Has the cycle of monetary easing begun? After the Banco Central do Brasil, the European Central Bank (ECB) has become the second major central bank to cut rates. This might bring some much-needed relief to companies and households and could revive the construction market. But there might be more. As our most recent economic survey showed, global sentiment has slightly shifted south, adding to uncertainty amid possible weakening growth. In that case, central banks might have more support for more-rapid rate cuts.
The interest rate cuts eagerly anticipated earlier in the year have largely not materialized. In May, Brazil was the sole country among our surveyed economies to cut rates; in June, it was the ECB’s turn. After nine months of holding rates steady, June 6 saw the bank reduce its key interest rate by 25 basis points (bps) to 3.75% as eurozone inflation eased (Exhibit 1). Nevertheless, caution was perhaps the prevailing factor, with the bank also confirming it would reduce the Eurosystem’s securities holdings under the pandemic emergency purchase programme (PEPP) by an average of €7.5 billion per month over the second half of the year. Consequently, ECB policy has unfolded as a mix of easing (via the rate cut) and tightening with the unwinding of the asset purchase program.
Caution amid global uncertainty is also reflected in the responses to McKinsey’s “Economic conditions outlook, June 2024.” Although respondents tend to view conditions as improving globally and in their own countries—and expect them to continue to do so over the months ahead—they also foresee clouds gathering on the horizon.
When asked about four near-term scenarios for the global economy, respondents are much more likely to choose the two that result in a recession compared with their responses in the previous quarter (Exhibit 2). They are also concerned about the impact of changes in trade policy and relationships on global growth while anticipating rising unemployment rates at home. Moreover, in a few regions, the latest survey finds more respondents predicting interest rate hikes in the months ahead.
China’s economy also likely remains front of mind for both domestic policy makers and the country’s trading partners. Both the EU and the US have unveiled plans to increase tariffs on electric-vehicle imports from China. In response, China has vowed to defend its interests against the new tariffs announced by President Biden. The country also announced a visa-free policy allowing passport holders from 12 European countries, Australia, and New Zealand to stay in China for up to 15 days. Meanwhile, the slowdown in China’s real estate market continued in May. Demand-side indicators revealed a decrease of −19.0% in sold floor space for new residential properties, falling from −17.1% in April; on the supply side, floor space started was down −22.2% (−13.7% in April).
Transitions in political leadership tend to spark uncertainty, and 2024 continues to be a bumper year for elections, not least in the US, where presidential elections will be held in November. Following recent ballots in India and the eurozone, July saw national elections in the UK and France (both called unexpectedly). Markets were particularly apprehensive of potential outcomes in the French elections, where the far-right National Rally and the New Popular Front (a left-wing coalition) have squeezed the centrist vote. No party achieved an absolute majority. The election result came just weeks after the European Commission said that France and six other countries should be disciplined for running budget deficits in excess of EU limits—a move that will likely rein in spending options for the winner of the French election. India’s elections, meanwhile, which ran from April through June, delivered Prime Minister Narendra Modi a third term but with a reduced parliamentary majority, potentially making it difficult for the government to push through major reforms.
May saw consumer confidence retreat somewhat, led by consumers in the eurozone and the US. However, most economies recorded a rise in retail sales in light of receding inflation and consumers anticipating further monetary easing. May’s retail and food services sales in the US (adjusted for seasonal variation and holiday and trading-day differences) were $703.1 billion—up 0.1% from the previous month. The consumer confidence index (Conference Board) rose to 102.0 in May, from 97.5 in April (a slight upward revision).
Overall, inflationary expectations are stable at about 2.0–2.5%. Consumer inflation in developed economies remains under control, with the UK seeing it drop below 2%. In the US, the consumer price index (CPI) registered a 3.3% (annualized) rise in May, lower than the 3.4% inflation figure for the 12 months ending in April. Core inflation rose 3.4% (annualized) in May. In April 2024, the UK CPI fell to the Bank of England’s (BOE’s) 2% target for the first time in three years, mainly driven by a slowdown in food prices. This marks a milestone for the UK economy after the worst inflationary upsurge in a generation. Core inflation (which excludes energy, food, alcohol, and tobacco) fell to 3.5% in May, down from 3.9% in April.
