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Global Summary Report
Released February 2024 (data through January 2024)

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 Global Economics Intelligence › Executive Summary (1/3), February 2024

Central banks continue to garner the confidence of market participants, as inflation

expectations stabilize within the range of 2-2.5%
The Global economic uncertainty remains in December (–6.5% in November).
elevated; China facing deflation, real estate The situation across emerging economies is more
Real Implied inflationary expectations from five- and ten-year TIPS problems, and FDI declines, EU growth stagnates, varied: at one extreme, China seeks to tackle
yields1 (spread between T-bill and TIPS of same maturity) and US high-interest environment beginning to deflation while, at the other, Russia is battling
impact households and companies. accelerating inflation, with consumer prices rising in
Percent, 5-day moving average Ten-year
Consumers remain upbeat as retail sales in the main December 2023 and January 2024 by 7.4% year-
Five-year economies show steady growth, despite elevated over-year. In China, consumer prices deflated by –
3.5
prices. Growing sentiment in the US saw the 0.8% in January (–0.3% in December), dragged down
consumer confidence index (Conference Board) rise by declining food prices (–5.9%). Producer prices
3.0 to 114.8 in January, up from a revised 108.0 in deflated at –2.5% (−2.7% in December). It’s a more
December. By contrast, consumer confidence in benign situation elsewhere: in India, headline inflation
2.5 Brazil dropped to its lowest level since May 2023 but moderated slightly to 5.1% in January from 5.7% in
is still 5.0 points higher than in January 2023. December, while Brazil saw inflation fell for the fourth
2.0 US retail and food-service sales decreased to $700.3 consecutive month, down to 4.51% (4.62% in
billion in January, a 0.8% decline from December’s December).
1.5 $706.2 billion. Automobile sales in India (which are a Meanwhile, February commentary from the IMF
proxy for consumer sales) grew by 37.3% to 393,074 warns that, with China’s real estate downturn now in
units (286,390 in December). Passenger vehicles its third year, housing starts have fallen more than
1.0 saw their highest-ever sales in January, posting a 60% relative to pre-pandemic levels.1 The pace of
growth of around 14% compared to the previous year. decline has unfolded at a “historically rapid pace” only
0.5 Meanwhile, official news from China was that seen in the largest housing busts across countries
consumption during the 2024 Spring Festival holiday over the last three decades, according to the IMF.
0 underwent a notable increase. Homebuyers are wary that future prices will decline
Inflation’s downward trend is stalling in some and that developers lack sufficient funds to complete
advanced economies but continues in the eurozone. projects. At the same time, the country’s housing
–0.5
The US Consumer Price Index was up 0.3% in market faces further pressure as demographic
January on a seasonally adjusted basis, after rising change unfolds and urbanization slows. The IMF
–1.0 0.2% in December. Core inflation remained indicates that housing investment is poised to fall
unchanged at 3.9% (annualized) in January. The further and will likely remain subdued. Its analysis
–1.5 UK’s Consumer Price Index was also unchanged at shows that real estate investment could fall 30–60%
4% in January 2024; similarly, core inflation was below its 2022 level over the medium term,
steady at 5.1%; however, services inflation rose from rebounding only very gradually.
–2.0
Jan Jan Jan Jan Jan Jan Jan Jan Jan 6.4% to 6.5%. Meanwhile, in the eurozone, headline Most commodity prices are continuing to ease,
2007 2009 2011 2013 2015 2017 2019 2021 2023 inflation fell slightly to 2.8% year-on-year in January though they are at high levels compared with the
(down from December’s 2.9%), while core inflation 1Henry Hoyle and Sonali Jain-Chandra, “China’s real estate
1
remained elevated at 3.3% but also declined (3.4% in sector: Managing the medium-term slowdown,” IMF News, China
Updated through February 16, 2024. December); producer-price inflation was down –7.3% country focus, February 2, 2024

Source: Haver Analytics; McKinsey’s Global Economics Intelligence analysis McKinsey & Company 3
 Global Economics Intelligence › Executive Summary (2/3), February 2024

Consumers remain upbeat as retail sales in main economies have experienced steady
growth, despite elevated prices and interest rate environment
pre-pandemic era. Gold appreciated steadily in Manufacturing and services continue their divergent
February, while energy prices continue to rebound. paths with manufacturing muted in many surveyed
Expectations around inflation have been in the 2.0– economies, while services are seeing a resurgence.
2.5% range for a year. Among surveyed economies, manufacturing is most
Consumer Retail sales growth buoyant in India, Brazil, and the US, while services
Interest rates were again held across the developed
sentiment is most positive in India, the UK, Brazil,
Percent, year over year growth economies, and also in India. However, Brazil’s
China Russia Eurozone and the US. Overall, the composite purchasing
75 Monetary Policy Committee (Copom) decided to managers’ index (PMI) points to positive conditions
Brazil US UK reduce the Selic rate by 0.50 percentage points (for
in Brazil (up from December’s 50.0 to 53.2 in
40 a fifth time), cutting the rate from 11.75% to 11.25%
January and comfortably within expansion territory
per annum.
for a fourth consecutive month). By contrast,
35 In terms of growth, Europe continues to be lackluster February’s composite PMI for the eurozone edged
while Russia presents a surprising picture. GDP in up to 48.9 from 47.9 in January (while remaining in
the eurozone was stagnant in the final quarter of the contraction zone).
25
2023, up marginally (by 0.1%) on both the previous
India’s PMI for manufacturing stood at a four-month
20 quarter and the prior-year period, according to
high of 56.5 in January 2024, up from 54.9 in
Eurostat flash estimates. This brings growth for 2023
December, supported by new orders and output.
15 as a whole to 0.6%. However, the situation varies Brazil’s manufacturing PMI climbed past the neutral
both by country and industry: manufacturing-
10 50.0 mark for the first time since August 2023 to
intensive Germany, which was in recession in 2023,
reach 52.8 in January (48.4 in December). In the
is performing worse than countries with a greater
5 US, January’s manufacturing PMI was revised
focus on services, such as Spain, which grew 2.5%
higher to 50.7, from a preliminary of 50.3 (47.9 in
0 in 2023. The UK entered a technical recession: UK December). It was a less positive picture elsewhere:
quarterly GDP is estimated to have fallen – 0.3% in
China’s PMI for manufacturing rose slightly in
-5 Q4 2023. Across 2023, GDP is estimated to have
January 2024 but remained in the contraction zone
risen by 0.1% compared with 2022. By contrast,
at 49.2 (49.0 in December); the UK’s seasonally
–10 preliminary data for Russia show a surprisingly
adjusted manufacturing PMI edged up to post 47.0
robust GDP growth of 3.6% in 2023, somewhat in January (up from 46.2 in December but still well in
-15 higher than forecasters had expected, albeit that
the contraction zone), while the eurozone
there is significant inconsistency among sources.
–20 manufacturing PMI fell further to 46.1 (from 46.6).
Given uncertainty and inconsistencies around the
data, any growth figures should be treated with a Services PMIs are recording much more positive
degree of caution. Recent forecasts see Russia’s numbers, with India again leading the way. In India,
GDP growth slowing in 2024. The February forecast where services account for more than 50% of GDP,
-45 the services PMI continued its upward trend to reach
Jan Jan Jan Jan Jan from the Central Bank of the Russian Federation
expects GDP to grow 1–2 %; the IMF anticipates 2.6 (revised upward), a six-month high. Sentiment in the
2020 2021 2022 2023 2024 61.8.
% and the OECD 1.8 %.

