Optimism reaches a peak despite U.S. election uncertainty
Short-term downward pressure due to uncertainty over U.S. elections in the late stages of the year won’t stop the momentum the global economy has built in 2024, according to an Oxford Economics analysis provided to Grant Thornton International (GTI).
Oxford Economics Economist Robert Bruce said the global economy remains primed for strong growth this year, with real GDP growth of 2.7% forecasted for 2024. That projection is up one-tenth of a percentage point from Oxford’s previous growth forecast in June, although Oxford foresees growth moderating slightly into the early stages of 2025.
Overall, GDP growth has been consistently above 2.5% since the second quarter of 2023, with forecasted growth remaining strong in Asia-Pacific, Africa and the United States. In the U.S., Bruce said, resilient consumer spending continues to move the economy forward as interest rates began to decline with a half-point rate cut implemented by the Federal Reserve in September.
“We do think recent concerns about a broad-based global slowdown look overly pessimistic,” Bruce said. “Many of those are based on the fact that the U.S. economy is slowing, but we do think growth is on track for a robust expansion this year. And we also see a scope for a modest recovery in Europe, which will help things at a global level.”
Steady rise in business outlook
The forecast mirrors a continuing rise in global business optimism reflected in GTI’s International Business Report (IBR) survey for the third quarter of 2024. The middle market business leaders from around the world who participate in the survey have displayed increasing enthusiasm over the past three quarters for the economic conditions in their own countries.
North America and South America were the regions with the most positive outlook as the 74% global optimism represented the highest mark in the 13-year history of the survey. Asset management and energy were the most optimistic industries, while enthusiasm among banking respondents fell compared with the previous quarter.
Forecasting further rate reductions
Oxford’s forecast predicts continued gradual interest rate decreases in the United States, Europe and the UK through the second half of 2025, and Bruce said the downward pressure from falling energy prices will take some of the bite out of inflation. The Oxford forecast shows inflation levels in the United States, Europe and the UK trending close to the 2% traditionally targeted by central banks and governments into the third quarter of next year.
Global trade also is expected to rise in the coming year, with real export growth excluding oil above 10% for Latin America in 2024. The easing of supply chain pressures is having a beneficial effect on global trade.
One temporary source of economic uncertainty is tied to the U.S. election, as Oxford characterized the vote for president as a tossup.
“The tightening of the U.S. presidential race has raised uncertainty significantly and makes it more difficult for businesses to plan ahead due to uncertainty over policy,” Bruce said. “We do expect this to put downward pressure on businesses over the next few weeks in the run-up to the elections and in the immediate aftermath as well.”
Profit expectations rise
Profit increase expectations also have risen in the IBR survey, and respondents indicated they are less likely to raise prices. This is consistent with Oxford’s view that inflation’s grip is loosening.
North America is the most optimistic about higher profitability and higher employment, and the technology and asset management sectors were most optimistic about profitability.
Technology, which has been a constant priority in capital allocation over the past several years, remains the top area for increased investment.
In the coming months, investments across the board might increase as declining interest rates make capital more affordable around the globe and growth prospects remain positive amid record-high optimism.
“All three of the major central banks have now begun to cut interest rates. That will help to ease pressure, both on businesses and consumers,” Bruce said. “And we’re now seeing inflation return to its target in most advanced economies.”
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