Consumers and businesses looking forward to the fillip of an interest rate cut may have to wait a little longer. Among our surveyed economies, only Brazil’s Monetary Policy Committee (Copom) cut its policy rate in May—but by just 0.25 percentage points, taking the Selic rate to 10.50%.
Hopes of imminent interest rate reductions among the major economies are receding (Exhibit 1) except perhaps in the eurozone, where expectations of a June policy-rate cut by the European Central Bank were confirmed. In the US, where inflation is proving sticky, median one-year-ahead inflation expectations rose to 3.3% from 3.0%, according to the April Survey of Consumer Expectations by the Federal Reserve Bank of New York. The US Federal Reserve kept the federal funds rate unchanged at 5.25% to 5.50% at its May meeting.
At the start of 2024, rate reductions were expected to come as early as the March meeting, but now, the first cut is anticipated to come as late as September. That said, Fed chair Jerome H. Powell has argued that current US monetary policy is “sufficiently restrictive” to keep inflation on track to reach the 2% target, so it is unlikely we will see a rate rise as the next policy move.
As additional economic headwinds build, policy makers potentially face a somewhat trickier situation in bringing economies toward a soft landing than they did a few months ago. For example, analysts warn of a June spike in shipping costs that could surpass the “Red Sea spike” and rise to levels seen during the pandemic—costs that will ultimately be passed on to consumers, hindering efforts to tame inflation.
China’s economy is also likely front of mind for domestic policy makers and trading partners. The slowdown in China’s real estate market continued in April, and in mid-May, the People’s Bank of China announced several new residential property policies, including further reductions in the down payment ratio and mortgage rates and a relending facility worth 300 billion renminbi ($41 billion) for state-owned enterprises to purchase homes for affordable housing. Surprisingly, China’s manufacturing activity fell in May, with the official manufacturing purchasing managers’ index (PMI) dipping below the neutral 50.0 mark to register 49.5, down from 50.4 in April. Meanwhile, the White House unveiled plans to raise tariffs on $18 billion of selected imports from China in a move designed to protect US manufacturing. The affected products include electric vehicles (tariffs up from 25% to 100%), lithium batteries (from 7.5% to 25%), solar cells (from 25% to 50%), steel and aluminum (from 0–7.5% to 25%), and medical equipment (from 0–7.5% to 25–50%).
April saw consumer confidence continuing to trend upward among the main economies, although it remained below the long-term average (Exhibit 2). The US consumer confidence index (Conference Board) rose to 102.0 in May from 97.5 in April. The eurozone is showing signs of a modest recovery in consumer spending: retail sales rose 0.8% month over month—0.7% year over year—and the consumer confidence indicator edged up marginally in April but still remains at low levels. Confidence in Brazil was also on the rise: consumer confidence edged up 1.9 points to 93.2 in April (91.3 in March), reaching its highest level this year (5.7 points higher than in April 2023) but staying below the neutral 100.0 mark. Business confidence in Brazil increased from 94.7 in March to 95.8 in April.
Inflation in the US has resumed its downward trend, albeit falteringly, with the consumer price index (CPI) registering 3.4% (annualized) in April, lower than the March rate of 3.5%. April saw disinflation continuing in the eurozone with headline inflation standing at 2.4%, core inflation easing to 2.7%, and services inflation dropping to 3.7%. Over the coming months, eurozone inflation is expected to move closer to 2% and may undershoot the European Central Bank’s inflation target in the second half of the year. The UK CPI fell by less than forecast to 2.3% in April but still reached its lowest rate since September 2021. The Bank of England expects the CPI to fall to slightly below the 2% target in the second quarter of 2024.
Among surveyed emerging economies, inflation continued to fall, excluding Russia’s wartime economy. China saw consumer prices in April inflate at a rate of 0.3% (0.1% in March), but producer prices continued to deflate at a rate of −2.5% (−2.8% in March). Inflation in Brazil dipped to 3.69% (3.93% in March), its seventh consecutive monthly fall and the lowest reading in ten months. Russia’s unique circumstances meant headline inflation in April remained stable but high, at 7.8% year over year, while core inflation increased to 8.3% (up from 7.8% in March).
Commodity prices remain elevated compared with prepandemic levels because of ongoing high inflation. May saw gold prices continue to rise, reaching approximately $2,420 per ounce; energy prices seem to have settled at a higher baseline compared with prepandemic levels; and metal prices continue to trend up, with copper reaching a historically high price level. Food prices remain higher than prepandemic levels for consumers, up by 14% when compared with January 2020 levels.