Source: Banco Central do Brasil; Eurostat; National Bureau of Statistics of China; Rosstat; UK Office for National Statistics; US Census Bureau; McKinsey’s Global Economics Intelligence analysis McKinsey & Company 4
 Global Economics Intelligence › Executive Summary (3/3), February 2024

UK services sector was also buoyant, with the PMI equities index fell in January, losing 2.2% in value.
registering 54.3 in January, up from 53.4 in December. Various factors are having a dampening effect on
Brazil’s services PMI climbed to 53.1 in January (up global trade, with concerns about ongoing conflicts in
from 50.5 in December), while the US services PMI Europe and the Middle East and the reemergence of
rose to 52.5. The eurozone also saw a glimmer of supply chain disruption. However, world trade volume
improvement as the services PMI touched the neutral increased by 1.0% in December, with increases across
50 mark (up from 48.4)—a seven-month high. Similarly, all flows and economies. For 2023 as a whole, China’s
China’s official services PMI rose to reach the trade growth slowed: exports were down –4.6% (+6.9%
expansion zone, hitting 50.1 in January (49.3 in in 2022) with imports down –5.5% (+1.0% in 2022). For
December). different reasons, Russia’s exports declined
Across most surveyed economies unemployment was significantly in 2023—due to the country’s international
steady or trending downwards. In the US, January’s economic isolation and the effect of sanctions. Exports
unemployment rate was unchanged at 3.7%, with total represented just 23% of GDP last year, the lowest
nonfarm payroll employment rising by 353,000 net new share on record. In the US, December’s exports
jobs. The UK saw the unemployment rate for Q4 2023 reached $258.2 billion, $3.9 billion up on November,
decline to 3.8%, returning to the year-ago rate. India’s while imports were also up at $320.4 billion ($4.2 billion
unemployment rate fell to a 16-month low of 6.8 per in November)—consequently, the total deficit increased
cent in January (from 8.7% in December) and Brazil to $62.2 billion, up 0.5%. India’s merchandise exports
saw the three-month moving average unemployment reached US $36.9 billion in January 2024, registering a
rate decline slightly to 7.4% in December (7.5% in 3.1% year-on-year growth. Merchandise imports also
November)—its lowest level since 2015. Meanwhile, expanded, after contracting for the past two months, to
China’s surveyed urban employment rate was steady register US $54.4 billion with year-on-year growth of
at 5.2% in January (5.1% in December). The youth 3.1%. The merchandise trade deficit narrowed to a
unemployment rate fell slightly to 14.6% in January nine-month low of US $17.5 billion in January 2024.
(14.9% in December). Brazil posted a surplus of US $6.5 billion in January,
The US and India were the top performers on the with exports totaling US $27.0 billion (US $28.8 billion
equity markets, while Europe’s STOXX 600 also hit an in December) and imports reaching US $20.5 billion
all-time high on February 23, following positive (US $19.5 billion in December).
earnings reports. In January, the S&P 500 climbed
1.6%, bringing its one-year return to 18.9%; the Dow
Jones rose by 1.2% for the month and was up 11.9% in
2023. India’s stock markets continued to trend up, with
both the Nifty and Sensex adding some 2–3% in value
over the previous month. The Nifty had risen 2.6% and
the Sensex 1.9% as of February 26 (compared with
January 22, 2024). By contrast, Brazil’s Bovespa

McKinsey & Company 5

[Advanced economies]: In the advanced
economies, US consumer sentiment remains
upbeat; GDP stagnant in Europe with recession in
Germany and UK; central banks hold rates;
inflation falls in eurozone.

McKinsey & Company 6

 Global Economics Intelligence › United States report, February 2024

United States
Consumer sentiment remained upbeat in January as Volatility Index average was 15.8 (up from 12.5 in
the economy added 253,000 net new jobs, with December), cooling off December’s equities growth.
annualized inflation decreasing, and interest rates
In January, the Federal Reserve decided to maintain the
unchanged below 5.5%; January also saw equity
target range for the federal funds rate at 5-1/4% to 5-1/2%.
markets cool after an end-of-year surge.
In its statement on Longer-Run Goals and Monetary Policy,
The unemployment rate was unchanged at 3.7% (3.5% in the Federal Reserve affirms its 2% inflation target over the
January 2020). Total nonfarm payroll employment rose by longer run as measured by the annual change in the price
353,000 net new jobs in January. index for personal consumption expenditures.
The Consumer Price Index was up 0.3% in January on a December exports came in at $258.2 billion, $3.9 billion
seasonally adjusted basis, after rising 0.2% in December. up on November’s figure; imports were $320.4 billion, a
The CPI stood at 3.1% (annualized) in January, a smaller $4.2 billion rise on November. As a consequence, the
rise than the 3.4% increase for the 12 months ending total deficit increased to $62.2 billion, up 0.5%.
December. Core inflation remained unchanged at 3.9%
(annualized) in January. The January 2024 Survey of On the housing market, the 30-year fixed-rate mortgage
Consumer Expectations from the Federal Reserve Bank of fell to 6.7% on February 16. Existing home sales
New York (NY Fed) shows that one-year-ahead inflation declined by –1.0% in December. During January,
expectations were unchanged at 3.0% after reaching the housing starts dropped to 1,331,000 (1,460,000 in
lowest level recorded since January 2021. December), with completions down to 1,470,000 in
January (1,574,000 in December).
Retail and food-service sales decreased to $700.3 billion, a
0.8% decline from December’s $706.2 billion. The Amid rising tensions between the White House and
consumer confidence index (Conference Board) rose in Congress over the latest Ukraine aid package, House
January to 114.8, up from a revised 108.0 in December. Speaker Mike Johnson faces intense pressure to
resolve the deadlock in the face of international criticism
The industrial production index remains almost unchanged and internal GOP resistance.
at 102.6 in January. January’s purchasing managers’ On January 10, the SEC approved the listing and
indexes (PMI) remained in expansion territory. The PMI for trading of a number of spot bitcoin exchange-traded
manufacturing was revised higher to 50.7, from a product (ETP) shares. SEC Chair Gary Gensler
preliminary of 50.3 (47.9 in December), while the services emphasizes the commission’s neutrality and adherence
PMI rose to 52.5. to legal standards in evaluating such filings, highlighting
the distinction between approving bitcoin ETPs and
In January, the S&P 500 climbed 1.6%, bringing its one-
endorsing bitcoin itself, cautioning investors about
year return to 18.9%; the Dow Jones rose by 1.2% for the
associated risks.
month and was up 11.9% in 2023. January’s CBOE
McKinsey & Company 7
 Global Economics Intelligence › United States report, February 2024

Home affordability pressures see 37% decline in home sales since

November 2021
US single family home sales
Millions of units
8.0
Recession period US single-family home
sales have decreased
7.5 ~17%, since February
2023—in line with rising
7.0 prices and credit costs
which have impacted
6.5 affordability
Also, millions of
6.0 homeowners stay locked
–50% into earlier low mortgage
5.5 rates (60% of borrowers
–37% had a rate of 4% or lower in
5.0 Oct 2023) and are content
to remain in their current
homes, so helping to keep
4.5
inventory low
4.0 Latest monthly data figure
available for December
3.5 2023

3.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Source: FRED; National Association of Realtors; NBER; US Census Bureau; McKinsey Global Institute McKinsey & Company 8
 Global Economics Intelligence › United States heatmap, February 2024

Upbeat consumer sentiment remains, 253,000 net new jobs, declining inflation
(annualized), interest rates stay below 5.5%; equities cool in January after year-end surge
Significant improvement Improving No significant change Worsening Severe decline

