Key views Global Monthly June 24
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Growth indicators are showing signs of a pickup in the eurozone and China, while the US economy is gradually cooling. Big picture, the global economy is slowly converging towards a more trend-like pace of growth, and this remains our base case for the second half of 2024. Global trade and industry are slowly recovering, but a sharp rebound is unlikely while rates remain restrictive, and possible new trade tariffs pose an additional risk. Inflation has fallen significantly, and progress towards the 2% target has resumed in the US following the hiccup in early 2024. The impact of the conflict in the Middle East has receded and the inflation impact of the rise in shipping tariffs is likely to be minimal. The ECB has started lowering interest rates, and we expect falling inflation and a softening labour market to enable the Fed to do the same in September. Still, rates will stay high for some time yet, and this will keep a lid on the recovery.
Macro
Eurozone – Growth is expected to remain positive in Q2 but edge lower compared to the strong Q1 reading. We have penciled in 0.2% of qoq growth in Q2. Overall, the eurozone economy is slowly regaining its footing, economic activity is expanding in the services sector while manufacturing continues to bottom out. Growth is expected to remain below the trend rate over 2024. In May, core inflation surprised to the upside due to strong services inflation, in part driven by the pass-through of wages. Leading indicators however suggest disinflation will broadly continue in the coming months.
The Netherlands – Despite the contraction in Q1, GDP growth is expected to pick up and to average 0.5% in 2024. Government spending and household consumption are the drivers of this gradual growth. The stimulus measures in the newly announced coalition agreement led us to slightly raise our growth forecast for 2025 from 1.2% to 1.3%. Inflation is continuing its downward trend. However, the price trend of components with a large wage element – such as labour-intensive services – is slowing the path downward. Inflation is expected to average 2.5% in 2024 and 2.1% in 2025.
UK – The election is expected to have no implications for growth and inflation, despite the expected change of government. This is due to the lack of fiscal space and the limited appetite to re-open Brexit policy. The economy is recovering from a prolonged period of stagnation on the back of high rates. Disinflation is continuing, but services inflation is stubbornly high, due to wage growth that is still well above levels consistent with 2% inflation. The return to 2% inflation will take longer than in other advanced economies, due to historically higher inflation expectations in the UK.