Oxford Economics sees global economy achieving soft economic landing

(Alliance News) - Oxford Economics has nudged up its estimate for global economic growth which suggests a soft economic landing could be achieved.

Director of Global Macro Research Ben May said this would be "no mean feat" after the aggressive policy rate hikes in 2022 and 2023, although it still would represent weak growth even by the standards of the 2010s.

May has increased his world gross domestic product growth forecast for 2024 by 0.1 percentage point to 2.4% and left the 2025 growth forecast unchanged at 2.6%.

He explained there have been some tentative signs that global growth has improved at the start of 2024 after a likely soft end to 2023. The JP Morgan Global Composite purchasing managers' index rose to a seven-month high in January, and both the services and manufacturing headline indices picked up. While the latter still sits at just 50, the improvement ends a run of over a year below the 50 no-change threshold, he pointed out.

This supports his base case that GDP growth is beginning to gain pace, though he still expects a steady and unspectacular improvement.

"Although financial conditions have eased, past rises in interest rates continue to filter through to households and firms," he noted.

He believes fiscal policy at a global level will be relatively unsupportive this year, limiting the scope for a sharp rebound.

He expects the disruption to Red Sea shipping routes will persist until at least the middle of this year, ensuring that shipping costs, particularly between Asia and Europe, remain elevated. But while the price impacts and potential supply chain disruptions are uncertain, he expects the shock to have only have a modest upward effect on inflation.

Europe is likely to be worst affected – with at the worst point, likely in the second half, higher shipping costs might raise core inflation by 0.3-0.4 percentage points.

The boost to the calendar-year average inflation rate will be smaller and will be partially offset by weaker energy inflation due to a lower projected path for gas prices compared to a month ago, he added.

"For now, we haven't changed our forecasts for the timing of the first policy rate cuts by the major central banks. Nonetheless, the added layer of uncertainty about the path for inflation increases the risk that the pivot point could be pushed back by another month or so," he suggested.

By Jeremy Cutler, Alliance News reporter

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