Will interest rate cuts be delayed and more cautious? High levels of uncertainty are casting a shadow over economic sentiment and central bank policy (Exhibit 1). On the plus side, there is growing confidence among consumers: an upward trend among the main economies continued in March, according to the OECD global consumer confidence indicator. That said, sentiment remains below the long-term average level. Equally, consumer activity (measured by annual retail sales growth) is proving resilient, with steady growth across economies despite elevated prices and the current interest-rate environment—although the eurozone is lagging behind somewhat.
Over recent months, consumer prices have settled at levels higher than those in the prepandemic period (Exhibit 2). Moreover, inflation is proving sticky in some economies, and central banks are having to revisit their timetables for loosening monetary policy, which will disappoint hard-pressed businesses and consumers.
In the US—the world’s largest economy by nominal GDP—the Conference Board’s consumer confidence index registered 104.7 in March, essentially unchanged from a downwardly revised 104.8 in February. Retail and food service sales climbed to $709.6 billion, a 0.7% increase from February’s $704.5 billion. However, there are signs of growing financial strain among lower-income consumers in the US, with a rise in loan delinquencies among borrowers with incomes below $45,000—a trend that is prompting banks to tighten credit standards. Consumption continues to lag behind in the eurozone, where retail sales have not given any indication of a recovery in consumer spending.
Inflation is proving resistant in some advanced economies. In the US, the consumer price index was up 3.5% (annualized) in March, slightly above the 3.2% for the 12 months ending in February; core inflation rose 3.8% (annualized) in February. For a third consecutive month, median one-year-ahead inflation expectations remained unchanged at 3% (the lowest level recorded since January 2021), according to the March Survey of Consumer Expectations by the New York Fed. The UK Consumer Price Index fell by less than forecast to 3.2% in March 2024, but this was its lowest rate since September 2021. Core inflation, which excludes items such as energy, food, alcohol, and tobacco, fell to 4.2%—down from 4.8% in February. Eurozone inflation was closer to its target, with March headline inflation falling to 2.4% and core inflation to 2.9%. Even so, services inflation remained at 4% for a fifth consecutive month.
The picture is more varied among surveyed emerging economies. At one extreme, China’s six-month run of deflation ended when prices started to rise again, driven by food, beverages, and tobacco. At the other end of the scale, Russia’s unique circumstances have seen inflation continue to accelerate over recent months, with consumer prices rising by 7.7% year on year in March—a reflection of tightening capacity constraints. In India’s buoyant economy, headline inflation moderated to 4.9% in March, from 5.1% the previous month. Brazil saw inflation fall for the sixth month in a row, to 3.93% in March (4.50% in February).
Over the medium term, inflation expectations remain within the 2.0–2.5% range at 2.4%. However, given this patchy picture, markets are anticipating fewer interest rate cuts than they did at the beginning of the year. In the US, revision of Federal Open Market Committee projections indicates a slower decrease in the federal funds rate for 2025 to 2026, signaling a possible delay in cuts for 2024. It’s a similar picture in the eurozone: the European Central Bank kept interest rates unchanged at its April meeting but gave a clear signal that it’s ready to start cutting rates soon, pointing to a likely cut at its next policy meeting in June. The UK’s Bank of England Monetary Policy Committee voted to maintain the policy rate at 5.25% on March 21, while the Reserve Bank of India’s stance on the repo rate remains unchanged at 6.50%, with the reverse repo rate at 3.35%.
Meanwhile, the US saw real GDP growth (annualized) increase 1.6% quarter over quarter in the first quarter of 2024, decelerating from a rise of 3.4% in the final quarter of 2023, while real GDP growth was 3.0% year over year. Europe’s GDP growth continues to be lackluster: real GDP growth in the first quarter of 2024 reached 0.4% year on year. The divergence in performance among countries and sectors remains, with Germany and, to a lesser extent, France continuing to lag behind; in contrast, among the southern, services-intensive economies, Spain continues to outperform. Across the channel, UK real GDP is estimated to have grown by 0.2% in the three months to February 2024, compared with the three months to November 2023. China’s GDP recorded a stronger-than-expected growth rate of 5.3% year on year in the first quarter of 2024 (5.2% in the fourth quarter of 2023)—74% of this growth was driven by consumption.
Manufacturing is seeing something of a resurgence, with widespread manufacturing growth in March—the eurozone again being the exception. The JPMorgan Global Purchasing Managers’ Index (PMI) points to a performance recovery in the manufacturing sector after more than a year of contraction. March’s global manufacturing PMI edged past the neutral 50.0 mark to reach 50.6; the services PMI was also in positive territory at 52.5.
India continues to shine in manufacturing: its manufacturing PMI reached a 16-year high at 59.1 in March 2024, from 56.9 in February, backed by new orders and increasing output levels. In Brazil, the manufacturing PMI dropped to 53.6 in March from 54.1 in February, but it remained above the neutral 50.0 mark for a third consecutive month. Notably, UK’s seasonally adjusted S&P Global UK Manufacturing PMI rose to a 20-month high of 50.3 in March, up from 47.5 in February and above the earlier flash estimate of 49.9. This is the first time this PMI has posted above the neutral 50.0 mark since July 2022.
Composite PMIs for individual economies are also generally more positive, buoyed by services and an improving manufacturing posture. Returning momentum in the eurozone was reflected in the composite PMI, which, after ten months, breached the 50.0-point threshold in March (50.3), rising to 51.7 in April. The upturn was mostly driven by services, with a recovery in manufacturing yet to occur. Brazil saw business confidence increase from 94.1 in February to 94.7 in March, while the composite PMI remained unchanged at 55.1 in March, staying firmly within the expansion zone for a sixth consecutive month.
