Finance & Economics

IMF Lifts World Economic Outlook

The International Monetary Fund (IMF) has improved its forecast for global economic growth in 2024.

IMF Lifts World Economic Outlook

The mentioned organization has made adjustments to its vision of the situation in the sphere of the economy in the current year, taking into account circumstances such as expansion in the United States, which turned out to be more scaled than initially expected, and fiscal incentives in China. At the same time, IMF experts drew attention to the existence of risks. In this case, threats to global economic growth such as armed conflicts and inflation are implied. The relevance of these risks has not weakened compared to last year. The state of affairs in the area of geopolitical relations does not contain signs of an imminent stabilization of the situation in the space of world politics.

The IMF predicts that the global economy will show growth of 3.1% over the current year. Back in October, experts from this Washington-based organization expected positive dynamics at around 2.9%. The IMF has maintained its previous forecast for 2025. The organization expects global economic growth to reach 3.2% next year. The corresponding forecast is contained in the quarterly outlook of the global economic system, which the IMF released on Tuesday, January 30.

The fund calls the main reasons for the slowdown in global growth the tightening of the policy of central banks as part of measures to combat the inflationary process and a decrease in government spending in some countries. During the two decades before the coronavirus pandemic, which limited production processes and caused disruptions in the functioning of supply chains, the global economy showed an average growth of 3.8%.

The IMF, given the significant scale of price shocks caused by COVID-19 and the subsequent implementation of the policy of raising interest rates by financial regulators, argues that the current configuration of economic reality could have been much worse.

At a briefing, Pierre-Olivier Gourinchas, chief economist of the fund, said that the global economy is showing remarkable resilience. In his opinion, the current moment is the final stage of the transition to a soft landing. Pierre-Olivier Gourinchas also noted that inflation shows a downward trend, against which the preservation of economic growth is recorded. At the same time, he said that the pace of expansion continues to be slow, warning of the possibility of turbulence in the future.

The IMF notes that in the foreseeable future, it is possible to implement such threats to global economic growth as new commodity price spikes caused by geopolitical shocks and supply disruptions. In this context, the sensitive factor of the current configuration of historical reality is the Houthi attacks on vessels in the Red Sea and the risk of a scaling of military conflict in the Middle East.

Moreover, the IMF warns of the threat that inflation may be more long-lasting than expected. If the corresponding scenario is implemented in the global economic space, central banks will be forced to continue the policy of high-interest rates.

The IMF experts’ basic vision of the development of the situation in the world provides that in 2024 and 2025 the commodities prices, including fuel, will decrease. The fund also predicts the beginning of the implementation of the policy of reducing interest rates by central banks this year. The IMF expects that in the first half of 2024, there will be no changes toward easing in the monetary policy of the Federal Reserve System, the European Central Bank, and the Bank of England. Interest rates will decrease as inflation slows down.

The IMF said that the increase in the cost of goods and services in the fourth quarter of last year demonstrated a dynamic of the decline that exceeded initial expectations. This result is due to lower energy prices. The IMF expects that the mentioned vector of the dynamic of inflation will continue in 2025. If this forecast is confirmed by reality, the level of global inflation will decrease from 6.8% to 4.4%.

In advanced economies, disinflation is showing higher rates than the intensity of this process in emerging markets.

The IMF warns of the possibility of dividing the world trade system into competing blocs. The Fund predicts that global trade will grow by 3.3% in the current year. In 2025, the corresponding indicator is expected to increase by 3.6%, which is lower than the historical average figure of 4.9%.

IMF data shows that last year, the world’s countries imposed about 3,000 new trade restrictions, which is almost three times more than in 2019.

The fund stated that the task of central banks at the moment is to normalize monetary policy and ensure a smooth landing, without lowering interest rates prematurely and without delaying this decision for too long.

Pierre-Olivier Gourinchas said that the IMF is monitoring the risk of an escalation of military conflict in the Middle East and remains vigilant about the likelihood of this scenario. According to him, the current impact of the situation in this region on supply processes and overall inflation is relatively limited.

The IMF predicts that the United States economy will show growth of 2.1% this year. The fund’s previous expectations provided for an increase in the corresponding indicator by 1.5%. The outlook for the prospects of the American economic system improved against the background of an increase in consumer spending, the volume of which exceeded the rates that experts considered the most likely. The positive dynamic was recorded at the end of 2023.

In the United States, there is still a slowdown from 2.5% growth last year due to the delayed impact of the Fed’s highest interest rate level in the last two decades, a weakening labor market, and a gradual tightening of fiscal policy.

At the same time, the IMF lowered its forecast for the euro area economy increase to 0.9% from 1.2%. This change in outlook is because the European economic system for 2023 showed results that turned out to be weaker than initial expectations. The IMF predicts that local consumers will begin to increase their spending against the background of a decrease in the scale of the effect of increasing energy costs.

The fund expects China’s economy to grow by 4.6% in 2024. The previous version of the forecast provided for an increase in this indicator by 4.2%. The change in expectations regarding the Chinese economy is a reflection of the fact that the performance of this system turned out to be better than preliminary estimates. Also, the reason for stronger optimism was the increase in government spending on protection from natural disasters.

According to the IMF, India will become one of the fastest-growing economies in the world. The Fund forecasts economic growth in this country in 2024 at the level of 6.5%. The IMF’s previous expectations were for an increase of 6.3%.

As we have reported earlier, IMF Says About AI Impact on Labor Market.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.