Most countries have largely reined in higher inflation, following a period of heightened price pressures stemming from stimulus during the pandemic, compounded by geopolitical events like the Russian invasion of Ukraine. But, with conflict in the Middle East and Europe, a struggling Chinese property market, and Donald Trump heading back to the White House, a lot of uncertainty remains.

This article looks at how major economies are expected to grow over the coming years, what’s driving that growth (or slowdown), and the potential impacts on our local economy.

All eyes were on the US election last week as the global superpower elected Donald Trump for a second term. Trump campaigned on some policies which, if implemented, would have extensive impacts on the global economy.

Firstly, imposing up to 20% tariffs on all foreign goods and a 60% or higher on goods coming from China. If imposed, these tariffs would likely result in higher prices for goods produced in the US, as raw materials imported from China will incur an import duty, increasing the cost of production of producers who will likely pass at least some of this on to consumers through higher prices. Businesses which import final goods from China and sell to US consumers will also be subject to import duties and will likely pass much of this on to US consumers through higher prices. At the end of the day, the consumer will pay the additional cost of any tariff.

It’s possible that this proposal for tariffs is just a threat to force trade negotiations of more favourable conditions for the US rather than a policy that will be imposed on Trump’s first day in office in January. But, at this stage we have to consider the possibility that the President-elect means business rather than dismissing it as rhetoric to gain support during the election.

The potential impact of widespread tariffs is important for New Zealand as the US has become our second largest two-way trade partner, and our second-largest export market after overtaking Australia very recently (see Chart 1). New Zealand exports will be subject to import duties that will make our goods less competitive in the US.

Secondly, mass deportations of immigrants illegally residing in the US would likely result in higher prices for goods in the US with the supply of labour becoming scarcer, driving up wages. Demand from US consumers for New Zealand-made goods could fall as cost pressures impact businesses. However, the impact of this policy could be more ambiguous, with deportations occurring over the next decade, and the extent of the plan relatively unknown.

Thirdly, expectations are for other Trump economic policies to be more stimulatory than otherwise, with greater deregulation and tax cuts on the cards. These policies are seen as inflationary in the US, compared to the current outlook. As a result, there are questions being asked about the scale and pace of further interest rate cuts by the Federal Reserve, with this greater inflationary pressure potentially necessitating fewer cuts and higher-than-otherwise interest rates (still at a lower rate than currently) to combat any additional inflationary pressures.

Growth in the US is expected to be around 2.0%pa over the next 5 years, but policy decisions over tariffs, deportations, tax cuts, and deregulation may result in material chances to expectations of future growth.

The Chinese economy has been struggling as property market woes continue, ignited by the collapse of the second largest property developer in China, Evergrande Group. The downturn of the Chinese property market is weighing heavily on consumer confidence as around 70% of household wealth is in property.

The weaker property market has driven the Chinese government to inject stimulus to revive the economy by cutting lending rates and banks’ reserve requirement ratios and other financing conditions to improve confidence and drive investment.

Consensus forecasts expect that China will miss the official 5.0% annual real GDP growth for 2024, growing just 4.8% (see Chart 4).

In addition to the property market decline, the Chinese government will be worried about the prospect of 60% tariffs on exports to the US, which will, if implemented, make Chinese exports to the US more expensive for US consumers. Higher and more expansive tariffs on Chinese-made exports is likely to diminish demand for imported goods into the US over time, lessening demand for Chinese production compared to current expectations. If that lower production occurred, fewer manufacturing and related roles would be needed, limiting hiring and over time spending in China.

There are risks to current consensus forecasts of GDP growth in China, putting the self-imposed 5.0% target in jeopardy over the coming five years. However, the extent of the impact of the government stimulus is relatively ambiguous at this stage and could help boost growth to reach the target in coming years. Notably, government policy changes to support the economy until now in China have had a very muted effect, meaning there’s no assurance that these new measures will bolster activity enough to reverse current weaker trends.

Growth in Western Europe, North America, and Australasia is expected to lag well behind Asia, with South East Asia leading global growth in 2025 with 4.6% real GDP growth expected, followed by North East Asia at 4.1%.

India is a particularly bright spot, as the world’s most populous nation is expected to see real GDP growth of around 6.5%pa over the next five years. This strong growth reinforces the New Zealand government’s focus on trying to secure a free trade agreement with India.

Global growth expectations for 2024 and 2025 are 2.7%pa and 2.6%pa respectively, around 0.4 percentage points lower than the 10-year average prior to the pandemic.

Although for much of the world inflation is largely under control, there remains significant risks to global growth. Downside risks to global growth are presented by the ongoing conflict in the Middle East and the continuation of the Russia-Ukraine conflict. An escalation in any of the ongoing conflicts could have huge flow-on effects on oil prices, transport costs, and consequently the cost of goods for the end consumer.

Changes to the US security and trade stance under a change of administration could changes things even further, making the outlook for growth more unpredictable.

For now, global growth expectations are solid, but not exceptional. Add to this the unpredictability going forward, and there are clear challenges to navigate in the future.

Part of navigating these challenges includes this analysis, and to further support clients, our November 2024 Infometrics Monthly Economic Webinar will delve further into where trade is headed and how global activity is changing. Invites to the webinar will be issued to clients on Monday 18 November.