The process I follow begins with reviewing the outlook from the International Monetary Fund (IMF), then I run my models, and currently, I'm at the beginning of that process. I thought I'd share the IMF's base case outlook and where I might adjust it based on my models. I believe these nuances are important.
What is immediately clear when you examine the complete outlook is that there is no recession on the horizon. The US is experiencing growth at 2.2%.
Following a difficult period in the Euro area, despite a miserable past, recovery is underway with modest growth expected at 1.1% in 2024 and 1.6% in 2025. As for China, the IMF estimates growth at 4.8% this year, but I think it will be closer to 4.6%, with a slight recovery to 4.5% next year. However, I think 4.3% is more likely next year, primarily due to ongoing weak demand in the Chinese economy. That said, these are still excellent figures, especially considering the size of the Chinese economy, which is growing at a pace four times faster than Germany’s and nearly twice as fast as the US.
The standout performer in recent years has been India. It grew by 8.2% last year and 7% this year, with projections ranging from 6.5% to 7% next year. India's high growth is set to continue for the next two decades, driven by a rising working-age population. This is unlike China, where the working age population is shrinking.
In Australia, growth has been relatively soft this year, hovering around 1.2%, largely due to the decline from a record high commodities boom. The IMF forecasts 2.1% growth next year, but I think it will be closer to 2.5%. Still, this is modest growth compared to Australia's historical standards. On the inflation front, most places are experiencing low and falling inflation, except for Australia. The US's headline CPI is projected to decrease from 2.3% this year to 2% in 2025. The Euro Area is also seeing a slight reduction, from 2.4% this year to 2.2% next year. In China, inflation is low, with deflation last year and a forecast of around 0.9% to 1% this year, due to weak consumer demand. Usually, inflation in China is about 2%, and it should gradually increase as the economy recovers.
In India, inflation is targeted at 4%, and they are on track to meet that goal this year and next. In Australia, inflation this year could be around 2.7%, slightly lower than the 3% the IMF expects, with a slight increase to around 3.7% next year.
Overall, what we see is that the global economy is returning to reasonable growth. The fear of a recession has subsided, and the outlook is positive across most regions. Growth in the US is likely to exceed the Federal Reserve's estimate of 2%, with some models forecasting around 2.2%.
Thanks to the recovery in the Euro Area, India's strong performance, and Australia's rebound, the global outlook remains strong.
Still, it is possible that the market has already priced this in.
