwinds, the near-term outlook remains cautiously optimistic.
