Global Soft Landing in Sight, Raises 2024 Economic Growth Outlook
The International Monetary Fund (IMF) recently released an updated economic outlook, signaling a positive development for the global economy. The report forecasts a soft landing and an uplifted growth outlook for 2024. This upgrade comes alongside improved prospects for the two largest economies, the United States and China, citing a faster-than-expected easing of inflation as a contributing factor.
Resilience Amid Slow Growth
According to Pierre-Olivier Gourinchas, the IMF’s chief economist, the global economy has displayed remarkable resilience, with inflation steadily declining and growth remaining steady. Gourinchas indicated that the chance of a soft landing has increased and that a global recession scenario is unlikely. However, he emphasized that the pace of expansion remains slow, and risks such as geopolitical tensions and attacks in the Red Sea could disrupt commodity prices and supply chains.
Factors Driving Positive Forecast
The IMF’s improved outlook is attributed to stronger private and public spending, despite tight monetary conditions. Additionally, factors such as increased labor force participation, mended supply chains, and lower energy and commodity prices have contributed to the positive forecast.
Upgraded Growth Outlook
For 2024, the IMF predicts global growth of 3.1%, a two-tenths percentage point increase from its previous forecast in October. The projection for 2025 remains unchanged at 3.2%. It is important to note that these figures still fall below the historical average of 3.8% for the 2000-2019 period.
Challenges for Global Trade
However, global trade is expected to face challenges, with anticipated expansion of 3.3% in 2024 and 3.6% in 2025. These numbers are significantly lower than the historical average of 4.9%, primarily due to the imposition of numerous trade restrictions.
Inflation and Oil Price Dynamics
In terms of inflation, the IMF maintains its forecast of 5.8% for 2024 but has revised the figure to 4.4% for 2025. These estimates exclude Argentina, where inflation has spiked. Advanced economies are expected to experience an average inflation rate of 2.6% by 2025, while emerging market and developing economies may face higher levels of inflation.The IMF report also highlights a drop in average oil prices, with a projected decline of 2.3% in 2024 and a further 4.8% in 2025. However, potential geopolitical shocks, such as continued attacks on shipping in the Red Sea, could lead to price volatility and prolong tight monetary conditions.
Upgraded US Outlook, Downgraded Euro Area
The United States economy receives a significant upgrade in the IMF’s forecast, with GDP growth projected to reach 2.1% in 2024, compared to the previous forecast of 1.5%. The upgrade is attributed to fiscal support and increased consumer spending. Nonetheless, the IMF has cautioned the US government regarding potential violations of global trade rules related to subsidies and industrial policies.In contrast, the euro area experiences a downgrade, with growth expectations lowered to 0.9% in 2024 and 1.7% in 2025. Germany, the largest economy within the euro area, is expected to see minimal GDP growth of 0.5% in 2024, a decrease from the previous forecast of 0.9%.
China’s Outlook on the Rise
China’s economic prospects receive an upward revision, indicating a GDP growth rate of 4.6% in 2024, an increase of four-tenths of a percentage point from October’s projection. The boost is attributed to significant fiscal support from the government and a less severe-than-expected slowdown in the property sector.
Expectations for Monetary Policy
Looking ahead, the IMF expects central banks such as the US Federal Reserve, the European Central Bank, and the Bank of England to gradually lower interest rates in the second half of 2024, although further progress is necessary.
In conclusion, the updated IMF outlook offers a positive outlook for the global economy, with a soft landing in sight and improved growth prospects. However, risks remain, and it is essential for economies to navigate potential challenges effectively while ensuring compliance with global trade rules.
Source: https://www.reuters.com/world/imf-says-global-soft-landing-sight-raises-2024-economic-growth-outlook-2024-01-30/
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