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Advanced economies—Declining inflation supports consumer spending
The OECD forecasts global growth to stabilise at 3.2% in both 2024 and 2025, in line with the average pace observed through the first half of this year. Despite sticky services price rises, inflation has continued to decline in most OECD countries, reflecting lower food price inflation and low, or declining, energy and goods price inflation. Inflation is now at, or approaching, central bank targets in four-fifths of OECD economies (Chart).
Meanwhile, the number of job vacancies has fallen steadily from peak levels during the pandemic and survey measures confirm moderating labour shortages in major advanced economies. As inflation and labour market pressures ease, most advanced economy central banks have commenced monetary easing. For instance, the US Federal Reserve cut the federal funds rate by 50 bps to 4.75-5.00% in September and the European Central Bank cut interest rates for a second consecutive month to 3.25% in October—the first back-to-back cut in 13 years. Declining inflation boosts real income growth and provides a tailwind to household spending. Lower interest rates will also support interest-rate-sensitive expenditures in 2025.
However, growth in advanced economies is diverging. US economic growth is projected to slow over coming quarters from the solid pace observed in H1 2024, with real GDP growth forecast at 2.6% in 2024 and 1.6% in 2025. Meanwhile, euro area GDP growth is forecast to strengthen from 0.7% in 2024 to 1.3% in 2025. Similarly, Japan’s GDP growth is forecast to strengthen from 0.1% in 2024 to 1.4% in 2025.
Significant risks remain. Sticky inflation could result from continued labour cost growth, high shipping costs and additional geopolitical or trade tensions. Growth could slow more sharply as labour markets cool. Weaker economic growth or higher inflation could trigger financial market turbulence, particularly given high debt levels.