Change Change Annual inflation down despite monthly increase; unemployment unchanged at 3.7%; 353,000 net new jobs in January
Indicator category vs prior vs pre-
month COVID § The industrial production index remains almost unchanged at 102.6 in January (December 2023: 102.7). The January purchasing managers’ index
(PMI) for manufacturing was revised higher to 50.7 from a preliminary of 50.3, (47.9 in December); the services PMI rose to 52.5 (70.4 in May 2021).
Consumer § Retail and food-service sales decreased to $700.3 billion, a 0.8% drop from December’s $706.2 billion. The consumer confidence index (Conference
Board) rose in January to 114.8, up from a revised 108.0 in December. December 2023 exports measured $258.2 billion, $3.9 billion more than
Business/industry November; imports were $320.4 billion, $4.2 billion up on November’s figure. The total deficit climbed 0.5%, to $62.2 billion.
§ On the housing market, the 30-year fixed-rate mortgage dropped to 6.7% on February 16. Existing home sales fell –1.0% in December, marking a
Real estate drop of 37% since November 2021. During January, housing starts declined to 1,331,000 (1,460,000 in December), with January completions down
Macroeconomic to 1,470,000 (1,574,000 in December).
Trade, external § The unemployment rate was unchanged at 3.7% (3.5% in January 2020). Total nonfarm payroll employment rose by 353,000 net new jobs in
January. New unemployment claims remain low and steady, currently at 228,000 new claims per week.
Prices § The Consumer Price Index rose 3.1% (annualized) in January, smaller than the 3.4% increase for the 12 months ending December. Core inflation
remained unchanged at 3.9% (annualized) in January, but with shelter, motor vehicle insurance, and medical care all showing increases.
Employment
January’s stock market cools from end-of-year growth; FOMC affirms 2% inflation target
Foreign exchange § In January, the S&P 500 climbed by 1.6%, bringing its one-year return to 18.9%; the Dow Jones rose by 1.2% for the month and was up 11.9% in
2023. January saw the CBOE Volatility Index average 15.8 (12.5 in December), cooling December’s equities growth.
Equity § In January, the Federal Reserve decided to maintain the target range for the federal funds rate at 5-1/4% to 5-1/2%. In its statement on Longer-Run
Financial
Goals and Monetary Policy, the Federal Reserve affirms its 2% inflation target over the longer run as measured by the annual change in the price
markets
Debt index for personal consumption expenditures.

Tension over Ukraine’s aid puts pressure on House Speaker; SEC approves bitcoin ETPs
Credit
§ Amid tensions between the White House and Congress over the latest Ukraine aid package, House Speaker Mike Johnson faces intense
pressure to resolve the deadlock in the face of international criticism and internal GOP resistance.
Public policy
Government
§ On January 10, the SEC approved the listing and trading of a number of spot bitcoin exchange-traded product (ETP) shares. SEC Chair
and policy
Public-sector health Gary Gensler emphasizes the commission’s neutrality and adherence to legal standards in evaluating such filings, highlighting the
distinction between approving bitcoin ETPs and endorsing bitcoin itself, cautioning investors about associated risks.

Source: BLS; Federal Reserve; NAREIT; NY Federal Reserve Bank; US Census; McKinsey’s Global Economics Intelligence analysis
McKinsey & Company 9
 Global Economics Intelligence › Eurozone report, January 2024

Eurozone

2023 eurozone GDP at 0.6%; European stocks at inflation remained elevated at 3.3% but is also
record high; inflation rebound weaker than declining (3.4% in December). Producer-price inflation
expected; CAP under scrutiny as farmers protest. was –7.3% in December (–6.5% in November).
GDP was stagnant in the final quarter of 2023, up On January 25, the ECB decided to continue balance
marginally (by 0.1%) on both the previous quarter and sheet normalization and keep key interest rates
the prior-year period, according to Eurostat flash unchanged. Looking ahead, there is uncertainty over
estimates. This brings growth for 2023 as a whole to when rates will come down. Europe’s STOXX 600 hit
0.6%. Even though economic activity has flatlined, an all-time high on February 23, in light of positive
some forward-looking indicators point to a pick-up in earnings reports. In February, the euro was stable
growth further ahead. The situation varies both by against the US dollar, trading at $1.08 per euro on
country and industry: manufacturing-intensive February 23. The Italian-German 10-year bond-yield
Germany, which was in recession in 2023, is spread marginally narrowed to 1.6% in early February;
performing worse than countries with a greater focus yields are at 3.9% and 2.5%, respectively.
on services, such as Spain, which grew 2.5% in 2023.
France’s new Prime Minister, Gabriel Attal announced
There are reemerging supply bottlenecks dragging on
his government in January. Under the French system,
industrial performance, while services are growing on
the prime minister is appointed by the President.
the back of raising wages.
Emmanuel Macron replaced former PM Élisabeth
The eurozone industrial production index rose in Borne after only 20 months, ahead of European
December (2.6% month-on-month, 1.0% year-on-year) elections in June. Following downward revision of the
after reaching its lowest level since COVID-19 in the 2024 growth forecast from 1.4% to 1.0%, finance
previous month. February’s composite purchasing minister Bruno Le Maire announced €10 billion in
managers’ index (PMI) edged up to 48.9 from 47.9 in spending cuts for 2024 as weaker-than-expected tax
January (though still in the contraction zone). The revenues reduced budgetary room for maneuver.
manufacturing PMI fell to 46.1 from 46.6; the services
Protesting farmers sprayed manure, blockaded roads,
PMI rose to 50 from 48.4, a seven-month high. January’s
and set fire to tires in Brussels on February 26 as
Eurocoin reading fell to –0.51 after a mild rebound.
ministers from EU member states met to discuss the
Eurozone headline inflation fell slightly to 2.8% year- Common Agricultural Policy. Demonstrations have
on-year in January, down from December’s 2.9%. been held in multiple EU countries as farmers protest
There was a mild reduction in food inflation; services against red tape, environmental regulations, and
prices were stable amid wage pressures; core cheap agricultural imports.
McKinsey & Company 10
Source: Oxford Economics McKinsey
Photo &
byCompany
Ilnur Kalimullin 10
on Unsplash
 Global Economics Intelligence › Eurozone report, January 2024

Countries with greater focus on services currently seeing higher growth than manufacturing-
led economies; Eurocoin declines in contrast with other forward-looking indicators

Eurozone real GDP 2023 forth quarter Eurocoin index Eurocoin index
Quarter-on-quarter, constant prices (% change) Index (monthly, % change) GDP q-on-q change

13.0

Ireland –0.7% 2.0

Germany –0.3% 1.5

1.0
France 0%
0.5
Euro area 0.1% a

Italy 0.2% –0.5

–1.0
Austria 0.2%
–1.5
Netheralnds 0.3% –2.0

Belgium 0.4% –2.5

–3.0
Spain 0.6%
–3.5
Portugal 0.8% –11.5
2007 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 2024
Cyprus 0.8%

Source: Banca d’Italia; European Commission; Eurostat; Haver Analytics; McKinsey’s Global Economics Intelligence analysis McKinsey & Company 11
 Global Economics Intelligence › Eurozone heatmap, January 2024

