Global Economy to Experience Modest Growth Amidst Multiple Risks
The global economy is expected to experience modest growth over the next two years, driven by a slowdown in US activity, stabilization in Europe, and a boost in Chinese consumption and exports. However, this growth trajectory is threatened by multiple risks, warned the International Monetary Fund (IMF) on Tuesday.
In its updated World Economic Outlook, the multilateral financial institution cautioned that the fight against inflation is slowing, which could delay interest rate easing and maintain strong dollar pressure on developing economies.
The IMF's global real GDP growth forecasts for 2024 remain unchanged at 3.2%, while its expectations for 2025 have been revised upward by 10 basis points to 3.3%. However, the revised outlook reflects changes in major economies, with the US growth forecast for 2024 reduced by 10 basis points to 2.6%, reflecting slower-than-expected consumption in the first quarter. No changes were made to the 2025 forecast, with expectations remaining at 1.9%. This slowdown is attributed to a cooling labor market and moderation in spending in response to restrictive monetary policy.
The IMF significantly raised its growth forecasts for China to 5.0%, in line with the Chinese government's target for the year, up from 4.6% announced in April. A rebound in private consumption and strong exports in the first quarter 2024 contributed to this upward revision. The IMF also raised its growth forecasts for China in 2025 to 4.5%, up from 4.1% in April. However, China's momentum may slow, as Beijing announced on Monday a GDP growth rate of only 4.7% in the second quarter, significantly below expectations, due to weak consumption spending amidst a prolonged slowdown in the real estate sector.
Regarding the eurozone, the IMF slightly raised its growth forecasts for 2024 by 10 basis points to 0.9%, leaving estimates for 2025 unchanged at 1.5%. The region has "hit bottom" and experienced stronger service sector growth in the first half, while real wage increases will contribute to consumption growth next year, and monetary policy easing will support investment, said the financial institution.
As for Japan, its 2024 growth is expected to be 0.7% (0.9% expected in April). The decline is partly due to supply chain disruptions caused by the closure of a major auto plant and weak private investment in the first quarter.
The IMF warned against uncontrolled inflation, which could keep interest rates high for an extended period, increasing external, budgetary, and financial risks.
Potential changes in economic policy following numerous elections this year are another source of concern. "These potential changes pose risks of fiscal waste, which will worsen debt dynamics, negatively affecting long-term yields, and reinforcing protectionism," said the Fund.
The IMF's primary recommendation to policymakers is to persevere in restoring price stability, gradually easing monetary policy, rebuilding budget reserves depleted during the pandemic, and pursuing policies that promote trade and increase productivity.
