Positive news is emerging from various sources, suggesting the global economy might be turning a corner, though substantial risks remain. Central banks face a challenging balancing act between managing inflation and promoting growth, which led to divergent actions this month. Several banks cut rates to boost the economy in September, while others tightened policy to tame inflation. Although headline inflation is approaching central banks’ targets, core inflation remains elevated.
The OECD’s latest Interim Economic Outlook points to resilient growth through the first half of 2024, with slowing inflation suggesting a strengthening economy (Exhibit 1). However, the global policy forum acknowledged that significant risks remain. With robust growth in trade, improvements in real incomes, and a more accommodative monetary policy in many economies, the outlook projects global growth at 3.2% for 2024 and 2025.
New data released on September 26 by the US Bureau of Economic Analysis (BEA) shows the US economy has been performing better than previously indicated. BEA’s updated GDP estimates confirm robust second-quarter growth of 3%, driven by strong consumer spending and business investment. BEA also released its annual revision, revealing that during the past four quarters, real GDP growth was 3% higher than a year ago. Through the end of 2023, real GDP was revised up by a cumulative 1.2%, with upward revisions to growth in each year from 2021 to 2023. Real GDP was revised up by another 0.1% through the second quarter of 2024. The upward revisions were mainly attributable to stronger consumer spending (especially services spending), which cumulatively (through the fourth quarter of 2023) accounted for about 0.8 percentage points of the revised growth figures. About 0.5 percentage points of the upward revision were due to stronger business investment, largely in factories and equipment. However, government spending and net exports represented a slightly larger drag than previous figures indicated, especially in 2023.
That said, the Conference Board Leading Economic Index (LEI), which aims to predict turning points in the economic cycle, decreased in August to its lowest level since October 2016. Falling 0.2% from the previous month to register 100.2, the index recorded a sixth consecutive monthly decline and triggered a “recession signal.”
Although they retain some optimism about the months ahead, overall, executives are more cautious about the global economy than they were earlier this year, according to McKinsey’s “Economic conditions outlook, September 2024.” For the first time since March 2020, surveyed executives primarily view the global economy as stable rather than improving. Survey respondents were less upbeat than in the previous two quarters, expressing caution about both current global conditions and their domestic economies.
The US Federal Reserve delivered its much-heralded September interest rate cut, with the Federal Open Markets Committee (FOMC) deciding to lower the target range for the Fed funds rate by a hefty 0.5 percentage points to 4.75 to 5%. This marked an unusually large reduction, given that the last time the US Federal Reserve cut rates by this margin was during the pandemic. More cautiously, the European Central Bank (ECB) cut its deposit facility rate by 25 basis points to 3.5% on September 12, amid downward revisions to the eurozone’s economic outlook. Later in the month (September 24), China’s central bank also announced rate cuts as part of a wide-ranging stimulus designed to boost the ailing real estate sector and the broader economy. The People’s Bank of China unveiled plans to cut reserve requirement ratios—which is the amount of cash banks must hold in reserve—by 50 basis points. It also announced a cut in the seven-day repo rate by 20 basis points, bringing it down to 1.5% (with deposit and other interest rates also set to fall).
Russia’s central bank followed up on last month’s 200-basis-point increase, which brought its key rate up to 18%, with another round of tightening—this time by 100 basis points to 19%. Less dramatically, the Central Bank of Brazil raised its benchmark interest rate by a quarter percentage point to 10.75%, marking the beginning of a new monetary-tightening cycle. This was the first hike in two years (Exhibit 2).
Meanwhile, in the UK, the Bank of England’s Monetary Policy Committee voted on September 19 to leave the policy rate at 5%. Similarly, the Reserve Bank of India kept the key repo rate unchanged at 6.5%.
For growth among advanced economies, it’s a different story on either side of the Atlantic. In the US, the Federal Reserve projects 2.1% GDP growth for 2024. In Europe, meanwhile, growth has been underwhelming. The eurozone’s second-quarter GDP growth has been revised down to 0.2% from 0.3%, below June’s expectations. In the UK, GDP is estimated to have increased to 0.7% in the second quarter of 2024 versus the same quarter the previous year, following a downward revision by the Office for National Statistics released on September 30. Monthly real GDP is estimated to have shown no growth in July, echoing June. Indeed, UK GDP has shown no growth for three of the past four months.
Among emerging economies, the situation is more positive. In China, industrial output growth slowed in August to 4.5% (5.1% in July), while in India, growth slowed from 7.8% in the first quarter to 6.8% in the second, remaining above the long-term average. Meanwhile, Brazil’s GDP for the second quarter of 2024 increased by 2.8% compared with the same period the previous year. In Russia, preliminary estimates by the Ministry of Economic Development confirm a loss of momentum early in the third quarter; nevertheless, year-on-year GDP growth in June and July was about 3%, albeit down from 4.5% in April and May.
Across regions, consumers are worried about the high cost of living, weak job markets, and economic uncertainty. Retail sales seem to be holding up, but in real terms, they’re flat or declining in most surveyed economies. In the US, August 2024 retail and food services sales rose by 0.1% from July. The consumer confidence index climbed to 103.3 from an upwardly revised 101.9 in July. In the eurozone, consumption is lower than expected. Consumer confidence is low, and household savings plans are higher. In the UK, consumer confidence dropped due to warnings of economic pain in the upcoming budget. The GfK Consumer Confidence Barometer reached a six-month low of –20 in September, down from August’s –13.
