The International Monetary Fund raised its forecast for global growth this year on better-than-expected expansion in the US and fiscal stimulus in China, while warning of risks from wars and inflation.
The world economy will grow 3.1% this year, up from 2.9% seen in October, the Washington-based institution said in its quarterly World Economic Outlook on Tuesday. The fund kept its 2025 forecast unchanged at 3.2%.
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%. 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.”
Economic Output in 2024 | Change in gross domestic product (YoY)
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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 this year and next, 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 this year before gradually reducing them as inflation slows.
The IMF said that 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% from 6.8%. Advanced economies are estimated to see faster disinflation than emerging markets.
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The fund repeated its warning about possible fragmentation of global trade into rival blocs, forecasting world trade growth of 3.3% in 2024 and 3.6% in 2025, below the historical average rate of 4.9%. Nations imposed about 3,000 new trade restrictions last year, almost three times the number in 2019, the IMF said.
IMF Growth Projections |
For central banks, the IMF said that the challenge is to normalize 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,” Gourinchas said. “At this point, the implications in terms of supply disruptions and what this might imply for overall inflation remains relatively limited.”
Inflation Is Set to Slow a Bit More Than Previously Expected |
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For the US, the IMF raised its growth expectation to 2.1% from a previous forecast of 1.5%, based on higher-than-estimated consumer spending at the end of last year. That still a slowdown from 2.5% 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% from 1.2% 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 this year was revised up to 4.6%, from 4.2%, reflecting stronger growth last year 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%, up from a prior 6.3% forecast.
Russia is expected to expand 2.6% this year, up from an earlier 1.1% estimate, in part reflecting high military spending and private consumption.
Argentina was slashed to a 2.8% contraction this year, from the previous estimate of a 2.8% 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.
