The global economy is showing surprising strength in the face of political crises, the International Monetary Fund said, in an update to its World Economic Outlook released Tuesday.
With inflation coming down and growth steady, “the likelihood of a hard landing has receded,” the report said.
It was just as likely that the global economy would outperform expectations as it was that the economy could stumble, the IMF said. That’s a remarkable shift coming out of the COVID-19 pandemic.
Under its baseline forecast, the IMF expects the global economy will grow at a 3.1% this year, the same rate as last year. That’s an upward revision for 2024 of 0.2 percentage points. Growth will pick up to a 3.2% rate in 2025, the agency estimated.
This is below the historical annual average of a 3.8% global growth rate.
The IMF sees a soft landing for the U.S. economy, with growth slowing to a 2.1% annual rate in 2024 from 2.5% last year. That’s an upward revision of 0.6 percentage points. Growth in the U.S. will slow further to a 1.7% rate in 2025.
The main reason the IMF expects a soft landing in the U.S. is that the decline of inflation is being helped by supply-chain factors and the Federal Reserve “did not have to do the whole job” of bringing inflation down by rapidly raising interest rates, said Tobias Adrian, head of the IMF’s monetary and capital markets department, told MarketWatch in an interview.
In contrast, the euro area is expected to struggle, with growth at a paltry 0.9% this year — a decline of 0.3 percentage points.
China’s economy will grow at a 4.6% rate this year, down from a 5.2% rate last year.
Global headline inflation is expected to fall from an estimated annual average of 6.8% in 2023 to 5.8% in 2024 and 4.4% in 2025.
Advanced economies will see faster progress on inflation, with growth slowing to 2.6% this year.
About 80% of the world’s economies expect lower headline and core inflation this year.
The IMF staff estimated that interest rates would remain at current levels for the Federal Reserve, the European Central Bank and the Bank of England until the second half of 2024.
“When can we anticipate that central banks might start cutting interest rates? What we are saying is we are almost there, but not quite there yet,” said Pierre Olivier-Gourinchas, the IMF’s chief economist, at a press conference following the release of the report.
The Bank of Japan is expected to “maintain an overall accommodative stance.” The bank’s communication has been very careful and very clear so the market has adjusted to the BOJ changes, Adrian said. He said he expected this trend to continue.
Exposure of the banking system to commercial real estate is still a concern as tepid demand in some economies and higher borrowing costs increase risks of default among commercial-real-estate borrowers.
Global trade is projected to grow at 3.3% rate in 2024, below its historical average rate of 4.9%.
“We are seeing globalization plateauing,” said Gourinchas.
Countries around the world are taking “trade distorting measures,” he said. Roughly 3,000 of these protectionist measures were taken in 2023, triple the number taken in 2019, he noted.
Read the full article here
