Geopolitical uncertainty and trade tensions clouding short-term improving economic outlook

Highlights:

KPMG International forecasts GDP growth picking up from 3.1% in 2024 to 3.2% in 2025
Inflation forecast to cool from 4.5% in 2024 to 3.5% in 2025
Geopolitical risks remain elevated with post-US election policies, including possible tariffs, potentially hitting growth and inflation in 2026

KPMG Global Economic Outlook – December 2024

KPMG International is forecasting global growth will rise slightly in 2025 to 3.2 percent before post-election policies in the US dampen global GDP to 3.0 percent in 2026.

The latest expectations in the December 2024 KPMG Global Economic Outlook highlight the continued geopolitical and economic uncertainty slowing down the impact of recent central bank efforts to return the world to a path of sustainable growth.

KPMG forecasts the pace of inflation will continue cooling between now and mid-2025. Thereafter, the forecast depends heavily on the pace of tariffs and whether we see a full-blown trade war erupt.

Geopolitical risk remains elevated. Following the outcome of the US election, inflationary trade and immigration policies are expected to slow the pace of credit easing. Bond yields have already moved up in response to fears of mounting federal debt and higher inflation. Any major shift in tariffs in the US could trigger retaliatory measures.

Global inflation has cooled in response to higher rates, slower growth, excess supply and a drop in energy prices. Service sector inflation is beginning to moderate as well. A lingering concern is outsized wage gains in Europe where productivity growth lags. There is a backlash forming towards foreign tourism, as it is further propping up service sector inflation.

Delays in the effects of monetary policy will push the influence of rate cuts into the second half of 2025 and 2026. We could see a tailwind for big-ticket consumer purchases and business investment. Much is contingent on headwinds due to retaliatory tariffs.

The data in our latest report highlights the concerted effort that was being made by central banks throughout the world to control the cost of living and inflation challenges facing everyone, including businesses, right now. While there was cautious optimism of a return to eventual sustainable growth, we’re now in a ‘wait and see’ phase with much depending on a future potentially driven by reciprocal tariffs.

Regina Mayor,

Global Head of Clients & Markets

KPMG International

The KPMG Global Economic Outlook reflects the uncertainty facing the world right now, but despite what we’ve witnessed in recent weeks, it also highlights a desire among many nations to return back to a more stable path – something that can be achieved by 2026 through collaboration and a determination to overcome the obstacles that may lie ahead.

Regina Mayor,

Global Head of Clients & Markets

KPMG International

Mergers and acquisitions activity is poised to increase with lower rates and a record amount of excess capital in the private equity space. Policy uncertainty, anti-corporate sentiment and protectionist policies could curb the largest cross-border deals. Heightened levels of policy uncertainty tend to reduce the number of M&A transactions, prolong their completion time and curb the premiums firms are willing to pay for deals.

Fiscal policy may be more stimulative. COVID-era appropriations have lapsed, but market participants are betting on a new wave of stimulus. The biggest gains in spending are expected to be in pensions, healthcare and defense. Tax cuts are expected to be extended in full in the US; what is unknown is how multinationals not located in the US will be treated.

Our latest forecast highlights the tightrope political and business leaders are now walking. For many central banks, including the US Federal Reserve, we’re seeing a shift from the battle against inflation to guiding economies toward a soft landing. It’s a monumental challenge balancing price stability and employment without quashing GDP growth. The tailwind from lower rates will benefit firms and consumers and likely spark mergers and acquisitions activity. Central banks must stay the course and avoid the temptation to cut interest rates too early or too fast as this could derail progress.

Benjamin Shoesmith

Senior Economist

KPMG in the US

While we expect growth approaching pre-pandemic rates, volatility will likely rise in terms of frequency and severity. Policy uncertainty stemming from the upcoming US election, the challenges of artificial intelligence, more frequent adverse weather events and elevated geopolitical risk are among the top concerns for leaders. We are watching the current hot conflicts that affect everything from migration to oil prices. A spike in the latter could force central banks to reverse course and (re)hike interest rates. Firms and monetary policymakers are operating in a mercurial environment that shows no sign of relenting. KPMG Private Enterprise applauds all 23 country winners who competed in this year’s Global Tech Innovator final. Each of you has demonstrated what’s possible when we all come together to reimagine the future.

Benjamin Shoesmith

Senior Economist

KPMG in the US

Our long-term view is that we can see a return to more sustainable growth that edges closer to pre-pandemic levels, but with two significant caveats. The first is that central banks will need to hold their nerve and avoid the temptation to pivot on policies before they pay off. The second – and arguably most profound caveat – is the current geopolitical crisis. If the challenges facing the Middle East and Ukraine continue to deepen, leaders could be faced with a fresh set of dilemmas that run far deeper than GDP.

Benjamin Shoesmith

Senior Economist

KPMG in the US

The December 2024 KPMG Global Economic Outlook will be available at kpmg.com/globaleconomicoutlook from 00.01 GMT on Tuesday 2 December 2024.

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Brian O’Neill,
Senior Manager,
Global External Communications
T: +44 7823 668 689
E : Brian.O’Neill@kpmg.co.uk

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