As we approach the close of 2024, the global economic landscape presents a mixed yet cautious outlook heading into 2025. Fitch Ratings has slightly revised its global growth forecast for 2025, projecting a marginal decline to 2.6% from 2.7% in 2024. While this forecast remains relatively stable at the global level, there are notable shifts among major economies. For instance, the United States is expected to see stronger-than-anticipated growth with an upward revision of 0.5 percentage points to 2.1%. In contrast, growth expectations for the Eurozone and China have been reduced, with the Eurozone forecast lowered by 0.3 percentage points to 1.2%, and China’s cut by 0.2 percentage points to 4.3%.
In Asia, the region’s growth remains steady at 4.9% for 2024 and 4.8% for 2025, according to the Asian Development Outlook. However, the incoming policies of the new U.S. administration may pose challenges for developing Asia. Changes in trade, fiscal, and immigration policies could affect growth prospects and potentially fuel inflationary pressures across the region. The economic outlook for South Asia specifically is more subdued, with weaker domestic demand expected to slow growth.
Turning to global commodity markets, there has been a mixed picture. Energy prices decreased by 1.2% in November, largely driven by falling prices for natural gas (down by 4.7%) and coal (down by 3.1%). Non-energy commodities saw little change overall, though fertilizer prices fell by 3.0%, and meal prices dropped by 3.1%. Meanwhile, the Food and Agriculture Organization’s Food Price Index (FFPI) registered a slight increase of 0.5% from October 2024, reaching its highest level since April 2023. This rise was primarily driven by higher prices for dairy products and vegetable oils, which offset declines in other food categories like meat, cereals, and sugar. Notably, the FFPI in November 2024 was 5.7% higher than the previous year but remained 20.4% below its peak in March 2022.
The United States economy remains resilient, supported by strong employment and income growth, robust consumer spending, and an increase in productivity that has helped ease inflationary pressures. This is reflected in the Weekly Economic Index (WEI), which has shown consistent growth of around 2-3% in recent weeks. For the remainder of 2024 and into 2025, these positive dynamics are expected to continue, giving the Federal Reserve room for gradual, cautious adjustments to monetary policy. In November, the U.S. Consumer Price Index (CPI) rose by 0.3% month-on-month, marking the largest gain since April. On a year-on-year basis, CPI climbed by 2.7%, slightly higher than October’s 2.6% increase. Core CPI, which excludes volatile food and energy prices, also saw a 0.3% increase month-on-month, reaching 3.3% on a year-on-year basis.
Despite this inflationary pressure, rent costs, one of the more persistent inflationary components, rose at the slowest pace in nearly three and a half years. This moderation, coupled with a decrease in motor vehicle insurance costs, has helped slow the overall rise in services inflation. While inflation remains above the Federal Reserve’s target of 2%, the central bank’s focus has shifted toward the labor market. Although job growth picked up in November following disruptions caused by strikes and hurricanes, the unemployment rate increased slightly to 4.2% from 4.1% in the previous months.
The Federal Reserve’s December monetary policy decision reflects these labor market dynamics, with the central bank reducing its benchmark interest rate by 0.25 percentage points to a range of 4.25-4.5%, marking its third consecutive rate cut. The Fed’s projections indicate that the rate could fall further to a range of 3.75-4% by the end of 2025.
Looking ahead, the global economic outlook signals a continued recovery for key markets, including the United States, the United Kingdom, the European Union, and China, with growing momentum expected for Pakistan’s exports. The outlook for global trade remains positive, suggesting that these economies will continue to drive demand for goods, including exports from emerging markets like Pakistan, in the months ahead.