Growth is also returning to stagnant economies. According to EU first-quarter flash estimates, eurozone GDP rose by 0.3% quarter over quarter—0.4% year over year—crystalizing last month’s optimistic signs of “a turning point.” Germany and France grew 0.2% quarter over quarter, and Spain continued its outperformance. Eurozone GDP growth is forecast to gradually strengthen further through the year, backed by lower inflation and easing monetary policy; full-year forecasts assume GDP expansion at about 0.6% this year and in the 1.1–1.7% range in 2025. Meanwhile, the OECD’s May Economic Outlook expects UK growth to remain sluggish at 0.4% in 2024 before improving to 1.0% in 2025.
In general, manufacturing activity is lagging behind services across the developed economies: April saw eurozone manufacturing activity remain subdued, while the UK’s manufacturing sector returned to contraction; the US stayed level. The US industrial production index rose to 106.2 in March, from 105.8 in February. China’s industrial output maintained a steady year-over-year growth of 6.3% in April, slightly up from 6.1% in March. The eurozone’s industrial production figures for March showed some recovery after a poor start to 2024.
Business sentiment has dropped in the US but remains more buoyant in other economies. The US manufacturing PMI fell to 49.2 in April, and the services PMI declined to 49.4—both under the neutral 50.0 mark. By contrast, the eurozone’s improving economic momentum was reflected in a composite PMI reading of 52.3 for May, which was above estimates. The upturn was mostly driven by services, with a mild uptick from manufacturing in May. UK manufacturing sentiment dipped again with the seasonally adjusted S&P Global UK Manufacturing PMI falling to 49.1 in April, down from March’s 20-month high of 50.3. By contrast, the UK’s far-larger services economy was buoyant at 55.0; the seasonally adjusted UK Services PMI was up from 53.1 in March and above the 50.0 neutral mark for a sixth consecutive month.
Among surveyed emerging economies, India’s manufacturing and services PMIs edged down in April—from 59.1 to 58.8 and from 61.2 to 60.8 respectively—though still deep in the expansion zone. Brazil’s manufacturing PMI climbed to 55.9 in April from 53.6 in March, above the neutral 50.0 mark for a fourth consecutive month. The services PMI dropped to 53.7 in April from 54.8 in March, but it stayed well within positive territory.
Unemployment rates remain stable across most surveyed economies. UK unemployment was estimated at 4.3% for the first quarter of 2024. China, meanwhile, saw April’s overall surveyed urban unemployment rate decrease to 5.0%, down from 5.2% in March. The youth unemployment rate also declined, falling to 14.7% from 15.3% in March. Brazil’s unemployment rate (a three-month moving average) edged up to 7.9% in March (7.8% in February), up for the third time in 12 months but lower than it was in the same 2023 period (8.8%). Russia’s economy is a special case, and the labor market there remains extremely tight, with unemployment breaking a record when it fell to 2.7% in March.
Equity markets in major economies recorded a rise in May. In the US, subdued performance by tech stocks and the cooling of market leader NVIDIA flowed through to lower returns for the S&P 500, which fell –4.16% in April, bringing its one-year return to 20.78%. The Dow Jones also dropped, down –5.0% for the month, bringing its one-year growth to 10.90%. India’s equity markets remained broadly stable in May: investors in India gained approximately 0.2%—one of the lowest returns in almost 12 months. Meanwhile, volatility picked up slightly. Brazil’s Bovespa equities index declined in April, losing 0.4% in value.
World trade volumes were down –0.6% in March, mainly explained by declines in exports across emerging and advanced economies. In March, the Container Throughput Index climbed to 129.3 points (from 128.6 points revised in February), with activity up at European ports. However, reports from shipping analysts have flagged concerns of a potential crunch on ocean container capacity that will hit global trade just as peak shipping season starts. Bad weather, longer ocean transits, and vessels skipping ports to meet delivery schedules are blamed for adding to supply chain issues.
