On Tuesday, the International Monetary Fund (IMF) slightly adjusted its global growth forecast, pointing to the surprising strength of the U.S. economy and supportive fiscal measures in China.
The IMF anticipates global growth reaching 3.1% in 2024, an increase of 0.2 percentage points from its previous estimate in October, with a further expansion of 3.2% expected in 2025.
Major emerging economies such as Brazil, India, and Russia have outperformed earlier projections.
Despite concerns over potential economic downturns, often called “hard landings,” the IMF notes a decreased likelihood of such scenarios.
Despite new challenges arising from spikes in commodity prices and disruptions in supply chains due to geopolitical tensions in the Middle East.
The IMF’s growth forecasts for 2024 include 2.1% for the U.S., 0.9% for the eurozone and Japan, and 0.6% for the United Kingdom.
Pierre-Olivier Gourinchas, the IMF’s chief economist, highlighted the global economy’s resilience in the latter half of the previous year, attributing it to robust demand.
Both private and governmental spending, and improved supply dynamics such as strong labor markets and easing supply chain disruptions.
Recent official data showcased the U.S. economy surpassed expectations with a fourth-quarter growth rate of 3.3%.
Meanwhile, China grappled with various challenges over the past year, including a slower-than-expected post-pandemic recovery, deflation concerns, and an ongoing crisis in the property sector.
However, the Chinese government’s implementation of stimulus measures contributed to the IMF’s upward revision.
Despite these positive developments, the IMF’s forecasts still fall short of the global growth average observed between 2000 and 2019, primarily due to higher interest rates, reduced fiscal support, and sluggish productivity growth.
Nevertheless, the IMF report highlights a notable decline in inflation rates, surpassing earlier projections, which Gourinchas views as encouraging.
Global inflation is expected to reach 5.8% in 2024 and 4.4% in 2025, with advanced economies experiencing a more modest increase.
Gourinchas suggests that central banks, including the Federal Reserve and the European Central Bank, may consider easing their policy rates later in the year if economic data supports this trend.
However, Gourinchas cautions against premature policy adjustments, noting the risk of excessively tight policies impeding growth and driving inflation below target levels.
Balancing these factors remains critical for central banks as they navigate the path toward sustained economic recovery.
Source: wp.com