Rising geopolitical tensions, rate cuts and mixed employment news. Over the last quarter, the world has witnessed its fair share of uncertainty and instability. For CEOs and global decision makers, conditions have unquestionably been tough, but there are some signs that increasingly proactive political and economic measures could be carrying us through the choppiest of waters.
In the latest KPMG Global Economic Outlook there are two stand-out nuggets of data. The world appears to be slowly finding the right balance between a return to growth and controlling spiralling inflation.
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 inflations 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 tit-for-tat tariff conflicts
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 back to a more stable path – something that can be achieved by 2026 through collaboration and a determination overcome the obstacles that may lie ahead.
Regina Mayor, Global Head of Clients & Markets, KPMG International
Mergers and acquisitions activity is poised to pick up.
Global growth is expected to come in at a 3.1% pace in 2024, slightly lower than 2023, and below the pre-pandemic norm of 3.6% from 2000 to 2019. In 2025, we expect growth to accelerate to 3.2% before post-election policies in the US dampen global growth to 3.0% in 2026. The pace of inflation is forecast to continue cooling between now and mid-2025. The forecast thereafter depends heavily on the pace of tariffs and whether we see a full-blown trade war erupt.
Geopolitical risk remains elevated. With 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.
Most major central banks, except for the Bank of Japan, have initiated rate-cutting cycles. The US dollar initially weakened following the start of the Federal Reserve’s first rate cut in September. However, the US dollar reversed course and moved up on higher inflation expected post-election. Russia and Turkey, along with Eastern European nations, are expected to struggle with inflation for longer.
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 to 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 upon headwinds due to retaliatory tariffs.
Mergers and acquisitions activity is poised to increase with lower rates and a record amount of dry powder in the private equity space. Policy uncertainty, anticorporate sentiment and protectionist policies could curb the largest and cross-border deals. Heightened levels of policy uncertainty tend to reduce the number of M&A transactions, increase the length of time to their completion 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.
Ben Shoesmith, Senior Economist, KPMG in the US
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