IMF lifts world GDP outlook on US strength, China fiscal support

WASHINGTON – The International Monetary Fund (IMF) raised its forecast for global growth in 2024 on better-than-expected expansion in the United States and fiscal stimulus in China, while warning of risks from wars and inflation.

The world economy will grow 3.1 per cent in 2024, up from 2.9 per cent seen in October, the Washington-based institution said in its quarterly World Economic Outlook on Jan 30.

The fund kept its 2025 forecast unchanged at 3.2 per cent.

Tighter central bank policy to fight inflation

and public spending cuts in some countries are among the reasons why growth is expected to be slower than in the two decades before the pandemic, when it averaged 3.8 per cent.

Still, given the scale of the Covid-19 price shocks and the interest-rate hikes that followed, the IMF suggested things could have gone much worse.

“The global economy continues to display remarkable resilience, and we are now in the final descent toward a soft landing, with inflation declining steadily and growth holding up,” IMF chief economist Pierre-Olivier Gourinchas said in a briefing. “But the pace of expansion remains on the slow side, and there might be turbulence ahead.”

Downside risks

Among the downside risks cited by the IMF are new commodity price spikes caused by geopolitical shocks and global supply disruptions – such as

attacks by Houthis in the Red Sea

or a widening conflict in the Middle East – or more tenacious inflation that might force central banks to keep interest rates higher for longer.

The IMF’s forecasts assume commodities prices, including fuel, will drop in 2024 and 2025, and that interest rates will ease in major economies.

The fund’s economists factored in, for instance, that the Federal Reserve, European Central Bank and Bank of England will hold interest rates in the first half of 2024 before gradually reducing them as inflation slows.

The IMF said inflation in the fourth quarter cooled more than projected as energy prices eased, and that it expects the deceleration to continue through 2025, bringing global inflation down to 4.4 per cent from 6.8 per cent.

Advanced economies are estimated to see faster disinflation than emerging markets.

The fund repeated its warning about possible fragmentation of global trade into rival blocs, forecasting world trade growth of 3.3 per cent in 2024 and 3.6 per cent in 2025, below the historical average rate of 4.9 per cent.

Nations imposed about 3,000 new trade restrictions in 2023, almost three times the number in 2019, the IMF said.

For central banks, the IMF said the challenge is to normalise monetary policy and “deliver a smooth landing, neither lowering rates prematurely nor delaying such lowering too much”.

The IMF is watching the possibility of

an escalation of conflict in the Middle East

and “we remain vigilant”, Mr Gourinchas said. “At this point, the implications in terms of supply disruptions and what this might imply for overall inflation remains relatively limited.”

Growth for most

For the US, the IMF raised its growth expectation to 2.1 per cent from a previous forecast of 1.5 per cent, based on higher-than-estimated consumer spending at the end of 2023.

That is still a slowdown from 2.5 per cent growth in 2023 due to the delayed impact from the highest Fed rates in two decades, gradual fiscal tightening and a weakening labour market holding back demand.

The euro area’s growth forecast was cut to 0.9 per cent from 1.2 per cent previous, reflecting a weaker-than-expected outcome in 2023, which was due largely to the impact of the Ukraine war.

The IMF expects European consumers to boost spending as the effect of higher energy prices subsides.

China’s growth projection for 2024 was revised up to 4.6 per cent, from 4.2 per cent, reflecting stronger growth in 2023 and

higher government spending to guard against natural disasters

.

India’s economy is expected to be

among the fastest-growing in the world

at 6.5 per cent, up from a prior 6.3 per cent forecast.

Russia is expected to expand 2.6 per cent in 2024, up from an earlier 1.1 per cent estimate, in part reflecting high military spending and private consumption.

Argentina was slashed to a 2.8 per cent contraction in 2024, from the previous estimate of a 2.8 per cent expansion made in October, before the election of President Javier Milei.

The IMF cited a “significant policy adjustment” under his new government, which so far has included eliminating subsidies and price controls, devaluing the currency by more than half and proposing plans to shore up government finances. BLOOMBERG