March saw the US record $257.6 billion in exports, $5.3 billion lower than February’s total; March imports were $327.0 billion, $5.4 billion less than in February; and the monthly trade deficit increased by 0.1%, to $69.4 billion. China’s cross-border trade rebounded in April from a previous contraction, with exports growing by 1.5% after a −7.5% decline in March. Imports rose by 8.4%, up from a –1.9% decrease in the prior month. India’s trade in both goods and services showed a decline in exports and an increase in imports. The trade deficit in goods reached 1.8 trillion rupees ($21 billion), while the trade surplus in services shrank to 12.6 billion rupees. In April, Brazil’s balance of trade registered a surplus of $9.0 billion, with exports totaling $30.9 billion ($28.0 billion in March) and imports reaching $21.9 billion ($20.5 billion in March). In Russia, the preliminary current account surplus for first-quarter 2024 was $22 billion, with the value of exports stable and imports dropping compared with previous quarters.
In the advanced economies, interest rates were left unchanged; the US raised tariffs on Chinese goods; the eurozone showed optimistic signs for growth; and UK services were buoyant.
United States. April’s meeting of the Federal Open Market Committee decided to maintain the target range of the federal funds rate between 5.25% and 5.5%. The Committee will continue to monitor the implications of incoming information around the economic outlook; however, market investors still expect an interest rate cut by the end of the year.
Eurozone. According to EU flash estimates, GDP in the first quarter of 2024 rose by 0.3% quarter on quarter—0.4% year over year—crystalizing the previous month’s optimistic signs of a “turning point.” The performance divergence among countries and sectors remains to a certain extent, with Germany and France growing at 0.2% quarter over quarter, after negative rates in previous quarters. At the same time, among the southern, services-intensive economies, Spain continues its outperformance. GDP growth in Spain is forecast to gradually strengthen further during the year, backed by lower inflation and easing of monetary policy.
United Kingdom. April saw UK service providers record accelerated improvement in business activity, supported by renewed strengthening of orders. At 55.0, the seasonally adjusted UK Services PMI was up from 53.1 in March, above the 50.0 neutral value for the sixth consecutive month. Additionally, the latest reading indicated the fastest rate of business activity growth since May 2023.
Among emerging economies, China maintains steady growth; India’s economic activity remains robust; Brazil cuts interest rates by 0.25 percentage points (p.p.) as inflation falls further.
China. China’s industrial output maintained steady year-over-year growth of 6.3%, slightly up from 6.1% in March. By sector, manufacturing output grew by 6.9%, up from 6.7% in March; utility output expanded by 6.6%, slightly down from 6.9% in March; and mining output increased by 1.7%, up from 1.6% in March.
India. The latest PMI readings confirmed the healthy state of India’s manufacturing sector. Although the index edged down slightly from 59.1 to 58.8, momentum remains strong. Manufacturers point out that demand (both domestic and external) continues to grow. To fulfill that buoyant demand, producers increased employment and also lifted inventory levels to their highest in history. A similar story can be seen in the services sector, where the PMI also edged down (from 61.2 to 60.8), but the overall situation remains very positive. Companies have been reporting the second-highest growth in new orders in nearly a decade.
Brazil. Inflation fell to 3.69% in April (3.93% in March), registering a seventh consecutive month of reduction. This is the lowest reading in ten months, with the rate edging closer to the Banco Central do Brasil’s inflation target of 3.5%. The central bank’s Monetary Policy Committee (Copom) halved its interest rate reduction to 0.25 p.p., taking the Selic rate to 10.50%. This marks the first time over the course of the past six cuts that the reduction has not been 0.50 p.p. The bank’s year-end expectation for the Selic rate stands at 9.75%.
Russia. Headline inflation in April has remained stable and high at 7.8% year over year, while core inflation increased to 8.3% (from 7.8% in March). The monthly headline indicator released by the government rose to 0.5%, reflecting increasing short-term pressures. Higher-than-expected food inflation driven by weather conditions, along with high nominal wages and consumer loans, point to continuing tight monetary policy, with interest rates unchanged since December.
McKinsey’s Global Economics Intelligence (GEI) provides macroeconomic data and analysis of the world economy. Each monthly release includes an executive summary on global critical trends and risks, as well as focused insights on the latest national and regional developments. View the full report for May 2024 here. Detailed visualized data for the global economy, with focused reports on selected individual economies, are also provided as PDF downloads on McKinsey.com. The reports are available free to email subscribers and through the McKinsey Insights app. To add a name to our subscriber list, click here. GEI is a joint project of McKinsey’s Strategy & Corporate Finance Practice and the McKinsey Global Institute.