Europe STOXX 600 hits all-time high following “favorable outlook”;

inflation rebound weaker than expected; farmers protest
Significant improvement Improving No significant change Worsening Severe decline
Europe STOXX 600 reaches all-time high; inflation rebound weaker than expected
Change Change
Indicator category vs prior vs pre- § Real retail sales fell by 1.1% month-on-month (–0.8% year-on-year) in December. The consumer confidence indicator edged down marginally
month COVID in December (–16) and remains below the historical average in line with weakening demand and some expectation of inflation returning.
§ The industrial production index rose in December (2.6% month-on-month, 1.0% year-on-year) after reaching its lowest level since COVID-19
Consumer the previous month. February’s composite PMI was up to 48.9 from 47.9 in January. The manufacturing PMI fell marginally to 46.1 from 46.6;
the services PMI rose to 50 from 48.4, a seven-month high.
Business/industry § Construction output in December rose by 0.8% month-on-month (1.9% year-on-year); the construction PMI fell from 43.6 in December to 41.3 in
January, the sharpest drop since COVID-19 (May 2020).
Real estate § The eurozone’s goods trade surplus contracted to €17 billion in December, from €20 billion in November, due to a €33 billion decrease in
Macroeconomic exports to €218 billion; imports fell by €29 billion, to €201 billion.
External trade § Eurozone headline inflation fell slightly to 2.8% year-on-year in January, down from 2.9% in December. There was a mild reduction in food
inflation while services prices stood stable amid wage pressures. Core inflation remains elevated at 3.3%, though it is also trending down
Prices (3.4% in December). Producer-price inflation was –7.3% in December (–6.5% in November).
§ The eurozone's unemployment rate was stable at 6.4% in December 2023, (6.4% November) down from 6.7% in December 2022. Annual
Labor market nominal wage growth in the third quarter of 2023 rose to 5.3% above inflation.

Foreign exchange
Europe’s STOXX 600 at all-time high; stable euro-dollar exchange rate; Italian–German 10-year bond-yield spread declined
Equity § Europe’s STOXX 600 hit an all-time high on news of strong earnings and favorable forward-looking indicators (mainly in services).
Financial
markets § In February, the euro was stable against the US dollar, trading at $1.08 per euro on February 23.
Debt
§ The Italian-German 10-year bond-yield spread narrowed to 1.6% in early February; yields are at 3.9% and 2.5%, respectively.
§ December saw the annual growth rate for loans to companies recorded at 0.4% and 0.33% for loans to households for house purchase.
Credit
French finance minister announces €10 billion in spending cuts for 2024; farmers protest red tape and cheap agricultural imports
Public policy
Government § Downward revision of the 2024 growth forecast (from 1.4% to 1.0%) saw the French finance minister announce €10 billion in
and policy spending cuts for 2024 as weaker-than-expected tax revenues reduced budgetary room for maneuver.
Public-sector health
§ Farmers protest across the EU over red tape, environmental regulations, and competition from cheap agricultural imports.

McKinsey & Company 12

Source: European Commission; Eurostat; Haver Analytics; United Nations; McKinsey’s Global Economics Intelligence analysis
United Kingdom
Global Economics Intelligence › United Kingdom report, February 2024

Inflation was unchanged at 4% in January; quarterly year, with many anticipating the BoE will lower the cost of
GDP contracted by 0.3% in Q4 2023; latest GDP borrowing in the summer from its current rate of 5.25%.
projections by the BoE, OECD, and IMF indicate
The seasonally adjusted UK Manufacturing Purchasing
modest growth for 2023–25.
Managers’ Index posted 47.0 in January, up from 46.2 in
According to the OECD’s February Interim Report, UK December. The downturn in the UK manufacturing sector
growth will pick up from 0.3% in 2023 to 0.7% in 2024, with continued into the start of 2024: January saw output and
inflation dropping to 2.8% and core inflation to 3.6% in 2024. new orders decline further, leading to additional job losses
Similarly, the IMF’s World Economic Outlook update and cutbacks in purchasing and stock holdings.
projects modest growth of 0.5% in 2023 and 0.6% in 2024. Manufacturers also experienced rising supply chain
Finally, the Bank of England’s Monetary Policy Report difficulties, as Red Sea tensions led to the rerouting of
expects inflation to fall temporarily to the 2% target in 2024 input deliveries away from the Suez Canal. The PMI has
Q2 before increasing again in Q3 and Q4, with the Bank signaled a deterioration in operating conditions in each of
Rate remaining above 4% in 2024. GDP growth is expected the past 18 months. The seasonally adjusted UK Services
to pick up gradually in 2025 and 2026. PMI registered 54.3 in January, up from 53.4 in December
and above the 50.0 threshold for the third successive
UK quarterly GDP is estimated to have fallen by 0.3% in Q4
month. This signaled the fastest rate of business activity
2023. While the economy has now contracted for two
growth since May 2023 and was linked to more favorable
consecutive quarters, across 2023 GDP is estimated to have
economic conditions combined with rising business and
increased by 0.1% compared with 2022. Meanwhile, monthly
consumer sentiment at the start of the year.
GDP is estimated to have fallen by 0.1% in December 2023,
following growth of 0.2% in November. In output terms, there Growth in average total pay was 6.2% in Q4 2023, while
were falls in all three main sectors in Q4 2023, with declines real total pay rose by 1.4%. The unemployment rate for Q4
of 0.2% in services, 1.0% in production, and 1.3% in 2023 declined to 3.8%, returning to the year-ago rate. The
construction output. economic inactivity rate was largely unchanged on the
quarter at 21.9% but is above estimates from a year ago
The UK Consumer Price Index remained unchanged at 4%
(October to December 2022). The annual increase was the
in January 2024, with the largest upward contributions
result of inactivity due to long-term sickness, which
coming from housing and household services (principally
remains at historically high levels. The estimated number
higher gas and electricity charges). Core inflation, which
of vacancies in November 2023–January 2024 was
excludes items such as energy, food, alcohol, and tobacco,
932,000, a decrease of 26,000 from August to October
was also unchanged at 5.1%, while services inflation rose
2023, with vacancies falling for a record 19th consecutive
from 6.4% to 6.5%. Meanwhile, the Bank of England
period in 12 of the 18 industry sectors.
Monetary Policy Committee voted to maintain the policy rate
at 5.25% at its January 31 meeting, seeking to balance the Figures from the Office for National Statistics (ONS)
risks of not tightening enough in the face of persistent showed that, despite the weakness of the economy, the
underlying inflationary pressures and further tightening state’s tax receipts in January were £16.7 billion higher
when the impact of existing policy has yet to fully flow than spending, allowing Chancellor Jeremy Hunt some
through. Economists still expect UK interest rates to fall this room for tax cuts in the upcoming Budget announcement.

Source: Bank of England; IMF; OECD; Office for Budget Responsibility; Office for National Statistics; McKinsey’s Global Economics Intelligence analysis McKinsey & Company 13
 Global Economics Intelligence › United Kingdom report, February 2024

UK GDP fell by an estimated 0.3% in Q4 2023; the CPI remained unchanged at 4% in

January; the Bank of England kept the policy rate at 5.25% in January

UK GDP, Q4 2019–Q4 2023 12-month inflation; Bank of England interest rate

Index, 2019 Q4 = 100 % CPI inflation
Core inflation1
BoE interest rate
105 12

11

100 10

95 8

7
90 6

5
85 4

3
80 2

1
75 0
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Jan 2018 Jan 19 Jan 20 Jan 21 Jan 22 Jan 23 Jan 24
2019 2020 2020 2020 2020 2021 2021 2021 2021 2022 2022 2022 2022 2023 2023 2023 2023
1. The specific measure excluding energy, food, alcohol, and tobacco is the one typically referred to as “core” by the ONS.

