Key points

  • US economic resilience has led Vanguard to revise up 2024 GDP expectations and we think rate cuts may not come in 2024.
  • Early signs suggest the euro area economy bottomed in the fourth quarter of 2023.
  • Vanguard has lowered its 2024 UK growth expectations.
  • China’s 5% 2024 GDP target may be too ambitious as initial data point to an uneven recovery.  

Central banks across key developed markets kept interest rates on hold in March – for different reasons—as policymakers seek to steer their respective economies towards their inflation targets.

For a deeper-dive on the US economy’s resilience, read this blog from Vanguard’s chief economist, Americas, and head of portfolio construction, Roger Aliaga-Diaz.

United States

Despite the Federal Reserve’s (Fed’s) best efforts to cool the US economy by keeping interest rates elevated, the story of US economic resilience persists. In response, we revised our full-year economic growth forecasts and now believe the Fed will move cautiously toward its first rate cut and may not cut rates at all in 2024.

In its March meeting, the Fed left its federal funds rate target unchanged in a range of 5.25%–5.5% following higher-than-expected inflation readings this year. The US central bank also increased its forecasts for real GDP growth and inflation, similar to Vanguard’s recent forecast revisions.

US GDP increased at an annualised rate of 3.2% in the fourth quarter of 2023, down from 4.9% annualised growth in the third quarter. For full-year 2023, US GDP grew by 2.5% on an average annual basis, higher than the 1.9% increase registered in 2022. Vanguard expects US economic growth of around 2% in 2024, higher than our initial growth estimate of around 0.5%.

Core inflation, which excludes volatile food and energy prices, edged down to 2.8% in the 12 months to January from 2.9% in December, according to the Fed’s preferred gauge for policy setting—the Personal Consumption Expenditures (PCE). While inflation is trending down towards the Fed’s 2% target, we continue to believe that sticky services inflation will take time to unwind. Vanguard has increased its 2024 full-year forecast for core US PCE inflation from 2.3% to 2.6%.

The unemployment rate rose to 3.9% in February, up from 3.7% in January, despite the creation of 275,000 jobs during the month. We expect labour market supply and job growth to continue through most of 2024 with a year-end unemployment rate forecast of around 4%.

Euro area

The euro area’s economy is showing tentative signs that it bottomed in the fourth quarter of 2023. Activity picked up slightly in the first quarter of 2024 as real incomes rose with falling inflation and financial conditions loosened.

Euro area GDP held steady in the fourth quarter of 2023 having contracted by 0.1% the prior quarter. That means the euro area avoided a technical recession (defined as two consecutive quarters of economic contraction.) We continue to expect 2024 growth to come in at a below-trend range of 0.5%–1% amid still-restrictive monetary and fiscal policy and the lingering effects of Europe’s energy crisis on industry.

The European Central Bank (ECB) held its deposit facility rate steady at 4% in March. ECB president Christine Lagarde suggested that an initial rate cut could come in June, in-line with our expectations, and Vanguard foresees 25-basis-point cuts at each of the ECB’s final five 2024 policy meetings. We recently trimmed our year-end ECB rate forecast from 3.25% to a range of 2.5%–3%. The ECB reduced its own staff forecasts for core inflation to 2.6% in 2024, 2.1% in 2025 and 2% in 2026.

Headline inflation moderated to 2.6% in the 12 months to February, down from 2.8% in January. However, prices rose month-on-monthby 0.6%, higher than a 0.4% monthly rise in January. Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, decelerated to 3.1% in the 12 months to February from 3.3% in January. Core prices rose by 0.7% on a monthly basis. We expect headline inflation to fall to 2% by September 2024 and core inflation to reach that target by December.

The unemployment rate fell to 6.4% in February from 6.5% in January. We believe the labour market is softer than the unemployment rate would suggest and have downgraded our 2024 year-end unemployment rate forecast to 6.5% from a range of 7%-7.5%. 

United Kingdom

Having fallen into recession in late 2023, we anticipate a lower growth trajectory for the UK economy in 2024 and reduced our 2024 full-year GDP growth forecast to 0.3% from a range of 0.5%–1%.

UK GDP contracted by 0.3% in the fourth quarter of 2023, a second consecutive quarter of contraction, having decreased by 0.1% in the third quarter. Monthly figures suggest the recession could be short, however, as GDP grew by 0.2% in January compared with December, driven by a 0.2% increase in services output.

