The International Monetary Fund held its global growth expectations for 2024 steady in a report on Tuesday while warning of inflation risks and trade tensions ahead.
The IMF cut forecasts for the United States and Japan in 2024, and upgraded its economic outlook for China, India, and Europe. The fund now expects the world economy to grow a lacklustre 3.2 per cent this year and 3.3 per cent in 2025, unchanged from its previous forecast in April.
According to IMF’s World Economic Outlook update, worldwide progress against accelerating prices has been slowed by stickier-than-expected inflation for services, from airline travel to restaurant meals.
“Global growth remains steady,” Pierre-Olivier Gourinchas, the IMF’s chief economist, said at a media briefing. Still, the world economy’s expansion remains unimpressive by recent historical standards. From 2000 through 2019, before the pandemic upended economic activity, global growth had averaged 3.8 per cent a year.
The IMF, a 190-nation lending organisation, works to promote economic growth and financial stability and reduce global poverty.
Gourinchas estimated that China and India would account for nearly half of global growth this year. Partly because of a surge in Chinese exports at the start of 2024, the IMF upgraded its growth forecast for China this year to 5.0 per cent from the 4.6 per cent it had projected in April, though down from 5.2 per cent in 2023. The IMF forecast was posted before Beijing reported on Monday that the Chinese economy, the world’s second-largest after the United States, had grown at a slower-than-expected 4.7 per cent annual rate from April through June, down from 5.3 per cent in the first three months of the year.
China’s economy, which once regularly grew at a double-digit annual pace, is facing significant challenges, notably the collapse of its housing market and an ageing population that is leaving the country with labor shortages. By 2029, Gourinchas wrote, China’s growth will slow to 3.3 per cent.
India’s economy is now forecast to expand 7.0 per cent, up from the 6.8 per cent the IMF had projected in April, in part because of stronger consumer spending in rural areas.
The IMF said that the “shoots of recovery materialised in Europe,” which had been battered by high energy prices and other economic damage from Russia’s 2022 attack on Ukraine. Citing a rise in Europe’s services businesses, IMF raised its 2024 growth forecast for the 20 countries that share the euro currency by a tenth of a percentage point from its April forecast, to 0.9 per cent. In 2023, the eurozone grew 0.5 per cent.
But a weak first quarter in the United States led the IMF to downgrade its forecast for U.S. growth this year to 2.6 per cent from the 2.7 per cent it had predicted in April.
Likewise, the IMF lowered its outlook for 2024 growth in Japan to 0.7 per cent from the 0.9 per cent it had envisioned in April and from 1.9 per cent in 2023. Japan’s first-quarter growth was disrupted by the shutdown of a major automobile plant, the IMF said.
After surging to 8.7 per cent in 2022 as the global economy rapidly recovered from the pandemic recession, worldwide inflation is expected to continue easing — from 6.7 per cent in 2023 to 5.9 per cent this year and 4.4 per cent in 2025.
But progress is slowing, the IMF said, because services inflation has proved persistently difficult to tame. The fund warned that some central banks may keep interest rates higher for longer than anticipated, until they’re convinced that inflation is firmly under control. Higher-than-expected borrowing costs could weaken global growth as a result.
“The good news is that as headline shocks receded, inflation came down without a recession,’’ Gourinchas wrote in a blog post that accompanied the report. The bad news, he said, is that it still isn’t back to pre-pandemic levels.