Get set for a soft landing: IMF revises its forecasts for US and China, inflation tipped to fall
The International Monetary Fund has edged its forecast for global economic growth higher, upgrading the outlook for both the United States and China – the world’s two largest economies – and citing faster-than-expected easing of inflation.
The IMF’s chief economist, Pierre-Olivier Gourinchas, said the global lender’s updated World Economic Outlook showed that a “soft landing” was in sight, but overall growth and global trade still remained lower than the historical average.
“The global economy continues to display remarkable resilience, with inflation declining steadily and growth holding up. The chance of a ‘soft landing’ has increased,” Gourinchas told reporters in Johannesburg, adding, “We are very far from a global recession scenario.”
But he cautioned the base of expansion was slow and risks remained, including geopolitical tensions in the Middle East and attacks in the Red Sea that could disrupt commodity prices and supply chains.
Delays in announced fiscal consolidation in what Gourinchas called “the biggest global election year in history” could boost economic activity but might also spur inflation, he added.
The IMF said the improved outlook was supported by stronger private and public spending despite tight monetary conditions, as well as increased labour force participation, mended supply chains and cheaper energy and commodity prices.
You might like
The IMF forecast global growth of 3.1 per cent in 2024, up two-tenths of a percentage point from its October forecast, and said it expected unchanged growth of 3.2 per cent in 2025. The historical average for the 2000-2019 period was 3.8 per cent.
Global trade was expected to expand by 3.3 per cent in 2024 and 3.6 per cent in 2025, well below the historical average of 4.9 per cent, with gains weighed down by thousands of fresh trade restrictions.
The IMF stuck with its October forecast for headline inflation of 5.8 per cent for 2024, but lowered the 2025 forecast to 4.4 per cent from 4.6 per cent in October. Excluding Argentina, which has seen inflation spike, global headline inflation would be lower, Gourinchas said.
Advanced economies should see average inflation of 2.6 per cent, down four-tenths of a percentage point from the October forecast, with inflation set to reach central bank targets of 2 per cent in 2025. By contrast, inflation would average 8.1 per cent in emerging market and developing economies in 2024, before easing to 6 per cent in 2025.
Stay informed, daily
The IMF said average oil prices would drop 2.3 per cent in 2024, versus the 0.7 per cent decline it had predicted in October, and said prices were expected to drop 4.8 per cent in 2025.
The US got one of the biggest upgrades in the January update of the IMF outlook, with its GDP now forecast to expand by 2.1 per cent in 2024 versus the 1.5 per cent forecast in October. Growth was expected to ease to 1.7 per cent in 2025.
The euro area got a downgrade, and was now expected to grow just 0.9 per cent in 2024 and 1.7 per cent in 2025, with the biggest European economy – Germany – expected to see minimal GDP growth of 0.5 per cent in 2024 instead of the 0.9 per cent forecast in October.
China’s GDP was expected to grow by 4.6 per cent in 2024, an upward revision of four-tenths of a percentage point from October, and 4.1 per cent in 2025. Gourinchas said the boost reflected significant fiscal support from the authorities, and a less-severe-than-expected slowdown stemming from the property sector.
The US Federal Reserve, European Central Bank and Bank of England were expected to start lowering interest rates gradually in the second half of 2024, Gourinchas said, adding, “We are not quite there yet.”
The Bank of Japan was expected to maintain low interest rates, and that was “appropriate,” but the IMF had told it to be ready to raise rates if inflation spiked, he said.
Emerging market and developing economies were expected to grow by 4.1 per cent in 2024, with emerging and developing Europe getting an upgrade due to stronger-than-expected growth in Russia on the back of military spending for the war in Ukraine.
Russia’s GDP was expected to grow 2.6 per cent in 2024, 1.5 percentage points more than expected in October, with growth seen easing to 1.1 per cent in 2025. The IMF said there could be further revisions since the numbers were preliminary and there were questions about the extent of Russia’s fiscal stimulus.
Negative growth in Argentina depressed the forecast for the Latin America and Caribbean region, with growth seen dropping to 1.9 per cent in 2024, four-tenths of a percentage point lower than in October. Growth should edge higher to 2.5 per cent in 2025, the IMF said.