McKinsey & Company 14

Source: Bank of England; IMF; OECD; Office for Budget Responsibility; Office for National Statistics; McKinsey’s Global Economics Intelligence analysis
 Global Economics Intelligence › United Kingdom heatmap, February 2024

Inflation unchanged in January—higher energy charges contributed most; manufacturing and

services sentiment improves; consumer confidence strengthens, and unemployment declines
Significant improvement Improving No significant change Worsening Severe decline
Change Change Inflation remains unchanged in January; consumer confidence improves; industrial production strengthens
Indicator category vs prior vs pre- § Retail sales volumes are estimated to have grown by 3.4% in January 2024, following a record fall of 3.3% in December 2023.
month COVID
§ GfK’s Consumer Confidence Index rose in February, to –21 (from –19 in January), remaining in negative territory. January was the best headline
score in two years, but concerns over persistent inflation pushed the index downwards in February, after three months of improvement.
Consumer
§ Monthly production output is estimated to have risen by 0.6% in December 2023; this follows an increase of 0.5% in November 2023.
Manufacturing was the biggest contributor to the monthly increase, while mining and quarrying was the main negative contributing sector.
Business/industry
§ The UK purchasing managers’ index (PMI) for manufacturing strengthened in January, posting 47.0, up from 46.2 in December. The measure
has remained below the neutral 50.0 mark for 18 successive months. The services PMI registered 54.3 in January, up from 53.4 in December,
Real estate
registering above the 50.0 no-change mark for the third consecutive month. This signals the fastest rate of growth since May 2023.
Macroeconomic
§ Monthly construction output in terms of volume is estimated to have decreased by 0.5% in December 2023. The UK construction PMI
External trade
measured 48.8 in January, up from 46.8 in December but still below the neutral 50.0 value. The total trade in goods and services deficit
widened by £6.2 billion, to a £14.9 billion deficit in Q4 2023, the result of a large fall in exports of services.
Prices
§ The annual CPI inflation rate remained unchanged at 4% in January. Core inflation (excluding food, energy, alcohol, and tobacco) also
Employment
remained steady at 5.1%. Producer input prices fell by 3.3% in the year to January, down from a fall of 2.1% in the year to December;
producer output (factory gate) prices fell by 0.6% in the year to January, down from a rise of 0.1% in the year to December 2023.
Foreign exchange § The unemployment rate for Q4 2023 decreased to 3.8%, returning to the rate of a year ago. The economic inactivity rate was largely
unchanged on the quarter at 21.9%. The unemployment rate for people aged 18–24 decreased to 10.3%, from 11.5%.
Equity UK equities deteriorate slightly; GBP weakens versus USD; 10-year gilt down from highs seen during market turmoil in late 2022
Financial
markets § As of 23 February, the FTSE 100 improved roughly 2.6% versus a month ago but remains 4% below the peak reached in February 2023.
Debt The pound held steady at $1.27 (as of 23 February), having almost reached parity in late September 2022.
§ The daily yield of the UK 10-year gilt has increased to 4.16%, as of 21 February, below the historic highs of more than 4.6% seen in mid-
Credit October 2022, but well above mid-2022 rates of around 2%.
§ UK government debt decreased to 100% of GDP in Q3 2023, while the deficit decreased to 5.8% of GDP (from 9.5% in Q2 2023).
Public policy
Government
and policy Chancellor may have leeway for tax cuts in upcoming Budget
Public-sector health § The Resolution Foundation said that Chancellor Jeremy Hunt should have the budgetary room for maneuver to push through a round of cuts to
personal taxes, while on February 27 the the Institute for Fiscal Studies questioned the affordability of cuts without a spending review.

McKinsey & Company 15

Source: Bank of England; Office for National Statistics; McKinsey’s Global Economics Intelligence analysis
[Emerging economies]: Among emerging
economies, India projects 7.3% growth for 2023–
24; China surges new social financing; Brazil cuts
Selic rate by 0.50 percentage points for a fifth
time.

McKinsey & Company 16

 Global Economics Intelligence › China report, February 2024

China
January PMIs for manufacturing and services both Spring Festival holiday underwent a notable increase.
post slight rises; new social financing surges; Services retail sales were up 50% compared with the
consumption during Spring Festival sees significant year-ago Spring Festival period. Movie box office
growth; food prices drag down consumer prices. receipts during the holiday reached 8 billion yuan, up
18% compared to the previous year.
The official purchasing managers’ index (PMI) for
manufacturing rose slightly in January 2024 but Consumer prices deflated further, by –0.8% in January
remained in the contraction zone at 49.2 (49.0 in (–0.3% in December), dragged down by declining food
December). Within the manufacturing PMI’s sub-indexes, prices (–5.9%). Non-food consumer price inflation was
the production index climbed to 51.3 (50.2 in December), 0.4% in January. Producer prices deflated at –2.5% in
while the new orders index was up at 49.0 (48.7 in January (−2.7% in December).
December)—indicating faster expansion of supply and
Owing to a delay in data releases due to the new year
narrowing contraction of demand among the industrial
holiday, most available economic data are from
activities. The official services PMIs rose and surpassed
December 2023. For 2023 as a whole, overall trade
the expansion threshold, hitting 50.1 in January (49.3 in
growth slowed: exports were down –4.6% (+6.9% in
December).
2022) with imports down –5.5% (+1.0% in 2022).
New social financing totaled RMB 6.5 trillion in January Industrial production growth accelerated to 4.6% (3.6%
(RMB 1.9 trillion in December), the highest level in in 2022); sales revenue of residential property declined
history; new bank loans (RMB 4.8 trillion) represented again –11.8% (–28.3% in 2022).
the main component in this new credit supply. A
In 2023, FDI inflows into China dropped 82% compared
combination of Chinese banks’ tendency to front-load
with 2022, according to data released by the State
loans at the beginning of the year together with a
Administration of Foreign Exchange (SAFE). Research
strengthened economic outlook for 2024 could partly
reports from financial institutions suggest the fall in FDI
explain this surge in new social financing. Total social
flows reported by SAFE could be due to flows related to
financing was reported at RMB 384.3 trillion, an
offshore listings by Chinese companies, reinvested
increase of 9.5% year-on-year.
earnings by multinationals (MNCs), and intercompany
The surveyed urban employment rate was 5.2% in debt flows. By contrast, FDI inflows reported by the
January (5.1% in December). The youth unemployment Ministry of Commerce (MOFCOM) dropped by 8% in
rate fell slightly to 14.6% in January (14.9% in 2023, while new foreign-invested enterprises increased
December). by 40% in 2023.
Official news reported that consumption during the 2024
McKinsey & Company 17
Source: CEIC; McKinsey’s Global Economics Intelligence analysis
 Global Economics Intelligence › China report, February 2024

In January, the official manufacturing and services PMIs increased slightly; stock
indexes improved in February

Purchasing managers indexes (PMI) Stock market indexes

Index, monthly Index, monthly
CFLP manufacturing CFLP services Shanghai SE (LHS)
Caixin manufacturing Caixin services Shenzhen SE (RHS)
60 5,000 20,000

55 4,500
16,000

50 50 4,000

12,000
45 3,500

3,000
40 8,000

2,500
35
4,000
2,000
30
1,500 0
2018 2019 2020 2021 2022 2023 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Source: CEIC; McKinsey’s Global Economics Intelligence analysis McKinsey & Company 18
 Global Economics Intelligence › China heatmap, February 2024

Consumer and producer prices continued to deflate, while new credit surged in
January; PBOC (central bank) further lowered the interest rate in February
Significant improvement Improving No significant change Worsening Severe decline

Indicator category Change vs Change vs

prior month pre-COVID

Consumer Official PMIs for both the manufacturing and services sectors rose; consumer and producer prices continued to
deflate
Business, industry • Retail sales expanded more slowly at 7.4% in December (10.1% in November).
Real estate • The official manufacturing PMI increased slightly but remained in the contraction zone, reporting 49.2 in January (49.0 in
December); the official services PMI crossed the expansion threshold, measuring 50.1 in January (49.3 in December).
Macroeconomic Caixin PMIs, which primarily survey SMEs, reported a manufacturing PMI of 50.8 and a services PMI of 52.7 in January.
External sector, trade
• In December, trade showed signs of improvement, with exports increasing 2.3% (0.5% in November) and imports growing
Prices
0.2% (–0.6% in November).
• Consumer prices continued to deflate at a rate of –0.8% in January (–0.3% in December), dragged down by food prices
Employment (–5.9%). Producer prices deflated at –2.5% in January (−2.7% in December).

