The Economist Intelligence Unit (EIU) has updated its forecast for global real Gross Domestic Product (GDP) growth in 2024, revising it upward to 2.5% from an earlier estimate of 2.4%.

This adjustment indicates that the global growth rate will remain stable rather than decelerating from 2023 levels.

In its global outlook, the London-based EIU highlighted the surprising resilience of growth amid high interest rates and significant geopolitical risks. The firm noted, “Growth is proving surprisingly resilient in the face of high interest rates and geopolitical risks.”

The EIU’s revised global growth projection includes several upward adjustments for key economies. The forecast for US GDP growth in 2024 has been raised to 2.2% from the previous 2%, reflecting strong household finances, rising manufacturing investment, and a booming technology sector.

Similarly, several European economies have seen their growth estimates increased, pushing the euro area growth forecast up to 1% from 0.8%. Brazil’s growth projection has also been revised upward to 2.1% from 1.8%.

Regarding monetary policy, the EIU has adjusted its expectations for future monetary policy changes. “We have reduced our expectations for future monetary policy loosening, removing one 25-basis point cut from the loosening cycles of both the Federal Reserve (the US central bank) and the European Central Bank in 2024-25,” the EIU stated.

Conversely, the Bank of England is now expected to cut rates more quickly than previously forecast, with a target rate of 3.5% by the end of 2025, down from an earlier forecast of 4.25%.

Geopolitical Shifts and Economic Fragmentation

The EIU forecasts increasing fragmentation and regionalization in the global economy over the 2024-2028 period, driven by tighter alliances and the formation of competing blocs.

This shift is expected to result in the return of industrial policy, including sanctions and new incentives that could push firms toward less efficient supply chains. Such measures are likely to stoke trade tensions in strategic sectors and complicate competition in the global marketplace.

These geopolitical developments are expected to drag on growth potential. The EIU projects that global real GDP will expand by an average of 2.8% annually over the next five years, a rate below the 3% growth of the 2010s, which itself was considered lackluster for the global economy.

Immediate Growth Outlook Remains Positive

Despite these longer-term concerns, the EIU’s near-term outlook for the global economy is relatively optimistic. The resilience in the face of international conflict and higher interest rates is primarily attributed to the robust performance of the US economy.

Strong household finances, increasing manufacturing investment, and a thriving technology sector are the key drivers behind the US’s economic strength.

In other regions, the growth outlook is more subdued but still positive. In Europe, economic momentum is expected to build gradually in 2024, supported by modest government stimulus in countries like China, which is emerging from a property-related slump.

Emerging markets are set to benefit from a rebound in global trade and firm commodity demand, though they will face challenges from a strong US dollar and high debt-servicing costs.