Global Economic Growth Steady Despite Regional Variations, Inflation Easing by 2025

The latest World Economic Outlook (WEO) by the International Monetary Fund (IMF), released in October 2024, has projected global economic growth to hold steady at 3.2% in both 2024 and 2025. This marks a period of stability in the global economy, although some notable revisions have been made to the growth forecasts for major economies. For instance, the United States’ growth forecast has been revised upwards by 0.2 percentage points to 2.8%, counteracting downgrades for some large European Union (EU) economies. The United Kingdom also saw an upward revision of 0.4 percentage points, bringing its growth forecast to 1.1% for 2024. In contrast, China’s growth forecast was downgraded by 0.2 percentage points to 4.8%, reflecting the ongoing economic challenges faced by the country.

Despite these shifts, the global policy response to inflationary pressures is yielding positive results. After reaching a peak of 9.4% on a year-on-year basis in the third quarter of 2022, global headline inflation is projected to fall to 3.5% by the end of 2025. This marks a significant reduction and brings inflation below the average level of 3.6% observed between 2000 and 2019.

The J.P. Morgan Global Composite PMI for September 2024 posted a reading of 52.0, down from 52.8 in August, indicating a slowdown in global economic momentum. While the service sector continued to experience solid growth, the manufacturing sector contracted, revealing a divergence between the two industries. These sectoral disparities were also reflected in regional performance during September, with the United States, Japan, the United Kingdom, and Brazil showing strong economic growth, while the euro area, Canada, Russia, and China exhibited signs of either stagnation or contraction.

Pakistan’s key export markets, including the United States, the United Kingdom, the euro area, and China, also showed similar trends in September 2024 when compared to August, signaling potential challenges for the country’s export sector in the near future. On the commodities front, the FAO Food Price Index (FFPI) stood at 124.4 points in September 2024, representing a 3% increase from the previous month and a 2.1% rise on a year-on-year basis. Prices for all commodities in the index strengthened, contributing to higher food costs globally.

Meanwhile, the US economy has shown signs of moderate recovery, with the Federal Reserve’s monetary policy adjustments reflecting a balanced approach to fostering economic stability. The Fed recently reduced its policy rate by 50 basis points, bringing the target range to 4.75-5.0%—its first rate cut since 2020. This decision aligns with the Fed’s dual mandate of ensuring price stability and promoting maximum sustainable employment. Job gains in the US were robust in September, and the unemployment rate fell slightly to 4.1%, down from 4.2% in August. Inflation in the US also slowed to 2.4% in September 2024, marking the lowest annual rate since February 2021.

Given these positive economic signals and improved macroeconomic indicators, it is expected that the Federal Reserve will continue to reduce its benchmark interest rate by 0.25 percentage points in both November and December 2024. As the global economy navigates these shifting dynamics, growth prospects remain favorable, though regional disparities will likely continue to shape the outlook in the coming months.

Source: GoP Finance Division