• Deceleration in growth in some of the world's largest economies, coupled with little impetus elsewhere, could see global GDP growth easing slightly in 2024.
• Weaker momentum should help push down inflation, with average world inflation expected to halve by 2025.
• Monetary tightening cycle is reaching its end, but there could be an increasing divergence in the timing and the extent of easing by central banks.

KPMG Global Economic Outlook – December 2023

A significant uplift in global growth is unlikely in 2024 with no short-term end in sight to geopolitical uncertainty and tight monetary policies, according to the latest KPMG Global Economic Outlook.

Produced by leading economists from KPMG member firms around the world, this year's report looks at the economic prospects for 37 countries and economic areas in 2024 and 2025, including the potential for the world economy over the next two years.

With global trade plateauing in recent years, driven in part by the pandemic, geopolitical tensions and rising protectionist measures, the KPMG report warns of potentially large output losses from geoeconomic fragmentation over the longer term. The report forecasts global GDP growth of 2.2% in 2024 – down from 2.6% in 2023, with a return to 2.6% growth anticipated in 2025.

Inflation and supply chain pressures easing

Weaker economic momentum has helped ease supply chain pressures and reduce broader cost pressures, with energy prices dropping significantly from their 2022 peak when Russia invaded Ukraine. Median CPI inflation for the G20 countries fell to 3.9% in October 2023 after peaking at 7.7% in July 2022, and KPMG expects further deceleration in coming months.

The Global Economic Outlook forecasts see world inflation averaging 5.0% in 2024 and 3.9% in 2025, down from an estimated 6.5% in 2023 and 8.0% in 2022. Risks are on the upside, however, as any further shocks to energy prices – or a more persistent domestic inflation in some countries – could derail the relatively smooth return to central banks' inflation targets next year.

Monetary policy has largely reached the height of the current tightening cycle. However, many central banks are likely to hold on before starting to ease again. The big question at the moment is when interest rates will start falling and how far down they will go. While central banks such as the National Bank of Poland and Banco Central do Brasil have already begun to cut rates, KPMG economists view is that most central banks – including the U.S. Fed and the Bank of England – would not start acting until well into 2024, with rates settling at a significantly higher level in the medium term than during the decade prior to the Covid pandemic.

Yael Selfin, Vice Chair and Chief Economist at KPMG in the UK, said:

"The latest forecast from KPMG's Global Economic Outlook reflects the multiple underlying factors driving uncertainty and sluggish growth across the world. In the short term inflation may be easing, but it's coming at a cost, with consumer spending dropping and the cost of debt rising.

"Businesses are having to navigate a changing geopolitical environment, new hybrid working preferences, ESG adoption, as well as emerging technologies such as AI and big data. All these changes require increased investment, but most of them could potentially increase productivity and economic growth in the long term."

Weak investment outlook amplified by policy uncertainty

Uncertainty triggered by rising geopolitical tensions is exacerbated by policy uncertainty for countries including the U.S., the UK, India as well as Austria, where 2024 is an important election year. This could see relatively weak business investment in the short term, while there is little room for governments to pick up the slack as public finances have worsened significantly in recent years. Nevertheless, unemployment is likely to remain relatively low – at just below 6% on average globally – providing some support for consumer spending despite the various headwinds.

Regina Mayor, Global Head of Clients & Markets at KPMG International, added:

"The story may vary from country to country, but there are some clear universal themes. Monetary policy has had a big impact on output and growth prospects and there's growing pressure for it to ease. When that happens remains to be seen. Many central banks are stuck between a rock and a hard place, cautious that loosening the screws could simply lead to an inflationary rebound.

"While we're anticipating no significant change to unemployment figures, 2024 could be a year to monitor the impact of tight economic conditions for the corporate world. A wave of debt refinancing in a particularly challenging period could put real pressure on business leaders searching for an end to the prolonged pain of recent months. Combined with ongoing geopolitical uncertainty, the coming year could be potentially crippling for many.

"While the latest KPMG Global Economic Outlook is skewed toward downside risks, there are always glimmers of hope and optimism. Since the outbreak of the pandemic, we've had several years of uncertainty and business leaders have demonstrated a real sense of resilience and agility. With the right strategies in place and an ability to flex to an ever-changing world, the most innovative and focused should eventually start to see some light at the end of the long tunnel."

Tassos Yiasemides, Board Member andHeadof Corporate andGlobalCompliance Management Services, commented:

"Over the course of the last few years, the Cyprus economy demonstrated significant positive elements, such as a positive growth rate, fiscal surpluses and the reduction of public debt as a percentage of GDP. There was also significant improvement in the balance sheets of financial institutions, without this meaning that the alienation of non-performing loans resolved borrowers' or society's issues.

Positive growth rates are expected to continue next year, to a lesser extent, since a slowdown is predicted. The challenges of the external environment are amplified, and they will affect the country's exogenous economy. At this stage, it is crucial to create reflexes to overcome any negative incidents.

During the first half of 2024, the overall impact of monetary tightening is expected to be seen with consumption constrained, problems within the society, as well as business projects postponed due to increased financing and other costs.

A key priority for Cyprus should be the advancement of all the necessary reforms to enhance the efficiency of the public sector, and the promotion of digitalisation and green transformation.

The latest meetings of the ECB and the US Central Bank (FED) hinted at interest rate cuts next year.

It should be noted that central banks' decisions depend on the course of inflation and economies, namely the degree of slowdown that interest rate hikes create in economies.

It is important to stress that under no circumstances we are going to have rate cuts at the same pace and aggressiveness of the increases of the past two years. FED is expected to start the cycle of cuts sooner since it promoted monetary tightening earlier than the ECB and its economy has adjusted.

It is interesting to see how the European economy will end the year in terms of growth rate, and in particular the national economies of its core, since the intensity of recessionary pressures may lead to faster decisions.

On the other hand, the latest statistics available show that inflation is decreasing, but the situation is changing considering the recent example of the Houthis (Yemen) and the problems they created for the world trade".
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