India is also currently the standout performer in the services sector, although all surveyed economies have been trending up over recent months. India’s services PMI reached 61.2 in March, buoyed by new businesses expansion and employment. Brazil’s services PMI rose slightly to 54.8 in March, from 54.6 in February. March data also pointed to a solid increase in business activity across the UK service economy, extending the current period of expansion to five months: the UK Services PMI registered 53.1 in March, down slightly from 53.8 in February.
Unemployment is mostly steady, though rates vary significantly among economies. At 3.8%, March’s unemployment rate in the US changed little from February’s 3.9%. That said, total nonfarm payroll employment rose by 303,000 net new jobs in March, the 39th straight month of growth. UK unemployment was estimated at 4.2% for the three months to February 2024. Data from the Centre for Monitoring Indian Economy shows that the all-India unemployment rate fell to 7.6% in March from 8.0% in February, with rural unemployment standing at 7.4% and urban at 8.2%. In China, the overall surveyed urban unemployment rate inched down to 5.2% in March (5.3% in February). Brazil’s three-month moving average unemployment rate rose slightly to 7.8% in February (7.6% in January), up for the second time in 12 months. Russia, again, is a special case: the unemployment rate is at an all-time low for the post-Soviet era (2.8% in February 2024).
In general, equity markets have largely flatlined in April after livelier growth in March.
Global supply chain pressures have normalized in recent months despite geopolitical uncertainty and climate events. World trade volumes expanded by 0.9% in January, mainly driven by increased flows in emerging economies. February’s Container Throughput Index rose to 129.5 points, with throughput weakening slightly in China but recovering somewhat at European ports.
US exports in February were $263.0 billion ($5.8 billion more than January), while February imports rose to $331.9 billion ($7.1 billion more than January’s imports), increasing the monthly deficit by 1.9%, to $68.9 billion. China saw moderate growth of cross-border trade in the first quarter of 2024. Both exports and imports reported growth of 1.5% year on year, up from −3.3% and 0.4%, respectively, in the final quarter of 2023. India’s merchandise exports in March were the highest for any month of 2023–24, at $41.7 billion, with non–refined petroleum product exports expanding; merchandise imports declined to $57.3 billion, with year-on-year growth of 6%. The merchandise trade deficit was at an 11-month low of $15.6 billion in March 2024 due to a decline in imports. Brazil registered a balance of trade surplus of $7.5 billion in March, with exports totaling $28.0 billion ($23.5 billion in February) and imports reaching $20.5 billion ($18.2 billion in February).
In the advanced economies, the US saw inflation rise, potentially postponing rate cuts; eurozone GDP painted a gradually improving picture; and the S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) turned positive.
United States. The consumer price index increased by 3.5% (annualized) in March, a slightly higher rise than the 3.2% for the 12 months ending in February. Core inflation rose by 3.8% (annualized) in February. For the third consecutive month, median one-year-ahead inflation expectations remained unchanged at 3% (the lowest level recorded since January 2021), according to the March Survey of Consumer Expectations by the New York Fed.
Eurozone. GDP growth was positive but relatively meager: real GDP growth in the first quarter of 2024 reached 0.4% year on year. The divergence in performance among countries and sectors remains, with Germany and, to a lesser extent, France continuing to be the laggards. On the other hand, among the southern, services-intensive economies, Spain continues its outperformance.
United Kingdom. The seasonally adjusted S&P Global UK Manufacturing PMI index rose to a 20-month high of 50.3 in March, up from 47.5 in February and above the earlier flash estimate of 49.9. This was the first time the PMI has posted above the neutral 50.0 mark since July 2022. UK manufacturing showed tentative signs of recovery in March, as output and new orders increased, following year-long downturns.United Kingdom.
In emerging economies, China grew strongly in the first quarter of 2024; India’s manufacturing PMI reached a 16-year high; inflation fell in Brazil for a sixth consecutive month; and Russia’s federal budget faced a large deficit.
China. In the first quarter of 2024, China’s GDP reported a stronger-than-expected growth rate of 5.3% year on year (5.2% in the fourth quarter of 2023)—74% of this growth was driven by consumption. GDP growth in the industry sector accelerated to 6.0% year on year (5.5% in the fourth quarter of 2023), while GDP growth in the agriculture and services sectors respectively slowed to 3.3% and 5.0% year on year (4.2% and 5.3% in the fourth quarter of 2023).
India. The manufacturing PMI recorded a 16-year high at 59.1 in March 2024, up from 56.9 in February, backed by new orders and increasing output levels. The services PMI reached 61.2 in March as a result of new businesses expansion and employment. The services sector accounts for more than half of India’s GDP.
Brazil. Consumer confidence climbed 1.6 points to 91.3 in March, from 89.7 in February, while remaining below the neutral 100.0-point mark. Consumer confidence has reached its highest level so far this year and is 4.0 points higher than it was in March 2023. Business confidence increased from 94.1 in February to 94.7 in March.
Russia. Government-released data states that federal budget spending increased by 17% year on year in January to February. Driven by higher oil and gas earnings, federal budget revenues grew in February from a low base compared with a year earlier. Despite this growth in revenues, the federal budget remained in deficit to the tune of 1.5 trillion rubles ($16.5 billion, 0.8% of GDP). Under the budget framework, the total deficit for this year should be roughly 1.6 trillion rubles.
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