U.S. Economic Outlook…

The U.S. economy continues to show a strong combination of growth, low unemployment, and easing inflation, supported by improved labor and productivity dynamics. Key expectations include:

A Fed rate cut to 4.25%–4.5% by the end of 2024, with further reductions in 2025 to 3.75%–4%.
GDP growth of 2.3% in 2024, slightly above 2% in 2025.
Core PCE inflation rising to 2.9% by end-2024 before settling at 2.5% by end-2025.
Unemployment rate inching up to the mid-4% range in 2025.

Vanguard Market Projections for Australian Dollar Investors…

Probabilistic return forecasts for 2024:

Australian equities: 4.4%–6.4% (21.8% volatility).
Global equities (unhedged): 4.3%–6.3% (19.2% volatility).
Australian bonds: 4.3%–5.3% (5.6% volatility).
Global bonds (hedged): 4.5%–5.5% (5.0% volatility).

Note: These estimates are hypothetical and sensitive to changing market conditions.

Region-by-Region Economic Forecasts…

Australia
- GDP growth of 2% in 2025 supported by higher household incomes and housing recovery.
- Inflation challenges persist, unlikely to meet the RBA’s 2%–3% target until 2025.
- RBA to cut rates starting mid-2025, with unemployment rising to 4.6%.
United Kingdom
- 2025 GDP growth expected at 1.4% due to fiscal stimulus.
- Core inflation easing to 2.4% but services inflation remains sticky.
- Bank of England likely to cut rates from 4.75% to 3.75% by end-2025.
- Unemployment stabilizing around 4.5%.
Euro Area
- Below-trend GDP growth of 0.5% in 2025 amid manufacturing weakness and restrictive policies.
- ECB to cut rates to 1.75% by end-2025.
- Inflation projected to fall below 2%.
- Unemployment to rise to the high-6% range.
Japan
- GDP growth at 1.2% in 2025 driven by stronger domestic demand.
- Bank of Japan to raise rates to 1%.
- Wage growth and robust domestic consumption to support core inflation at 2%.
China
- GDP growth slowing to 4.5% in 2025 due to structural and external challenges.
- Modest inflation of 1.5%, with the yuan allowed to depreciate.
- Unemployment rate stable around 5%.
Canada
- Subdued GDP growth below 2% in 2025 despite easing monetary policy.
- Core inflation to remain slightly above 2%.
- Bank of Canada to lower rates, with a terminal rate of 2.5%.
- Unemployment to rise to the high-6% range.
Emerging Markets
- Continued easing cycles, with many central banks reducing restrictive policies.
- Brazil faces renewed inflationary pressures, raising its Selic rate to 11.25%.
- Mexico sees moderate growth (1.25%–1.75%), with core inflation falling to 3.25%–3.5%.

______________________________________________

Notes: All investing is subject to risk, including the possible loss of the money you invest.

Investments in bonds are subject to interest rate, credit, and inflation risk.

Investments in stocks and bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. These risks are especially high in emerging markets.

IMPORTANT: The projections and 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 U.S. and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, U.S. 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.

This article contains certain 'forward looking' statements. Forward looking statements, opinions and estimates provided in this article are based on assumptions and contingencies which are subject to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions. Forward-looking statements including projections, indications or guidance on future earnings or financial position and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. There can be no assurance that actual outcomes will not differ materially from these statements. To the full extent permitted by law, Vanguard Investments Australia Ltd (ABN 72 072 881 086 AFSL 227263) and its directors, officers, employees, advisers, agents and intermediaries disclaim any obligation or undertaking to release any updates or revisions to the information to reflect any change in expectations or assumptions.