A slight rise in inflation was seen on both sides of the Atlantic this autumn. However, the resilience of services prices and the geopolitical risks anticipated for 2025 do not, at this stage, threaten a landing scenario for inflation. In our view, this should be achieved more quickly in the eurozone than in the United States and the United Kingdom.
Much has happened since Q4 Outlooks published in September cheeringly predicted, as a matter of consensus, that the global economy was heading for a soft landing after the sharpest inflation surge and most abrupt monetary tightening in decades. On the economic front, more data have been released, helpfully adding pixels to the growth, labour market and inflation pictures. On the politics and policy fronts, China unveiled a large stimulus package, the US voted in a new President and Congress, the UK released a radical 2025 budget, and France and Germany limped into new governing arrangements.
GDP growth, inflation, exchange and interest rates.
Equity indices, Currencies & commodities, and Bond markets
In this special edition of Economic Research devoted to interest rate cuts, we introduce you to Isabelle Mateos y Lago, who succeeds William De Vijlder as Chief Economist of the BNP Paribas Group and Director of the Economic Research department. The Fed and the ECB are cutting rates. How much of a good sign is this? This is the subject we then tackle with Hélène Baudchon, before discussing the effects of the rate cuts on European banks with Laurent Quignon. Finally, we end with Christine Peltier analysing the effects of the Chinese slowdown on emerging countries.
Meet Isabelle Mateos y Lago who succeeds William De Milder as Chief Economist of the BNP Paribas Group and Director of the Economic Research department.
The ECB made its first rate cut at the beginning of the summer, followed by the Fed, which lowered rates by 50 basis points. After three cuts of 25 basis points by the ECB,Hélène Baudchon explores. Is this a good sign or a bad one?
The economic slowdown in China and the implementation of its industrial policy will have large consequences for the rest of the world. Effects will vary from country to country, depending on the transmission channels. For emerging countries, the overall impact will not be necessarily negative, notably thanks to the foreign direct investment channel, which could well change the situation. We are discussing this with Christine Peltier.
GDP growth, inflation, interest and exchange rates.
According to recent economic data, the disparity in economic situations is confirmed, and even accentuated, between the United States, where growth is expected to remain strong in Q3 (0.7% q/q in Q3, according to our forecast) and other regions, notably the Eurozone, where the recovery is seemingly running out of steam (0.2% growth in Q3, according to our forecast and our nowcast).
After Katrina in 2005, Hurricane Helene, which hit the south-east of the United States at the end of September, was one of the most destructive climate events ever seen across the Atlantic (with more than 200 deaths and approximately USD 50 billion in property damage to date). Symbolically, the National Oceanic and Atmospheric Administration (NOAA) was one of the collateral victims of the disaster. As a result, its temperature readings, which are referenced across the world, temporarily stopped being published.
On the global oil market, we currently have a slightly dynamic demand. China's oil demand in particular which represents around 15% of the global oil demand.
The issue of public finances and their rebalancing has come to the fore, particularly in France, but not only. This problem concerns many other countries, most notably the United States.
In its latest forecast dated 10 October, the WTO revised slightly its growth figures for global goods trade in 2024, to 2.7% (compared to an initial estimate of 2.6%) and to 3.0% in 2025 (compared to 3.3% previously). Although down 0.6% m/m in July, global export volumes remained on an upward trajectory until this summer. However, there are significant differences between geographical areas.
In the United States, economic policy uncertainty, based on media coverage, picked up again in September, after a brief decline in August. This increase is due to the political uncertainty in the country in the run-up to the presidential elections on 5 November.
Reflecting Jerome Powell's statement that it is time to adjust (i.e., loosen) monetary policy and subsequent action, it is also time to adjust fiscal policy in Europe and the United States, in the direction of tightening in both cases. This is a good time, given the context of monetary easing, falling inflation and positive economic growth. Even more than monetary easing, this fiscal consolidation must be gradual so as not to weigh too much on growth. Like the central banks that have been determined in their response to the inflationary shock, governments will have to show the same determination and perseverance in the coming fiscal consolidation efforts, given their necessity and significance.
Less than 2 years after spiking to decades highs, inflation is back in the neighbourhood of central bank targets in most of the world. Yet it is too soon to declare victory, as there are still cross currents for economic policy-makers to navigate. As they have earned a good track record of it, and room to act, the year-ahead baseline scenario is fairly benign for both advanced economies and emerging markets, with gradually easing financial conditions (from lower interest rates and a likely weaker US dollar) allowing activity to stabilize around trend growth.
