Global Economy Approaches Soft Landing, but Risks Remain

The clouds are beginning to part. The global economy begins the final descent toward a soft landing, with inflation declining steadily and growth holding up. But the pace of expansion remains slow, and turbulence may lie ahead.

Global activity proved resilient in the second half of last year, as demand and supply factors supported major economies. On the demand side, stronger private and government spending sustained activity, despite tight monetary conditions. On the supply side, increased labor force participation, mended supply chains and cheaper energy and commodity prices helped, despite renewed geopolitical uncertainties.

This resilience will carry over. Global growth under our baseline forecast will steady at 3.1 percent this year, a 0.2 percentage point upgrade from our October projections, before edging up to 3.2 percent next year.

Important divergences remain. We expect slower growth in the United States, where tight monetary policy is still working through the economy, and in China, where weaker consumption and investment continue to weigh on activity. In the euro area, meanwhile, activity is expected to rebound slightly after a challenging 2023, when high energy prices and tight monetary policy restricted demand. Many other economies continue to show great resilience, with growth accelerating in Brazil, India, and Southeast Asia’s major economies.

Inflation continues to ease. Excluding Argentina, global headline inflation will decline to 4.9 percent this year, down 0.4 percentage point from our October projection (also excluding Argentina). Core inflation, excluding volatile food and energy prices, is also trending lower. For advanced economies, headline and core inflation will average around 2.6 percent this year, close to central banks’ inflation targets.