Growth prospects brighten, but fear of rise in inflation returns: S&P Global Market Intelligence

S&P Global Market intelligence revised its forecast for real GDP growth in 2024 to 2.5 percent from 2.3 percent earlier

S&P Global Market intelligence revised its forecast for real GDP growth in 2024 to 2.5 percent from 2.3 percent earlier, driven by an upward shift in the growth projections for the US, Canada, UK and the Euro Zone. However, it warned that the outlook on inflation remains cloudy.

According to its February Global Economic Forecast Update, S&P Global Market Intelligence sees real GDP growth in the US at 2.4 percent as against 1.7 percent owing to unexpectedly strong growth in the final quarter of 2023, with some of that strength expected to persist in early 2024.

The 2024 growth forecasts for Canada, the Euro Zone, UK and Russia have also been revised higher in February’s update, although to a lesser extent.

Another reason behind the relatively optimistic growth outlook can be attributed to more realistic expectations of policy rate cuts in 2024.

At the peak in December 2023, cumulative rate cuts of over 160 basis points by the US Federal Reserve and the European Central Bank were priced into futures markets for 2024. Those expectations have been pared back to around 90 and 110 basis points of cuts, respectively, at the time of writing. These are more realistic expectations in our view and broadly match our forecasts of 100 basis points of cuts from both central banks this year," S&P Global Market intelligence February update said.

“Global growth prospects are finally brightening up as easing financial conditions start to permeate through. Concerns about a potential pick-up in inflation have also returned, however, related to disruptions to shipping routes," Ken Wattret, global economist at S&P Global Market Intelligence, said on February 22.

Wattret said that though inflationary effects are not sufficiently large to materially alter the outlook, upside risks require monitoring.

"Increasing inflation angst has contributed to a necessary reset of central bank policy expectations. Market pricing of policy rate cuts in 2024 now looks more realistic. Economists at S&P Global Market Intelligence continue to forecast 100 basis points of rate cuts from both the Fed and ECB this year, starting in May and June, respectively," he said.

Concerns over global growth have escalated with two of the world’s largest economies in technical recessions. Japan and the UK both reported their second consecutive negative quarters of GDP last week. However, some of these worries have allayed with the US posting robust growth figures due to a rise in consumer spending.