Geopolitical uncertainty slowing growth, but GDP rebound forecast for 2025

• A return to 2.7% growth forecast for 2025
• Inflation forecast to continue cooling in most regions, but price pressures could take longer to unwind 

KPMG is forecasting global growth will slow from 2.7% 2023 to 2.5% in 2024 and rebound to 2.7% next year. Meanwhile, inflation is expected to continue to cool, but in many countries the price pressure will take longer to unwind than it took to emerge.

The latest predictions in KPMG’s Q2 2024 Global Economic Outlook reflect the current elevated geopolitical uncertainty, with nearly half of the world’s population already voting or heading to the polls in 2024. Armed conflict and trade tensions are flaring in numerous parts of the world which could fuel more isolationist policies. KPMG’s international team of economists believe the resulting risk could be more frequent bouts of inflation and the possibility of sharper shifts in monetary policies. 

A slower expected glide path on rate cuts by the U.S. Federal Reserve, which plays an outsized role in global financial markets, will have a larger impact on rate decisions by developing economies. These markets could be more sensitive to exchange rate movements than we have seen in the past. Weakening currencies relative to the U.S. dollar are inflationary for those economies. To further complicate matters, foreign exchange markets have been reacting to unexpected election outcomes.

Faced with interest rate uncertainty and political uncertainty, business leaders remain hesitant to engage in major investment projects. Consumers are cutting back on major purchases due to elevated rates, while governments face higher financing costs as debt rolls over at higher interest rates.

Supply chains are being reshuffled as producers hedge against geopolitical risk, often at higher costs. The conflict in the Middle East has caused seaborne trade to be rerouted, while higher-than-expected demand and weather have also increased shipping costs. The National Atmospheric and Oceanic Administration expects a record number of major storms for 2024, which will only add to shipping times and snarled travel.

Despite uncertainty deepening this year, KPMG’s economists remain cautiously optimistic about the long-term outlook.

It is uncertain when the much-vaunted productivity boost from generative artificial intelligence (GenAI) will manifest itself at the global level. One of the hurdles is the energy needed to run the large language models, but mass adoption is also expected to take time. A diverging speed in adoption could exacerbate inequality between the developed and developing economies. While advances in AI could also disrupt labor markets during the transition period, KPMG’s economic forecast is nonetheless consistent with a broadly stable unemployment rate globally.

KPMG’s Q2 2024 Global Economic Outlook will be available to read in full at kpmg.com/globaleconomicoutlook

Brian O'Neill
KPMG International
T: +44 7823 668 689
E: brian.oneill@kpmg.co.uk

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