The global economy is set for another year of slow but steady growth, the International Monetary Fund said on Tuesday, with U.S. strength pushing world output through headwinds from lingering high inflation, weak demand in China and Europe, and spillovers from two regional wars.
The IMF forecasts global real GDP growth of 3.2% for 2024 and 2025 - the same rate as in 2023. The 2024 forecast was revised upward by 0.1 percentage point from the previous World Economic Outlook estimate in January, largely due to a significant upward revision in the U.S. outlook.
"We find that the global economy remains quite resilient," Pierre-Olivier Gourinchas, the IMF's chief economist, told reporters, adding that many countries have defied gloomy predictions of recession as central banks hiked interest rates to fight inflation.
Many countries also are showing less "scarring" from the COVID-19 pandemic and cost-of-living crises, returning to pre-pandemic levels of output more quickly than previously predicted, the IMF said in its report.
Inflation is falling, but progress in bringing it back to central bank targets has slowed in recent months, Gourinchas said, noting that recent U.S. data shows robust demand.
"The general trajectory still remains one where we expect inflation to come down over the year and put the Federal Reserve in a position where it will be able to start easing the policy rates," he told Reuters. "Maybe not as quickly as what the markets had expected."
The IMF forecast 2024 U.S. growth of 2.7% compared to the 2.1% projected in January, on stronger-than-expected employment and consumer spending at the end of 2023 and into 2024. It expects the delayed effect of tighter monetary and fiscal policy to slow U.S. growth to 1.9% in 2025, though that also was an upward revision from the 1.7% estimate in January.
But the latest IMF forecasts showed stark divergences with other countries, including in the euro zone, where the 2024 growth forecast was revised downward to 0.8% from 0.9% in January, primarily due to weak consumer sentiment in Germany and France. Britain's 2024 growth forecast also was revised down by 0.1 percentage points to 0.5% as the country struggles with high-interest rates and stubbornly high inflation.
CHINA PROPERTY WOES
The IMF left unchanged its forecast for China's 2024 growth to fall to 4.6% from 5.2% in 2023, with a further drop to 4.1% for 2025. But it warned that the lack of a comprehensive restructuring package for the country's troubled property sector could prolong a downturn in domestic demand and worsen China's outlook.
Such a situation could also intensify deflationary pressures in China's economy, leading to a surge in cheap exports of manufactured goods that could stoke trade retaliation by other countries - a scenario that U.S. Treasury Secretary Janet Yellen warned about during a trip to China earlier this month.
The IMF recommended that China accelerate the exit of non-viable developers and promote the completion of unfinished housing projects while supporting vulnerable households to help restore consumer demand.
But the global lender noted bright spots in some other big emerging market countries, raising its growth forecast for Brazil's economy in 2024 by half a percentage point to 2.2% and increasing the forecast for India's economic growth by 0.3 percentage points to 6.8%.
It noted that the Group of 20 large emerging market countries is now playing a bigger role in the global trading system and can shoulder more of the growth burden going forward.
However, the IMF said low-income developing countries continue to struggle with post-pandemic adjustments and greater levels of economic "scarring" than middle-income emerging markets. As a group, these low-income developing countries saw their 2024 growth forecast cut to 4.7% from an estimate of 4.9% in January.
RUSSIAN RESILIENCE
In one of the biggest surprises, Russia's 2024 growth forecast increased to 3.2% from the 2.6% projected in January. The report attributed the increase partly to continued strong oil export revenues amid higher global oil prices despite a price-cap mechanism imposed by Western countries, as well as strong government spending and investment related to war production, along with higher consumer spending in a tight labor market. The IMF also upgraded Russia's 2025 growth forecast to 1.8% from 1.1% in January.
Ukraine's growth, which is highly dependent on economic aid from the West, is forecast to slow to 3.2% in 2024 and accelerate to 6.5% in 2025.
While initial price spikes for grains, oil, and other commodities have faded since Russia's 2022 invasion of Ukraine, a widening of the conflict could cause them to intensify.
Similarly, in the Middle East conflict, the trade disruptions and higher costs for ships avoiding Red Sea attacks have been on a "moderate scale," Gourinchas said, adding: "We are concerned about potential escalation."