Global economic growth is expected to decelerate over the next two years, a new report finds.
European asset managing firm Amundi projects that global GDP growth will slow to 3.1 percent this year and 3 percent in 2025, down from 3.2 percent in 2023. The 2024 Mid-Year Global Investment Outlook attributed this slight slowdown to geopolitical risks, particularly US-China tensions.
“The economic context supports earnings and risky assets, but most of the upside potential is already priced in and finding clear catalysts for further gains will be challenging,” Group CIO of Amundi Vincent Mortier said in a statement.
“To navigate the uncertain transition into the next phase of the cycle, we favour high-quality equities, a positive duration stance, and commodities to hedge against inflation risk,” he added.
The report highlights a “multi-speed growth” scenario, characterised by uneven disinflationary trends and diverging economic dynamics across regions.
“With decelerating but sticky inflation and multi-speed growth, central banks will need to carefully assess their stance and communication,” said Monica Defend, Head of Amundi Investment Institute. “Their actions may not be synchronised, but we expect any divergences to be limited.”
Economic forecasts
While the US economy is forecast to decelerate to 2.3 percent growth in 2024 and 1.7 percent in 2025, the Eurozone is expected to see a gradual recovery, with growth projected at 0.8 percent and 1.2 percent for the same periods.
Amundi’s outlook emphasised the increasing impact of geopolitical factors on global markets. The asset manager warns that geopolitical risk is expected to increase in the coming years, with factors such as protectionism, sanctions, tariffs, export controls, and trade wars intensifying.
The outcome of the US election is highlighted as pivotal, with US foreign policy expected to differ significantly under a Biden vs Trump presidency.
The report also notes that Europe will need to reassess its approach to China in light of its own strategic priorities, including defense, energy transition, and supply chain resilience.
On the inflation front, Amundi predicts that price pressures will remain stickier than expected but should further decelerate towards central bank targets by 2025. This trajectory is expected to allow major central banks to initiate a new cycle of interest rate cuts, albeit at different paces. Amundi’s base case is that the Federal Reserve will begin cutting rates by September 2024.
In response to these economic conditions, the firm advises investors to adopt a dynamic allocation strategy. This includes maintaining a mildly positive stance on equities, particularly high-quality stocks, while also holding a positive duration bias in fixed income. The firm also recommends looking to commodities as a hedge against inflation risks and geopolitical uncertainties.
As the global economy navigates this complex landscape of slowing growth and persistent geopolitical tensions, investors and policymakers alike will need to remain vigilant and adaptable to the evolving economic and political dynamics shaping the world’s financial markets.
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