Global economic outlook: Asia surges and the West normalizes

Global growth is entering a new period as the volatility of the pandemic years moderates and a new landscape emerges on international trade.

We expect that the major economic and policy narrative on a global basis in 2024 will revolve around policy rate peaks followed by cuts by the world’s major central banks.

But within this narrative, there are two dynamics. In the West, economic activity is returning to sustainable levels as higher interest rates tame inflation and slow the breakneck growth that was spurred by pandemic-era fiscal programs. This easing is laying the groundwork for likely rate cuts in 2024.

But it’s a different story in the East. As China struggles to contain its debt and grapples with market control of its economy, it is no longer the center of global growth. That leadership has now moved to India.  

India’s rise comes as the foundations of international trade have begun to shift in recent years, spurred in part by that country’s economic reforms and policies that have fostered the technology sector.

These shifts are affecting every aspect of our global economic outlook, including central bank decisions on policy rates, per capita income, global trade, inflation and labor force dynamics.

The shift to Southeast Asia

The International Monetary Fund now expects gross domestic product in emerging economies to moderate to 4% per year over the next five years, with Southeast Asia leading the way. That rate is more than twice the projected 1.7% rate among developed economies.   

Projections by the Organisation for Economic Co-operation and Development point to the lingering effects of tight monetary policy on economic growth in developed economies.

The OECD forecasts a slight increase in G20 growth in 2025 based on expectations that central bankers will gradually transition to a more accommodative stance once demand has lessened and prices have stabilized. India, Indonesia and China are expected to maintain higher levels of growth in 2025, while the U.S. is projected to grow 1.7%.

The takeaway

Growth among developed economies is returning to sustainable levels as the post- pandemic recovery continues.

That implies that the center of growth remains in Asia, with India taking the lead from China. India’s growth is because of market reforms of recent years and its industrial policies promoting technological capabilities.

Inflation in the developed economies has lessened and is approaching levels consistent with price stability. Each country faces higher costs of essentials like food, energy and housing, which only adds pressure on policymakers, investors and businesses.