Search
As the global economy adjusts to uneven growth and shifting price dynamics, select markets are experiencing sustained downward pressure on prices. While headline figures mask regional disparities, underlying forces in China, the euro area, and beyond highlight risks and opportunities.
This article unpacks the latest data, explores sectoral drivers, and outlines practical steps for businesses, investors, and policymakers to navigate these isolated deflationary pockets.
Global inflation, though easing from pandemic peaks, remains above pre-crisis norms. The IMF expects headline inflation to settle at 4.4–4.5% in 2025, compared to 5.8–6.8% in 2023–2024. Advanced economies are converging back to central bank targets faster, thanks to resilient consumer demand and stronger wage growth.
Meanwhile, global GDP growth is forecast to slow to 2.3% in 2025—the weakest pace since 2008 outside of recessionary periods. Nearly 70% of countries have seen downgrades to their growth outlooks.
China’s consumer price index is expected to rise only 0.9% year-on-year in 2024, after a period of outright deflation. This sluggish pace reflects declining global commodity costs and subdued domestic spending.
Food prices, especially pork, have been major contributors to negative inflation readings. Recent stabilization in pig stocks and moderate oil prices around $83 per barrel may ease the downward pressure on CPI.
J.P. Morgan notes that policy support has emphasized supply rather than boosting demand, prolonging a low-inflation environment despite fiscal stimulus and low borrowing costs. China’s deflationary trend poses risks for trading partners and global commodity markets.
The euro area has avoided full-fledged deflation but operates under persistent disinflationary pressures. Core inflation is projected at 2.6% in 2024, barely above the European Central Bank’s 2% target.
With growth sluggish, certain sectors—such as retail and hospitality—face possible price declines. Germany’s budget deficit, the highest since 1990, limits fiscal flexibility and raises concerns about sustained support for demand.
Japan, long accustomed to low inflation, occasionally slips into deflation in retail and housing. Emerging markets outside Asia have seen their growth rates halve from above 6% in the 2000s to below 4% in the 2020s, weighed down by high debt levels and weakening trade.
Global commodity price swings, particularly in food and energy, have driven much of the recent disinflation. Volatility in imported energy costs has moderated headline inflation in net importers.
New and volatile U.S. tariffs have inflicted structural shocks: some input costs have risen, yet excess supply in export-oriented sectors has undercut pricing power. As Morgan Stanley warns, even rolling back tariffs may not restore lost growth.
Central banks in many regions, except the U.S. Fed, are considering or have announced rate cuts to counteract disinflation. The Fed has signaled steady rates until at least March 2026, prioritizing price stability over growth support.
Fiscal authorities are ramping up spending to stimulate demand. However, rising deficits—especially in advanced economies—may constrain future stimulus and raise borrowing costs.
For businesses and investors, the environment calls for diversify supply chains, closely monitor price signals, and maintain healthy liquidity buffers. Policymakers should balance short-term support with structural reforms that address productivity and debt sustainability.
As deflationary pressures persist in select markets, stakeholders must remain vigilant. By combining data-driven analysis with adaptable policies and strategies, it is possible to mitigate risks and position for emerging opportunities in a complex global landscape.
References