Inflation in emerging markets has seen little change, though it rose in Brazil and remains elevated in Russia. China’s consumer price inflation held steady at 0.3% in May, while producer prices deflated at a slower rate of −1.4%, improving from −2.5% in April. In Brazil, inflation increased to 3.93% (3.69% in April), registering its first rise in eight months to move away from the 3.5% central bank target. This was driven mainly by food and energy costs, with the flood disaster in the southern state of Rio Grande do Sul notably pushing up food prices. Russia’s headline inflation jumped to 8.3% year on year in May, from 7.8% in April.
Most commodities were stable in June, but this month saw gold prices continue to rise, reaching approximately $2,335 per ounce. Energy prices moved sideways but remain above prepandemic levels. Similarly, while most metals also moved sideways, copper prices remain high as inventories decline. Food prices have picked up slightly, with dairy and cereal prices on the rise.
According to the composite leading indicators, the growth cycle across most countries has already bottomed out, and the majority are heading toward accelerated growth. On the back of higher-than-expected eurozone growth in the first quarter of 2024—up by 0.3% quarter on quarter—ECB projections point to 0.9% growth in 2024 (revised up by 0.3 percentage points [p.p.]), 1.4% in 2025 (down –0.1 p.p.), and 1.6% in 2026 (unchanged). Meanwhile, China’s industrial output in May recorded year-on-year growth of 6.2%, a slight decrease from April’s 6.3%. In Russia, the official estimate revises annual growth to 5.4% in first quarter 2024, up from 5.1% year on year in fourth quarter 2023.
Growth in both the manufacturing and the services sectors accelerated. The situation in the manufacturing sector improved in most countries; Europe remains the only region where manufacturing continues to contract, albeit at a slower pace. The standout was India, where the flash estimate for June’s manufacturing purchasing managers’ index (PMI) accelerated to 58.5 (57.5 in May). In the US, the industrial production index rose to 103.3 in May (102.4 in April), while June’s manufacturing PMI rose to a three-month high of 51.7. However, the eurozone’s economic recovery suffered a setback at the end of the second quarter of the year. The forward-looking indicator, Eurocoin, went from 0.26 to 0.18 in June. The composite PMI dropped to 50.8 in June (from 52.2 in May), and the manufacturing PMI saw a more pronounced decrease to 45.6 from May’s 47.3. France registered a fall in output for the second month in a row. The UK’s manufacturing sector showed signs of strength in May. The seasonally adjusted S&P Global UK Manufacturing PMI rose to 51.2 (up from 49.1 in April)—its highest reading since July 2022. Brazil’s composite PMI fell marginally from 54.8 to 54.0 in May, staying firmly within the expansion zone for an eighth consecutive month. The fall in Brazil’s manufacturing PMI to 52.1 in May (55.9 in April) is attributable to the floods in the state of Rio Grande do Sul, business closures, and demand reduction.
Service sectors continue to grow at an accelerated pace across most surveyed countries, with India a standout here, too: its services PMI climbed to 60.4 in June (flash estimate) from 60.2 in May. The US recorded the steepest acceleration, with a surge in new orders that saw the services PMI climb to 55.1. Meanwhile, expansion in the eurozone services sector softened to 52.6 in June (down from May’s 53.2). The S&P Global UK Services PMI posted above the neutral 50.0 mark in May for a seventh consecutive month, signaling a sustained expansion in output across the UK’s services economy. May saw Brazil’s services PMI rise to 55.3 (from 53.7 in April)—the fastest rate of expansion in 22 months.
Unemployment rates are stable across most surveyed economies, with India once again a standout, with a 13% decrease. May saw China’s overall surveyed urban unemployment rate unchanged at 5.0%. The youth unemployment rate decreased to 14.2% in May (14.7% in April).
On the markets, equities in Germany, India, Japan, and the US reached new highs in May, while markets in some European countries and some emerging economies are struggling. Volatility in the equity and oil markets eased, but it remains elevated in the currency and gold markets.
Overall, world trade volume expanded by 1.5% in April, with increases in all trade flows across emerging and advanced economies, while global supply chains also continue to normalize. April saw exports increase in Brazil and the eurozone but drop in India; imports also fell in India. April’s Container Throughput Index rose to 128.8 points from 128.1 points in March, with throughput falling sharply in European ports but increasing in Chinese ports. Among the larger economies, US exports increased to $263.7 billion in April, $2.1 billion more than March’s total; April imports were $8.0 billion up in March; and the monthly deficit increased by 8.7%, to $74.6 billion. In China, cross-border trade growth picked up to 5.1% in May, up from 4.3% in April.