The Bank of England (BOE) held the bank rate steady at 5.25% for a fifth consecutive meeting in March. The UK central bank indicated rate cuts are not dependent on inflation hitting the bank’s 2% target and that evidence of progress in bringing inflation down, in conjunction with slowing wage growth and a loosening labour market, could support a decision to cut rates. In our base case, we expect a first policy rate cut in August, and a total of 100 basis points—or 1 percentage point—of cuts in 2024. (A basis point is one-hundredth of a percentage point.)

Headline inflation registered 3.4% in the 12 months to February—a slower pace of increase than January’s 4.0% gain and the smallest annual gain since September 2021. Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, rose by 4.5% in the 12 months to February, less than January’s 5.1% pace. A reduction in the maximum price that energy suppliers can charge for a unit of energy should support falling headline inflation. We foresee headline inflation falling to just below 2% and core inflation falling to around 2.6% by the end of 2024.

The unemployment rate rose to 3.9% in the November 2023–February 2024 period, marginally higher than in the preceding rolling three-month period. As with the euro area, we believe the UK labour market is softer than the unemployment rate would suggest. As such, we’ve lowered our year-end 2024 UK unemployment rate forecast from a range of 4.5%–5% to a range of 4%–4.5%.


A supply-demand imbalance is just one factor that will make it difficult for China to reach its 5% growth target for 2024—a target the government announced at the National People’s Congress in early March.

Vanguard believes that meeting the target will require more decisive and timely policy stimulus, given persistent economic challenges stemming from an extended property downturn. The 5.2% GDP growth achieved in 2023 came on the heels of subdued activity in a 2022 marked by lengthy Covid-19 lockdowns. Achieving the 5% target in 2024 will be more difficult because base effects, or comparisons to year-earlier numbers, are higher this year.

The government also set 3% inflation and 5.5% unemployment targets for 2024. Consumer prices rose in the 12 months to February by 0.7% compared with January and on a month-on-month basis. We don’t believe that February’s higher prices spell the end for China’s recent dip into deflation. Rather, we attribute the higher prices in February to easy year-earlier comparisons. Lunar New Year holidays occurred in February this year; in 2023, they occurred in January.

We’ve lowered our forecast for 2024 full-year core inflation to 1% from a range of 1%–1.5%, and for headline inflation to below 1% from a range of 1.5%–2%, well below the central bank’s 3% inflation target.

The People’s Bank of China (PBOC) lowered a key consumer lending rate in a move Vanguard sees as intended to spur housing demand. The benchmark five-year loan prime rate was cut from 4.2% to 3.95% in February, representing the greatest cut since the mortgage-linked loan rate’s introduction in 2019. The bank left its one-year, medium-term lending facility policy rate unchanged at 2.5%. To mitigate deflationary pressure, we expect the PBOC to ease its policy rate from 2.5% to 2.2% in 2024 and to cut banks’ reserve requirement ratios.

The points above represent the house view of the Vanguard Investment Strategy Group’s (ISG’s) global economics and markets team as at 22 March 2024.

Asset-class return outlook

Vanguard has updated its 10-year annualised outlooks for broad asset class returns through the most recent running of the Vanguard Capital Markets Model® (VCMM), based on data as at 31 December 2023.

Our 10-year annualised nominal return projections, expressed for local investors in local currencies, are as follows1.

1 The figures are based on a 2-point range around the 50th percentile of the distribution of return outcomes for equities and a 1-point range around the 50th percentile for fixed income. Numbers in parentheses reflect median volatility.


image of people on stands

Vanguard economic and market outlook 2024

Our economists share their views on what lies ahead for global markets in 2024.

image of people on stands

IMPORTANT: The projections or other information generated by the Vanguard Capital Markets Model® regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. VCMM results will vary with each use and over time. The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.

The Vanguard Capital Markets Model® is a proprietary financial simulation tool developed and maintained by Vanguard’s primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include US and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, US money markets, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over several time horizons. Forecasts are obtained by computing measures of central tendency in these simulations. Results produced by the tool will vary with each use and over time.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Important information

For professional investors only (as defined under the MiFID II Directive) investing for their own account (including management companies (fund of funds) and professional clients investing on behalf of their discretionary clients). In Switzerland for professional investors only. Not to be distributed to the public.

The information contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.

The information contained in this document is for educational purposes only and is not a recommendation or solicitation to buy or sell investments.

Issued in EEA by Vanguard Group (Ireland) Limited which is regulated in Ireland by the Central Bank of Ireland.

Issued in Switzerland by Vanguard Investments Switzerland GmbH.

Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.

© 2024 Vanguard Group (Ireland) Limited. All rights reserved.

© 2024 Vanguard Investments Switzerland GmbH. All rights reserved.

© 2024 Vanguard Asset Management, Limited. All rights reserved.