Daily Management Review

IMF Predicts Modest, Steady Global Growth Through 2024; Dangers Include China And Escalating Wars


IMF Predicts Modest, Steady Global Growth Through 2024; Dangers Include China And Escalating Wars
The International Monetary Fund predicted on Tuesday that the world economy would grow slowly but steadily in 2019. The U.S. economy is driving global output despite obstacles like persistently high inflation, poor demand in China and Europe, and the fallout from two regional wars.
The 3.2% real GDP growth rate for 2024 and 2025, which is the same as in 2023, is the updated prediction from the IMF. The U.S. outlook saw a considerable upward adjustment, which was primarily responsible for the 0.1 percentage point increase in the 2024 projection from the January estimate in the World Economic Outlook.
"The global economy continues to display remarkable resilience with growth holding steady and inflation declining, but many challenges still lie ahead," Pierre-Olivier Gourinchas, the IMF's chief economist, told reporters.
He warned that an intensification of the Middle East conflict following Iran's attack on Israel with rockets and drones might have a "strong effect" on slowing down GDP. It would also increase inflation and oil prices, which would force central banks to tighten monetary policy.
U.S. Treasury Secretary Janet Yellen stated on Tuesday that the administration is getting ready to impose more sanctions on Iran in the coming days, which may restrict its capacity to export oil.
The analysis outlined a "adverse scenario" in which a deterioration in the Middle East would result in a 15% rise in oil prices and an approximate 0.7 percentage point increase in global inflation due to increased transportation costs.
According to the IMF's prediction, global median headline inflation will decrease from 4% in the previous year to 2.8% by the end of 2024 and then to 2.4% in 2025.
The IMF increased its estimate of U.S. growth in 2024 by a significant margin to 2.7% from the 2.1% predicted in January due to higher-than-expected consumption and employment. It anticipates that the delayed effects of tighter fiscal and monetary policy will cause the United States to grow by 1.9% in 2025, which was revised up from the 1.7% projection in January.
The president of the European Central Bank, Christine Lagarde, has pointed out the glaring differences between the United States and Europe, where inflation is decreasing more quickly and growth is slower.
This is supported by the most recent IMF projections, which downgraded the growth estimate for the euro zone in 2024 from 0.9% in January to 0.8%, mostly as a result of low consumer confidence in Germany and France. The growth estimate for Britain in 2024 was lowered downward by 0.1 percentage points to 0.5% due to high interest rates and persistently high inflation.
The IMF did not alter its prediction that China's growth will slow down to 4.6% in 2024 from 5.2% in 2023 and then to 4.1% in 2025. However, it issued a warning that the country's struggling real estate sector may continue to decline in demand at home and impair China's outlook if a thorough restructuring programme was not put in place.
A scenario like this might heighten deflationary pressures and result in a spike in low-cost manufactured goods exports, which would encourage trade retaliation by other nations. Yellen forewarned of this possibility earlier this month when she visited China.
But according to Gourinchas, China's better-than-expected first-quarter GDP growth could lead to an upgrade of the prognosis.
The IMF suggested that China support disadvantaged households in order to help revive consumer demand, expedite the departure of unprofitable developers, and encourage the completion of unfinished housing projects.
The global lender did, however, highlight some promising developments in a few significant emerging market nations, improving its growth projections for Brazil and India by 0.3 and 0.5% percentage points, respectively, and 2.2% and 6.8%, respectively, for 2024.
It was mentioned that the Group of 20 major emerging market nations are becoming more integrated into the world trade system and are able to bear a greater share of the growing load in the future.
However, compared to middle-income emerging markets, the IMF stated that low-income developing nations still face difficulties making post-pandemic adjustments and experience higher levels of economic "scarring". The combined growth prediction for these low-income developing nations was lowered from 4.9% in January to 4.7% in 2024.
One of the biggest surprises was the increase in Russia's growth prediction for 2024 from 2.6% to 3.2% in January.
According to the report, the increase was caused in part by higher consumer spending amid a tight labour market, strong government spending and investment related to war production, and higher oil export revenues despite higher global oil prices despite a price-cap mechanism imposed by Western countries. Additionally, the IMF raised its estimate of Russia's growth in 2025 from 1.1% in January to 1.8%.
It is predicted that Ukraine's growth, which is heavily reliant on Western economic assistance, will slow to 3.2% in 2024 and pick up speed to 6.5% in 2025.
Following Russia's invasion of Ukraine in 2022, the early price hikes for cereals, oil, and other commodities have decreased, but they could intensify if the battle widens.