Foreign exchange RMB stabilized against US dollar; stock market gained value; new credit surged but money supply growth slowed
• The RMB stabilized against the US dollar compared with its level at the end of January, trading at RMB 7.1018 = USD 1 by
Equity February 22.
Financial
markets • The Shanghai stock index gained 7.2% in value by February 22, while the Shenzhen index climbed 10.1%, compared with
Debt levels at the end of January.
Credit
• New social financing reached RMB 6.5 trillion in January (RMB 1.9 trillion in December); total social financing came in at
RMB 384.3 trillion, increasing 9.5% year-on-year.
Public policy
• M2 growth decelerated to 8.7% in January (9.7% in December).
Government
and policy People’s Bank of China further lowered the 5-year Loan Prime Rate (LPR)
Public-sector health
• On February 20, the PBOC announced a 25-basis-points cut in the 5-year LPR, to 3.95%—the largest interest rate cut since
this reference rate was introduced in 2019. The cut will reduce mortgage costs and help to support the housing market.

Source: Bloomberg; CEIC; McKinsey’s Global Economics Intelligence analysis McKinsey & Company 19
 Global Economics Intelligence › India report February 2024

India
India’s Interim Union Budget (delivered February 1, 2024) past two months, to register US $54.4 billion with year-
presented GDP growth projections of 7.3% for 2023–24.1 on-year growth of 3.1%. The merchandise trade deficit
Capital expenditure outlay for the next year is being narrowed to a nine-month low of US $17.5 billion in
increased by 11.1%; fiscal deficit is estimated at 5.1% of January 2024 as the sequential increase in exports
GDP; 2014–23 marked a golden era for FDI investments outstripped imports.
with treaties being negotiated to sustain growth.
Foreign exchange reserves stood at US $617.2 billion as
Based on SIAM’s February 2024 data, automobile sales of February 9, 2024, equivalent to more than 97% of total
(which are a proxy for consumer sales) have grown by external debt outstanding at the end of September 2023.
37.3% versus the prior month to stand at 393,074 in
The Indian rupee appreciated against both the euro and
January (286,390 December). Passenger vehicles saw
the US dollar, to stand at 90 rupees per euro and 83 per
their highest-ever sales in January, posting a growth of
dollar (as of February 26).
around 14% compared to the previous year.
The stock markets remained in the expansionary zone,
December’s Index of Industrial Production (IIP) registered
with both the Nifty and Sensex adding some 2–3% in
year-on-year expansion with growth of 3.8% above the
value over the previous month. The Nifty had risen 2.6%
December 2022 figure, complemented by all sectors posting
and the Sensex 1.9% as of February 26 (compared with
growth versus 2022 in the range 1–5%. On a monthly basis,
January 22, 2024).
all sectors grew: mining (6.3%), manufacturing (8.2%), and
electricity (3.0%). Net foreign direct investment (FDI) at US $9.7 billion
during April–December 2023 was lower than the US
The purchasing managers’ index (PMI) for manufacturing
$21.6 billion of a year ago, mainly due to a rise in
stood at a four-month high of 56.5 in January 2024, up from
repatriation of equity capital. Foreign portfolio investment
54.9 in December, supported by new orders and output.
(FPI) flows turned negative after two months in January
The services PMI continued its upward trend to reach 61.8
2024, impacted by rising US treasury yields. So far, net
(revised upward), a six-month high, due to expansion of
FPI inflows have amounted to US $32.9 billion during
new businesses. The services sector accounts for more
2023–24 (up to February 15), led by equity inflows.
than 50% of India’s GDP.
The Reserve Bank of India’s stance on the repo rate remains
Headline inflation eased to 5.1% in January from December’s
unchanged at 6.5%, with the reverse repo rate at 3.35%.
5.7%. The downward trend was mainly supported by a
decline in food prices, with year-on-year food inflation at Data from CMIE show the all-India unemployment rate
7.58%; inflation in the fuel and light group fell –0.60%. fell to a 16-month low of 6.8 per cent in January, from
8.7% in December, with unemployment in rural areas
India’s merchandise exports reached US $36.9 billion in
standing at 5.8% and 8.9% in urban areas. The rise in
January 2024, registering a 3.1% year-on-year growth.
employment was driven by regular salaried and self-
Merchandise imports expanded, after contracting for the
employed categories.
1. India follows the fiscal calendar. McKinsey & Company 20
Source: Havers; IHS Markit; Ministry of Commerce and Industry; Ministry of Statistics and Programme Implementation (MOSPI); Reserve Bank of India
 Global Economics Intelligence › India report February 2024

Industrial production grew by 3.8% in December, with equity indexes

complementing this growth to rise by 2–3% in February

Index Y-o-Y % change NSE BSE

Index of Industrial Production (IIP) BSE Sensex1 and NSE Nifty2 equity markets index
Index level (left axis) and % change (y-o-y) Index level, (monthly)

155 135 76.500

150
145 25
140 68.000
20
135
130 15
59.500
125 10
120
5
115 51.000
110 0
105 -5
100 42.500
-10
95
90 -15
85 34.000
-20
80
-25
75
25.500
70 -30
65 -35
60 17.000
-40
55
50 -45
45 -50 8.500
40
35 -55
30 -60 0
07 08 09 10 11 12 13 14 15 16 17 18 19 20 2021 2022 2023 2006 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 2023 2024

1 BSE: The Bombay Stock Exchange (Sensex) is a value-weighted index comprising the 30 largest and most actively traded stocks.
2 NSE: The National Stock Exchange of India (Nifty) consists of 50 major stocks weighted by market capitalization.

SOURCE: Economics Times; Ministry of Statistics and Programme Implementation (MOSPI); McKinsey’s Global Economics Intelligence analysis McKinsey & Company 21
 Global Economics Intelligence › India heatmap, February 2024

GDP growth projections for 2023–24 are 7.3%; manufacturing and services PMI
expanded; unemployment rate fell; RBI keeps interest rates on hold

Significant improvement Improving No significant change Worsening Severe decline

Indicator category Change vs Change vs

prior month pre-COVID
levels

Consumer
Sales grew; manufacturing and services PMI expanded; inflation moderated; unemployment rates improved
Business, industry § Automobile sales in January 2024 grew by 37.3% compared to the prior month to reach 393,074 (286,390 in December 2023).
§ Industrial production recorded a 3.8% year-on-year growth in December. All groups witnessed a year-on-year, as well as a month-on-
Real estate month, increase.
Macroeconomic § The PMI for the manufacturing sector expanded to 56.5 (54.9 in December), with the services PMI complementing this rise to reach a six-
External sector, trade month high of 61.8 (59.0 in December).
§ India’s merchandise trade exports and imports saw a year-on-year growth of 3.1% and the trade deficit contracted in January.
Prices § Consumer Price Index inflation moderated to 5.1% in January from 5.7% in December, due to a decline in food inflation.
§ The unemployment rate (UR) fell to a 16-month low of 6.8% in January, driven by lower unemployment in both rural (5.8%) and urban
Employment (8.9%) areas.

