IMF lifts global growth forecast but signals pessimism over medium term

The IMF has raised its outlook for the global economy this year, while maintaining a gloomy forecast over the medium term, according to fresh data published on Tuesday, March 16.

The International Monetary Fund now expects the world economy to grow by 3.2% this year, up 0.1 percentage point from its previous forecast in January, and by a further 3.2% in 2025, according to the latest World Economic Outlook (WEO) report.

Global headline inflation is expected to ease from 5.9% this year to 4.5% in 2025, supported by elevated interest rates in many countries around the world. “The global economy remains quite resilient, although there are differences in regions and countries,” IMF chief economist Pierre-Olivier Gourinchas told reporters in a call ahead of the WEO’s publication on Tuesday.

“Our baseline scenario is one that is consistent with a global soft landing,” he said, referring to attempts by many central bankers to bring inflation down to target without fueling high unemployment or economic killing growth.

The WEO’s publication comes as global financial leaders are gathering in Washington this week for a series of semi-annual meetings hosted by the IMF and World Bank at their headquarters in Washington. Assistance for the world’s most indebted nations and climate change are at the top of the agenda for those meetings.

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Divergence among advanced economies

The differences among the world’s advanced economies are stark: The IMF now expects growth in the United States to hit 2.7% this year – up 0.6 percentage points from the January forecast — marking an acceleration from the 2.5% growth recorded in 2023.

Growth in the world’s largest economy is then expected to slow to 1.9% in 2025, slightly higher than previously expected.

In contrast, the Euro Area is now expected to grow by just 0.8% in 2024 – down 0.1 percentage point from January and only slightly above last year’s tepid 0.4% growth – before picking up to 1.5% in 2025.

The outlook for the United Kingdom and Canada this year has also been revised lower, while Japan’s 2024 growth forecast was unchanged.

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China unchanged

The picture is also mixed for the world’s emerging market and developing economies. China, the world’s second-largest economy, is still expected to grow by 4.6 percent this year, and by 4.1% in 2025 – unchanged from January.

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The slowdown in growth is largely down to the easing of a “postpandemic boost to consumption and fiscal stimulus,” and the ongoing weakness in the property sector, according to the WEO report.

One of the bright spots this year is India, which the IMF now expects to grow by 6.8% – up 0.3% points from January’s forecast – and by 6.5% in 2025.

Although a full percentage point below India’s growth figure for 2023, the robust growth expected this year reflects the South Asian economy’s “continuing strength in domestic demand and a rising working-age population,” the IMF said.

Russia outlook improved, again

Russia’s growth prospects have been revised sharply higher once more, as it continues to defy expectations of a slump due to its costly ongoing war in Ukraine. The Russian economy is now expected to grow by 3.2% this year, and by 1.8% in 2025, sharply above January’s forecast.

“Their oil export volumes have been holding very steady and in an environment in which oil prices have been quite strong,” Pierre-Olivier Gourinchas said, pointing to exports as a key driver of continued Russian economic strength.

The forecast for Latin America this year is slightly higher at 2.0%, while the outlook for Sub-Saharan Africa is unchanged at 3.8%. The outlook for 2024 growth in the Middle East and Central Asia is slightly lower, at 2.8%, down 0.1 percentage point.

Despite the IMF’s more optimistic overall outlook for this year, the WEO report still finds that medium-term growth is expected to remain “historically weak,” due largely to “persistent structural frictions preventing capital and labor from moving to productive firms.”

It expects growth to hit 3.1% in 2029, well below its pre-pandemic forecast. The IMF report also found that “the pace of convergence toward higher living standards for middle- and lower-income countries has slowed, implying a persistence in global economic disparities.”

Le Monde with AFP