The International Monetary Fund (IMF) has slightly raised its global growth forecast, predicting a 3.2% growth rate in 2024 and 2025. The IMF’s chief economist, Pierre-Olivier Gourinchas, stated that the global economy is resilient despite inflationary pressures and monetary policy shifts. This growth is expected to be driven by advanced economies such as the U.S. and the eurozone, although there are concerns about slower growth in China and other emerging markets. Potential downside risks include China’s weakened economy due to a downturn in its property market, price spikes from geopolitical concerns, and trade tensions.
Central banks are being closely watched for signals on the future path of inflation, with differing opinions on when the Federal Reserve and the European Central Bank will cut rates. The IMF expects global headline inflation to fall from 6.8% in 2023 to 4.5% in 2025, with advanced economies returning to their inflation targets sooner than emerging markets and developing economies. The IMF emphasizes the importance of ensuring a smooth landing for inflation and implementing medium-term fiscal consolidation to ensure debt sustainability.
Despite the positive outlook, global growth remains low compared to historic standards, attributed to weak productivity growth and increasing geopolitical fragmentation. The IMF’s five-year forecast predicts global growth at 3.1%, the lowest level in decades. However, the IMF highlights potential upside risks such as looser fiscal policy, falling inflation, and advancements in artificial intelligence as drivers of growth. It also notes that the global economy is heading for a “soft landing” following a series of economic crises, with risks to the outlook now balanced.
The IMF report raises concerns about dimmer prospects in China and other large emerging economies potentially weighing on global trade partners. Additionally, price spikes from geopolitical concerns, trade tensions, and prolonged high interest rates are highlighted as potential downside risks to the global economy. The report also discusses the importance of maintaining a balanced approach to monetary policy to ensure inflation stays on target and prevent undershoots, while also focusing on medium-term fiscal consolidation for debt sustainability.
In conclusion, the IMF’s slightly raised global growth forecast reflects a more optimistic outlook for the global economy, with growth expected to be led by advanced economies. Despite concerns about slower growth in China and other emerging markets, as well as potential downside risks from geopolitical tensions, the IMF remains cautiously optimistic about the global economic outlook. The report emphasizes the importance of central banks navigating inflation smoothly, implementing fiscal consolidation measures, and balancing policies to support sustainable growth in the long term.