Consumer confidence also declined among the emerging economies, although it sits at the higher end in India, despite falling slightly, with consumers remaining optimistic about the future. In Mexico, consumer confidence fell slightly to 100.9 in August (versus 101.1 in July) to reach its lowest level this year. In Brazil, consumer confidence remained below the neutral 100 mark but rose 0.3 points to 93.2 in August (92.9 in July), up for a third consecutive month. Business confidence rose to 97.9 in August (97.6 in July), its highest level since September 2022.
Central banks continue to anchor inflation expectations at about 2.0 to 2.3%. The US saw the consumer price index (CPI) rise 2.5% over the 12 months ending in August, the smallest 12-month increase since March 2021. Core inflation remained steady at an annualized rate of 3.2% in August. In the eurozone, headline inflation in August was down to 2.2%, mainly because of a decline in energy prices (–3%), whereas core inflation stood at 2.8%. Services inflation, however, registered 4.1%, which still points to strong domestic price pressures, with wages growth remaining elevated (4.7% in the second quarter of 2024). Meanwhile, the UK CPI remained unchanged at 2.2% in August, while core inflation rose to 3.6%, from 3.3% in July.
China’s consumer inflation rose slightly to 0.6% in August, while producer prices fell by 1.8%. In India, headline and core CPI inflation stabilized at 3.7% and 3.3%, respectively. Brazil’s inflation dropped to 4.24% in August, remaining within the central bank’s target (under 4.5%). In Mexico, the inflation rate decreased to 5.0% in August but remained above the central bank’s target range of 2 to 4%.
In Russia’s wartime economy, inflation is still high because of supply shortages. Consumer prices went up 9% in August, which is much higher than the central bank’s target of 4%. Prices for services rose nearly 12% last month, foodstuffs 10%, and nonfood goods 6%.
Global manufacturing activity decreased for the second straight month, while the services sector grew at its fastest pace in 14 months. Most economies reported weaker demand in manufacturing and an increase in consumer prices. In the US, industrial production rose slightly to 103.1 in August from 102.8 in July. However, August’s purchasing managers’ index (PMI) for manufacturing dropped to 47.2 from 48.0 the previous month. The UK manufacturing sector kept growing, with higher output, orders, and employment. Price pressures eased as inflation rates slowed down. The UK manufacturing PMI hit a 26-month high in August, indicating expansion in five of the past six months.
Among emerging economies, India’s industrial production grew by 4.9% in July, mainly because of electricity production. The country’s manufacturing PMI remains strong at 57.5. In Brazil, manufacturing PMI dropped to 50.4 in August but has remained above 50 for eight months, indicating modest growth. Mexico’s manufacturing PMI slightly decreased after two months of growth. It edged down from 51.2 in May to 51.1 in June but is still above 50.
The services sector continues to be buoyant. The US services PMI rose slightly to 55.7 in August from 55.2 the previous month, while the headline S&P Global UK Services PMI registered 53.7 in August, up from 52.5 in July and above the neutral 50.0 threshold for the tenth consecutive month. India’s services PMI reached a healthy 60.9 in August. Meanwhile, Brazil’s services PMI dropped to 54.2 from 56.4 in July, as softer demand slowed business growth.
July saw the unemployment rate continue to rise in both the US and China, although it decreased by 1.3 percentage points in India. However, the US unemployment rate then declined to 4.2% in August, down from July’s 4.3% (3.5% in January 2020). Total nonfarm payroll employment increased by 142,000 in August. In the US, unemployment worries (as measured by the average expected likelihood of becoming unemployed in the next four months) were most acute among people with incomes of $60,000 or less. In the UK, unemployment was estimated at 4.1% for the three months ending in July 2024.
Unemployment picked up slightly in China and India but ticked down in Brazil and Mexico. Overall surveyed urban unemployment in China rose marginally to 5.3% in August from 5.2% in July. India’s unemployment rate rose to 8.5%. Meanwhile, Brazil’s three-month moving average unemployment rate dropped slightly to 6.8% in July (6.9% in June), down for the fourth time this year, and lower than the same period last year (7.9%). Mexico saw total unemployment decline by 0.06 points in July to 2.67%.
Most equity markets rebounded following the 50-basis-point cut in interest rates in the US, as market volatility eased in September across all major asset classes. However, the cost of capital remains elevated, especially in developing countries.
Global supply chain markets continue to normalize, with the pressure index at its historical average value in July. Both imports and exports saw an increase in the US, China, and Brazil during July, while the Container Throughput Index rose to approximately 133.2 points, accompanied by a modest increase in port activity.
The US exported $266.6 billion in July, $1.3 billion more than in June. Imports hit $345.4 billion, a $7.1 billion increase from June. The trade deficit in goods widened by $5.6 billion to $103.1 billion, while the services surplus narrowed by $0.2 billion to $24.3 billion. In China, trade growth slowed to 5.2% in August from 7.1% in July, mostly because of a slowdown in imports, which fell to 0.5% from 7.2% the previous month. Export growth stayed strong at 8.7%, up from 7.0% in July.
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 September 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.
