Global Macro – GDP Growth

First estimates for 3Q24 GDP have been released for a few of the key countries we monitor closely. While U.S. GDP growth slowed y/y as expected, European data mostly improved in rate of change terms, also as expected. The high-level takeaway is that growth did not move in a direction that is conducive to the pace and magnitude of central bank rate cuts being priced in for 2025.

Figure 1 highlights y/y growth rates in Real GDP on a rate of change basis, current growth relative to their 2015-2019 percentile ranges, and upcoming comparison sets. Spain, the U.S., and France are above their respective 50^th percentile levels, but more importantly Spain, France, the U.K., Euro Area, and Germany improved sequentially. Looking ahead to 4Q23, the comparison set for Spain, France, Euro Area, Italy, and Germany get slightly tougher but remain at low levels relative to the 2015-2019 period. The 1Q24 setup becomes sequentially more favorable in the U.S., Euro Area, and Italy while the U.K. and Germany will continue to move against relatively low growth rates.

Source: Macrobond

In Figure 2, we see sequential improvement in y/y growth rates from levels that were mostly worse than the 2015-2019 period. Some of the takeaways from this is that central banks hiked policy rates at historically fast rates beginning around 2Q22, GDP growth mostly remained positive, and GDP has been on a path to normalizing relative to recent pre-pandemic history since 4Q23. If the current trajectory were to continue, we would expect to see a shift in rate cut expectations.

Source: Macrobond

Overall, growth trends suggest the rate of change slowdown in global activity seen from 2Q22 through 3Q23 has reversed through the first three quarters of 2024, and the first quarter of 2025 has a rising probability of continuing that trend, potentially shifting expectations for monetary policy. Next week, we will take a closer look at some of the underlying U.S. GDP components and the consumer setup after we get jobs, income, and spending data this Friday.

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