In the advanced economies, inflation falls in the US and the UK; and the ECB lowers interest rate by 25 basis points.
United States. The consumer price index registered a 3.3% (annualized) rise in May, lower than the 3.4% inflation figure for the 12 months ending in April. Core inflation rose 3.4% (annualized) in May. Median inflation expectations at the one-year-ahead horizon declined slightly to 3.2%, from 3.3%, according to the May Survey of Consumer Expectations by the Federal Reserve Bank of New York. Retail and food services sales for May 2024, adjusted for seasonal variation and holiday and trading-day differences, were $703.1 billion—up 0.1% from the previous month. The consumer confidence index (Conference Board) rose to 102.0 in May, from 97.5 in April (a slight upward revision).
Eurozone. After nine months of holding rates steady, June 6 saw the ECB cut its key interest rate by 25 bps to 3.75%. The ECB Governing Council also confirmed it would reduce the Eurosystem’s securities holdings under the PEPP by an average of €7.5 billion per month over the second half of the year. Consequently, ECB policy has unfolded as a mix of easing (via the rate cut) and tightening with the unwinding of the asset purchase program.
United Kingdom. In April 2024, the UK Consumer Price Index fell to the BOE’s 2% target for the first time in three years, mainly driven by a slowdown in food prices but partially offset by rising motor fuel prices. The figure marks a milestone for the UK economy after the worst inflationary upsurge in a generation. Core inflation (which excludes energy, food, alcohol, and tobacco) fell to 3.5%, down from 3.9% in April. On June 20, the BOE Monetary Policy Committee voted to maintain the policy rate at 5.25%.
Among emerging economies, China’s growth remains steady; India’s strong momentum continues; and inflation rises in Brazil amid flood disaster.
China. China’s industrial output in May recorded a stabilized year-over-year growth of 6.2%, experiencing a slight decrease from April’s 6.3%. By sector, manufacturing output grew by 6.7%, a decline from 6.9% in April; utility output expanded by 6.2%, marginally down from 6.6% in April; and mining output rose by 2.0%, an increase from 1.7% in April.
India. Strong momentum in economic activity continues, and it’s especially visible through industrial production, which is growing at 5% year over year. The biggest production increases were observed in manufacturing and electricity production. The PMIs for both the services and manufacturing sectors registered continued expansion. The services PMI climbed to 60.4 in June (flash estimate), from 60.2 in May, while the manufacturing PMI rose to 58.5 (57.5 in May)—both well above the neutral 50 mark.
Brazil. Inflation increased to 3.93% (3.69% in April), registering its first rise in eight months to move away from the 3.5% target set by the Banco Central do Brasil. Driven mainly by food and energy costs, this uptick represents a pause in the disinflationary process that started in 2023. Currently, the disaster in the southern state of Rio Grande do Sul is pushing up food prices. Heavy rains caused extensive flooding in this agricultural-powerhouse region, known for rice, wheat, soy, and tobacco production. The extreme weather has been attributed to above-average temperatures, high humidity, and strong winds.
Russia. May’s headline inflation jumped to 8.3% year over year, from 7.8% in April. Buoyant wage and consumer loan growth are the main factors driving up prices. The central bank, which has held its key interest rate at 16% since December, decided to maintain its policy in June, noting that a possible rate hike might be forthcoming at its next meeting at the end of July. The Central Bank of Russia board acknowledged that demand continues to rise so fast that supply cannot keep pace.
McKinsey’s Global Economics Intelligence (GEI) provides macroeconomic data and analysis of the world economy. Each monthly release includes an executive summary on global critical trends and risks, as well as focused insights on the latest national and regional developments. View the full report for June 2024 here. Detailed visualized data for the global economy, with focused reports on selected individual economies, are also provided as PDF downloads on McKinsey.com. The reports are available free to email subscribers and through the McKinsey Insights app. To add a name to our subscriber list, click here. GEI is a joint project of McKinsey’s Strategy & Corporate Finance Practice and the McKinsey Global Institute.
