ECB economic bulletin: Global economic activity is showing signs of strengthening, although headwinds to growth remain

Incoming data confirm an upward momentum in global activity as signals from survey and hard data align more closely.

Nonetheless, headwinds to global growth remain, including the diminished stock of excess savings in advanced economies and subdued domestic demand in China against the backdrop of a troubled residential real estate sector.

Labour markets in key advanced economies are gradually cooling and nominal wage growth is moderating, providing less support to growth in disposable incomes.

Global consumer spending, which underpinned the recovery in economic activity following the COVID-19 pandemic, remains subdued.

Growth in global real GDP is estimated to have slowed slightly to 0.8% in the first quarter of 2024, down from 0.9% in the fourth quarter of 2023.

The projected outlook for global growth remains broadly unchanged compared with the March 2024 ECB staff macroeconomic projections.

Overall, global real GDP growth is projected to stand at 3.3% this year compared with 3.5% in 2023.

Global real GDP growth is projected to stand at 3.3% in 2025 and 3.2% in 2026, slightly below the average global growth rate for the past decade.

Global trade is projected to recover this year and grow more in line with global activity thereafter, albeit remaining below its historical trend level over the projection horizon and broadly unchanged compared with the March 2024 ECB staff macroeconomic projections.

Overall, global import growth is projected to increase to 2.6% this year, up from 1.0% in 2023, before gradually rising to 3.3% annually over 2025-26, broadly in line with the previous round of projections.

Recovering imports in emerging markets and major advanced economies, particularly the United States, are expected to contribute to trade recovery this year.

The recovery in euro area foreign demand this year is expected to be less dynamic, standing at 2.1%.

Over the projection horizon, euro area foreign demand is expected to increase by 3.4% in 2025 and 3.3% in 2026, aligning more closely with the growth dynamics of global imports.

Inflation at the global level is projected to gradually decline over the projection horizon.

As for commodity prices, European gas and food prices have increased since the last Governing Council meeting, while oil prices have declined.

Risks to oil prices remain tilted to the upside, particularly if tensions in the Middle East were to escalate.

The euro area economy recovered at the start of 2024 by more than expected in the March 2024 ECB staff projections, with a boost from net trade and rising household spending.

Overall, annual average real GDP growth is expected to be 0.9% in 2024, and to strengthen to 1.4% in 2025 and 1.6% in 2026.

Compared with the March 2024 projections, the outlook for GDP growth has been revised up for 2024 owing to the positive surprise at the start of the year and improved incoming information. The GDP growth outlook has been revised down marginally for 2025 and remains unchanged for 2026.

National fiscal and structural policies should be aimed at making the economy more productive and competitive, which would help to raise potential growth and reduce price pressures in the medium term.