Financial markets in India expanded; INR appreciated

Foreign exchange
§ The Indian rupee appreciated against the euro and the US dollar.
Equity markets § Both the Nifty and Sensex were in expansionary territory, adding growth of around 2–3%.
Financial § Net FDI at US $9.7 billion during April–December 2023 was lower than US $21.6 billion of a year ago.
markets
Debt § Up to February 15, net FPI inflows amounted to US $32.9 billion, led by equity inflows.

Credit The central bank maintained the status quo on policy around interest rates versus growth; interim budget presented
§ The central bank kept interest rates unchanged at 6.5%.
Public policy § In the interim budget, the capital expenditure outlay for the next year is being increased by 11.1%; the fiscal deficit is estimated to be 5.1%
Government
and policy of GDP; GDP growth projection is 7.3% in FY 2023–24.
Public-sector health

SOURCE: McKinsey’s Global Economics Intelligence analysis McKinsey & Company 22

 Global Economics Intelligence › Russia report, February 2024

Russia
Russia’s GDP growth in 2023 higher than expected, car manufacturing and air transport delivering output at
driven by domestic demand and military-related well below pre-war levels.
spending; lower dynamics in recent months amid
Recent monthly data suggest a slowdown, with industrial
mounting inflationary pressures; foreign trade slows
output and retail services remaining flat. While rapidly
Preliminary data show a surprisingly robust GDP rising wages have boosted consumer demand, labor
growth of 3.6% for Russia in 2023, somewhat higher shortages with persistent record-low unemployment
than forecasters had expected, albeit that there is have become a constraint on output growth.
significant inconsistency among sources. For example,
Inflation has continued to accelerate, with consumer
the Central Bank of Russia (CBR) assessed growth at
prices rising in December 2023 and January 2024 by
2.5% while the International Monetary Fund estimated
7.4% year-over-year. After several interest rate hikes in
3.0%. However, given uncertainty and inconsistencies
2023, the CBR kept the key rate unchanged at 16% to
around the data, any growth figures should be treated
contain high inflationary pressures. However, the
with a degree of caution. Recent forecasts see Russian
effectiveness of the bank’s monetary policy is reduced
GDP growth slowing in 2024. The February CBR
by credit subsidies. Given the high-inflation
forecast expects GDP to grow 1–2 %, the IMF
background, the policy rate is not expected to drop any
anticipates 2.6 %, and the OECD 1.8 %.
time soon.
Increased domestic demand was the main driver of
Last year’s current account surplus fell to around $50
GDP growth, with all its components contributing
billion, compared to a record-high $240 billion in 2022.
positively. An increasing role for the state in the
Exports declined significantly due to the country’s
economy contributed to public consumption rising by
international economic isolation and the effect of
3.6%—its biggest gain since 1996. Household
sanctions. Exports represented just 23% of GDP last
consumption bounced back strongly from its dip in
year, the lowest share on record.
2022, while fixed-investment growth reportedly climbed
by 10.5%, also supported by public projects. Russia expects to hold presidential elections in March.
Vladimir Putin remains the front-runner and is expected
On the supply side, domestic demand fueled industries
to become president for a sixth term.
linked to the military effort, construction, and retail
sales—output by industry sectors contributing to the The recent death in prison of prominent opposition
military effort last year were up by roughly 35% over leader Alexei Navalny drew international attention. The
2021, while the aggregate of other sectors fell by –0.4%. European Conference of Presidents expressed outrage,
At the same time, last year saw many industries such as demanding an independent investigation into his death.

Source: BOFIT; European Parliament; IHS Markit; Oxford Economics McKinsey & Company 23
 Global Economics Intelligence › Russia report, February 2024

Foreign trade surplus shrank in October; inflationary pressures

persist amid real wages’ continuing fast growth
Headline inflation stabilized, but core indicator continued to accelerate

Foreign trade of goods Inflation: the central bank interest rate and real wages
USD billion, through December 2023 % change (y-o-y); %

55 25

50
20
45

40 15
35
10
30

25 5
20

15 0

10
–5
5

0 –10
Jan 2018 Jan 19 Jan 20 Jan 21 Jan 22 Jan 23 Jan 24 Jan 2018 Jan 19 Jan 20 Jan 21 Jan 22 Jan 23 Jan 24

Exports of goods Inflation CBR interest rate Core inflation Real wages
Imports of goods
Trade balance

Source: Central Bank of the Russian Federation; Federal Statistics Service; Haver Analytics McKinsey & Company 24
 Global Economics Intelligence › Russia heatmap, February 2024

Easing of domestic activity and trade in Q4 amid heightened inflation,

credit expansion; fiscal stance may worsen in 2024 with lower oil prices
Significant improvement Improving No significant change Worsening Severe decline

Domestic activity and trade indicators fell slightly in Q4; inflation remains high; labor market may show first signs of easing
Indicator category Change vs Change vs § Retail sales declined in December by 1.4%. The total decline since April’s peak reached almost 4.5%, despite October’s one-off rebound.
prior month pre-COVID Annual growth in Q4 reached 11% and full-year growth 5.8%. Trade benefited from low-base effects due to the Russia-Ukraine conflict.
levels
§ Industrial production has remained stagnant since April. The purchasing managers’ index for manufacturing declined to 52.6 in January,
Consumer from 54.6 in November (but remains in expansionary territory).
§ December’s trade surplus was stable (versus November) at $9.7 billion. As the Urals oil price fell in the final weeks of last year, the
Industry contraction in goods exports deepened to 28% year-over-year in December from 25.5% in November. Goods imports shrank by 7.5% year-
over-year, and by more than in November (6.4% year-over-year).
Real estate § Headline inflation has stabilized at 7.4% year-on-year in January (7.4% in December). Core inflation climbed further to 7.2% from 6.8%.
Macro- According to Oxford Economics, inflation is expected to drop to one percentage point above the 4% target in December 2024. The median
economic
External sector, trade value of expected consumer inflation exceeded 14%.
§ The labor market shows its first signs of easing. The unemployment rate was close to the historical low at 3% in December, while real
Prices wages grew (7.2% year-on-year in November). Hikes in minimum wages and benefits have further improved purchasing power.
Continued expansion of subsidized credit
Labor market
§ Following the reintroduction of capital controls in October, the ruble appreciated from 100 per US dollar to a relatively stable range
of between 88 and 92; (in February 2022, it traded at 92:1$). Recent tightening of sanctions targeting oil exports increases the
Foreign exchange
likelihood of new bouts of volatility on the FX market.
Equities
§ Government debt yields have risen to around 11.77% since mid-October (as of February 2022).
Financial § Tighter monetary policy has not yet fully translated into a slowdown in credit activity. In December, the loans dynamic remained
markets stable at around 25% year-on-year for corporates and 23% year-on-year for households. Corporate loan subsidies aim to help
Debt
businesses affected by sanctions.
Credit Last year’s budget deficit was higher than target; it is, however, expected to drop in 2024; oil exports continue to shrink
§ Lower global oil prices have translated into a drop in hydrocarbon budget revenues. Preliminary data show that the budget
Public policy deficit in 2023 was equal to 2.3% of GDP.
Government
and policy § Russia’s budget for next year anticipates a 2024 federal deficit of around 1% of GDP. However, oil revenues could be more
Public-sector health modest than officially anticipated, as current sanctions put heavy pressure on Urals—after a dip in December, prices recovered
only slightly in January. Russia has also pledged to OPEC that it would cut oil exports to 500,000 barrels per day in Q1 2024
(with crude down by 300,000 barrels per day) from the May–June 2023 average.
Source: BOFIT; Haver Analytics; Oxford Economics; The Economist Intelligence Unit McKinsey & Company 25
 Global Economics Intelligence › Brazil report, February 2024

