Leaders must navigate persistent geopolitical and macroeconomic uncertainty to capture the three-sided productivity opportunity.
McKinsey & Company
Introduction
The mercurial global environment makes the outlook for 2024 uncertain, just as it was at this time last year. To track the ongoing turbulence that business leaders must contend with, we are updating the McKinsey Macro & Markets scenarios on a quarterly basis. This latest perspective includes reported GDP data through the third quarter of 2023.
The scenarios take two major sources of uncertainty as inputs: structural forces that determine the
global economic environment, and policy choices
that govern national economies. The combination produces the economic outcomes—including consumer spending, investment, trade, productivity, and GDP growth—that set the context for business activity.
Central bank– led recession
Balance sheet reset
Productivity acceleration
Return to past era
Higher for longer
Demand-led recession
Favorable
Unfavorable
Structural forces
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Structural forces
These are the underlying factors that promote or constrain economic growth and shared prosperity. Individual countries can influence these factors but cannot directly control them. Examples include the extent of international cooperation, technological change, the scale and reach of global flows (in resources, goods, services, capital, people, and data), the advance of the energy transition, and macroeconomic volatility. When favorable, these forces can provide short-term boosts to growth and long-term stability.
Restrictive
Accommodating
Policy choices
Structural forces
Policy choices
These choices include government spending, tax, and regulatory policies that shape the functioning of labor markets, the attractiveness of business and household investment, the scale and pace of consumer spending, and the distribution of income and wealth. Monetary policy influences the tightness (or looseness) of financial conditions, the level of inflation, and the pace of economic growth. When policy choices are accommodating, they can raise economic activity, promote investment, support spending, and create jobs, producing the conditions for capital allocation and innovation that spur economic growth in the long term.
Productivity acceleration scenario
The world achieves multipolar stability that eases geopolitical tensions and allows global flows to broaden and deepen. Investment accelerates, driven by the transition to a net-zero-emission economy and the emergence of new technologies. Real GDP growth rises globally to 3.7 percent annually for the 2027–32 period. Strong investments and demand for capital support higher interest rates, and central bank policy rates settle at around 4.5 percent after 2025. In 2024, real GDP growth accelerates to 2.0 percent in the eurozone, 2.7 percent in the United States, and 5.8 percent in China. After 2027, US and European central banks keep interest rates stable and allow inflation to settle above current targets, at 3 percent.
Higher for longer scenario
Global tensions remain heightened but don’t escalate, global flows maintain current levels, and government industrial policies lead to continued growth in deficits. US and eurozone central banks lose support for bringing inflation back to 2 percent targets and lower policy rates to below 4 percent by the end of 2024. Real GDP grows at 1.3 percent in the eurozone and 2.3 percent in the United States in 2024. Post-2026, inflation stabilizes at a “new normal” of 3.5 percent; global real GDP grows at 3.0 percent annually, supporting an accelerated energy transition; and interest rates remain at 3.5 to 4.0 percent in developed economies.
Return to past era scenario
Global tensions remain heightened. The productivity promises of new technologies prove to be exaggerated. Energy transition stays on the current trajectory. In 2024, central banks achieve a “soft landing,” and inflation continues to decelerate, sliding back to the 2 percent target in the United States and Europe by 2025. Growth drops to 1.2 percent in the United States, 0.8 percent in the eurozone, and 4.4 percent in China this year. US and eurozone central banks cut rates, which ultimately settle at around 2.5 percent after 2026. Global real GDP growth sits at 2.5 percent after 2027, returning to pre-COVID-19 trends.
Central bank–led recession scenario
The geopolitical landscape remains unsettled. Stubbornly high inflation causes the US Federal Reserve to raise rates above 6.0 percent and the European Central Bank to hold rates at 4.5 percent, causing a recession. Real GDP contracts in the United States by 1.7 percent and by 2.4 percent in the eurozone in the second half of 2024 and first half of 2025. As recessionary concerns dominate, investments in new technologies and the net-zero transition slow, lowering real GDP growth to 2 percent globally after 2026. Inflation settles at central banks’ 2 percent target across major economies, and lower investment demand brings policy rates to below 2 percent across the United States and Europe.
Demand-led recession scenario
Geopolitical tensions escalate globally, raising uncertainty and suppressing consumer spending and business investment. Even without further monetary tightening, soft demand pushes economies around the world into recession, with real GDP contracting to 1.8 percent in the eurozone and 0.6 percent in the US by the fall of 2024. As a result, real GDP drops to 1.8 globally percent after 2027, inflation settles below 2 percent targets and interest rates retreat to around 1 percent in the US and the eurozone. Momentum in the energy transition fades as investments in new technologies and productivity stall, and secular stagnation sets in.
Balance sheet reset
Our research shows that global net worth relative to GDP has grown by 170 percentage points above the pre-2000 average on the back of soaring asset prices. Tighter monetary policy, perceptions of rising risk, or stress and failures in financial systems around the world could lead to a sharp correction in asset values back to historical norms as well as a prolonged recession. As households, businesses, and financial institutions come under stress, the global economy could face a decade-long period of deleveraging, causing GDP growth through 2030 to slow by 0.6 percent globally and household wealth to decline by more than $30 trillion.
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