On January 30th, the International Monetary Fund (IMF) increased its projection for global economic growth this year, citing a “resilient” U.S. economy and ongoing stimulus measures in China as contributing factors.
The latest World Economic Outlook (WEO) report from the institution based in Washington DC projects that the global economy will achieve a growth rate of 3.1% this year, an increase of 0.2 percentage points from the October forecast, and is expected to grow by 3.2% in 2025. According to the IMF’s estimate, the global economy will grow by 3.1% in 2023.
The IMF emphasizes that not only is the U.S. economy more robust than predicted, but also large emerging economies such as Brazil, India, and Russia are achieving better growth results in 2023 than forecasted. Consequently, the global economic outlook for 2023 has improved.
IMF economic experts believe that the likelihood of a hard landing for the global economy – a sharp decline in growth after a period of high levels – has significantly diminished, even though the world faces new risks such as the potential for a surge in commodity prices and supply chain issues related to geopolitical turmoil in the Middle East.
The IMF forecasts a growth rate of 2.1% in 2024 for the U.S. economy; 0.9% for the eurozone and Japan; and 0.6% for the UK economy.
“What we’ve seen in the latter half of 2023 is a very robust global economy, and this is sustained as we move into 2024”, noted IMF Chief Economist Pierre-Olivier Gourinchas in an exchange with CNBC. “It’s a combination of strong demand in certain countries, private consumption, and government spending. But a factor that is also quite important in the current context is the supply factor. The labor market is very strong, supply chain bottlenecks have been loosened, and energy and commodity prices have decreased”, Gourinchas explained about the driving forces behind the improved global economic prospects.
Recent official figures from the U.S. show that the country’s economy achieved an annual growth rate of 3.3% in the fourth quarter of 2023, surpassing the projected 2% growth rate provided by analysts.
Regarding China, facing various challenges in 2023, including weak consumer demand post-pandemic, pressure to reduce inflation, and a prolonged real estate crisis, the Chinese government has implemented several stimulus measures, albeit not as extensive as anticipated by investors but sufficient to make the IMF more optimistic.
The IMF predicts China’s economy will grow by 4.6% this year, up by 0.4 percentage points from the October forecast, and increase by 4.1% in 2025. This represents a deceleration compared to the 5.2% growth China, the world’s second-largest economy, recorded last year.
Despite the improvement in prospects, the projected global economic growth for this year according to the IMF is still lower than the average growth of 3.8% per year that the world achieved from 2000 to 2019. Higher interest rates, governments withdrawing pandemic-era stimulus programs, and continued low productivity growth remain obstacles to global economic growth, according to the IMF report.
However, tightened monetary policies have led to a faster-than-expected decline in inflation in most regions worldwide – a development Gourinchas termed “another good piece of news” in the just-released report. The IMF forecasts global inflation to be at 5.8% this year and decrease to 4.4% in 2025. For developed economies, IMF experts predict a reduction in inflation to 2.6% in 2024 and 2% in 2025.
“The battle against inflation is gaining ground, and the likelihood of a soft landing for the economy has increased. This paves the way for central banks like the U.S. Federal Reserve, the European Central Bank (ECB), and the Bank of England (BOE) to begin easing monetary policies, once we are certain the story is heading in that direction”, Gourinchas said.
“The forecast now is that central banks will wait for more data, they will act meeting by meeting, they will rely on economic data to confirm that trend. That will be the main scenario. And then if it is indeed the case, interest rates will start to be cut from the second half of this year”, noted the IMF Chief Economist.
He added that central banks should not loosen policy too early, but they also face the risk of keeping a tight policy for too long – something that could lead to diminished growth and inflation falling below 2% in developed economies.
By. Pham Thanh Bien
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