Brazil
Brazil’s Central Bank cuts Selic rate by 0.50 The services PMI rose to 53.1 in January from 50.5 in
percentage points for a fifth time; inflation falls for December. Services activity growth in Brazil regained
fourth consecutive month. momentum at the start of 2024, aided by a solid
expansion in new orders at the fastest rate since last
Inflation fell for the fourth consecutive month, down to June. Favorable demand conditions and optimism about
4.51% (4.62% in December)—and close to the upper limit the outlook for business activity over the year ahead has
of the Central Bank’s target inflation range (4.5%). also fueled job creation. The composite PMI rose from
December’s 50.0 to 53.2 in January, to sit comfortably
Taking account of progress in reducing inflation, the within expansion territory for a fourth consecutive month.
Central Bank’s Monetary Policy Committee (Copom)
decided, for the fifth time, to reduce the Selic rate by 0.50 On the financial markets, the monthly average exchange
percentage points, from 11.75% to 11.25% per annum— rate was BRL 4.91 per US dollar in January—compared to
to reach the lowest rate within the last two years. Copom 4.90 in December. The January Bovespa equities index fell,
judges that this reduction is consistent with its strategy for losing 2.2% in value. Meanwhile, the three-month moving
inflation convergence. If the scenario evolves as average unemployment rate slightly declined to 7.4% in
expected, the committee members unanimously December (7.5% in November), its lowest level since 2015.
anticipate further reductions of the same magnitude at
their next meetings. In January, the balance of trade posted a surplus of US
$6.5 billion, with exports totaling US $27.0 billion (US
Consumer confidence fell by 2.9 points to 90.8 in January, $28.8 billion in December) and imports reaching US
from 93.7 in December, remaining below the neutral 100- $20.5 billion (US $19.5 billion in December).
point threshold. Consumer confidence reached its lowest
level since May 2023 but is still 5.0 points higher than This year, the National Confederation of Commerce
January last year. (CNC) estimates that the Carnival will inject BRL 9 billion
(US $1.8 billion) revenues into the economy. The study
Brazil’s purchasing managers’ index (PMI) for considers the impact of the holiday on the real estate
manufacturing increased to 52.8 in January from 48.4 in industry, the lodging and restaurant sector, as well as
December, climbing past the neutral 50.0 mark for the several other tourism and entertainment segments,
first time since August 2023 and reaching its highest level including temporary jobs as tour guides, street vendors,
since July 2022—an encouraging start to 2024, driven by musicians, and performers. Last year’s Carnival
the biggest increase in new work intakes and production surpassed the historical record of visitor spending in
volumes since mid-2022. Job creation strengthened, 2023. Foreign visitors contributed US $6.9 billion to the
while growth in input purchasing was rekindled. Brazilian economy last year—exceeding the amount
spent during the 2014 FIFA World Cup (US $6.8 billion).
McKinsey & Company 26
Source: Haver Analytics; Instituto Brasilièro de Geografia e Estatística (IBGE)
 Global Economics Intelligence › Brazil report, February 2024

In January, inflation fell, while the Brazilian real slightly lost

ground; the equity market faltered
Consumer price index1; exchange rate CPI Bovespa index2
% change y-o-y; average BRL per USD, monthly Exchange rate
Indexed to January 2007 = 100
15.0 300 296
280
260
10.0
240
220
200
5.0
180
160

0 140
120
100
–5.0 80
200708 09 10 11 12 13 14 15 16 17 18 19 20 21 22 232024 2007 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

1. National Consumer Price Index (extended IPCA), 1993 = 100, not seasonally adjusted; % change in CPI in local currency (period average)
over previous year. The Central Bank’s target inflation rate for 2023 was 3.25% and is reduced to 3.0% in 2024, with a margin of error of 1.5
percentage points.
2. Data through February 12, 2024.
Source: Haver Analytics; Instituto Brasilièro de Geografia e Estatística (IBGE); McKinsey’s Global Economics Intelligence analysis McKinsey & Company 27
 Global Economics Intelligence › Brazil heatmap, February 2024

Both services and manufacturing PMIs climbed this month, driven by

increased production and job creation

Significant improvement Improving No significant change Worsening Severe decline

Change vs Unemployment continued its downward trend; both PMIs increased significantly
Change vs pre-COVID • Consumer confidence decreased to 90.8 in January, from 93.7 in December—the lowest level since May 2023 and just above
Indicator category prior month levels1 pre-COVID-19 levels. Business confidence improved to 97.4 in January from 95.3 in December—3.5% below pre-COVID-19
Consumer levels.
• The purchasing managers’ index (PMI) for manufacturing rose to 52.8 in January (48.4 in December). The services PMI
Business, industry increased to 53.1 in January (50.5 in December).
• In January, the balance of trade recorded a surplus of US $6.5 billion, with exports totaling US $27.0 billion (US $28.8 billion in
Real estate December) and imports reaching US $20.5 billion (down from US $19.5 billion in December).
Macroeconomic • Inflation reached 4.51% in January (4.62% in December), down for a fourth consecutive month. The consumer price index (CPI)
Trade, external is 0.3 percentage points above pre-COVID-19 levels.
• The three-month moving average unemployment rate decreased slightly to 7.4% in December (7.5% in November)—which is not
Prices only the lowest level since 2015 but 35% below the pre-COVID-19 rate.
The Brazilian real slightly lost ground against the US dollar; the Bovespa index lost value
Labor market • In January, the monthly average exchange rate was steady at BRL 4.91 per US dollar. On February 13, the exchange rate was
4.95 BRL per US dollar.
Foreign exchange • The Bovespa equities index fell –2.2% over the month (up to February 9); it added +3.1% in value up to January 10.
Brazil is experiencing an outbreak of dengue fever; labor market recovery holds steady
Equity
Financial • Brazil’s Health Ministry warns that it expects more than 4.2 million dengue cases this year, outstripping the 4.1 million cases the
markets Pan-American Health Organization recorded for all 42 countries in the region last year. El Niño and climate change have
Debt significantly amplified the problem recently. Dengue case numbers have already soared in nearby countries such as Argentina,
Uruguay, and Paraguay. In Brazil, state governments are setting up emergency centers to test people for dengue and treat them.
Credit The city of Rio de Janeiro declared a public health emergency over dengue on February 5, days before the start of the annual
celebration of Carnival. Brazil has started an emergency campaign to immunize children in areas with the highest rates or risk of
Public policy dengue transmission, using a two-dose vaccine. Brazil bought 5.2 million doses for delivery this year, plus 9.0 million more for
Government delivery in 2025, and the company donated an additional 1.3 million,
and policy
Public-sector health • Brazil posted its lowest unemployment rate in nearly a decade. The creation of formal jobs was the main factor in reducing the
unemployment rate. The total labor force surpassed the 100 million mark in October, its highest in history and an increase of 3.8% from
2022. The number of workers with a formal contract rose 5.8% over the year.
1 January 2020 is used as reference for pre-COVID-19. McKinsey & Company 28
Source: Banco Central do Brasil; Fundação Getulio Vargas; Haver Analytics; Instituto Brasilièro de Geografia e Estatística (IBGE)