The latest data have shown that China is benefitting from a pick-up in government spending, the US economy continues to grow at a decent pace, and other advanced economies had a soft start to Q4. Outside China, forward-looking indictors point to weaker growth in trade and industry in the near term. And with real income growth set to slow, fiscal policy becoming less supportive, and borrowing costs still high, global growth should stay below trend in 2025. At least below-trend GDP growth combined with loosening labour markets should weigh on underlying inflation in the year ahead, even if headline rates don’t fall much further. Accordingly, most central banks will be able to proceed with cutting interest rates, though many emerging economies, particularly in Latin America, will do so cautiously given sticky inflation. And we now expect strong wage growth to prompt the Bank of Japan to hike its policy rate by more than markets expect.
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