IMF Says Global Recovery Steady But Slow

(RTTNews) - The International Monetary Fund said on Tuesday that a resilient global economy is set for steady growth in the next two years as inflation returns to target gradually, but the growth will be uneven amid persistent risks. Global growth is set to remain at 3.2 percent this year and next, the same as in 2023, the IMF said in its latest World Economic Outlook.

The forecast for this year was raised by a percentage point from January, while the outlook for next year was retained.

The latest forecast for global growth five years from now--at 3.1 percent--is at its lowest in decades, the IMF said.

Risks to the global economic outlook are now broadly balanced, the WEO report said.

Among other risks, the IMF warned that a significant deterioration in the property sector crisis in China could have implications for the country's trading partners.

Headline inflation is projected to fall from 6.8 percent last year to 5.9 percent this year, revised up by 0.1 percentage point, and 4.5 percent next year.

Core inflation is expected to fall by 1.2 percentage points this year after contracting by just 0.2 percentage point in 2023. "Most indicators continue to point to a soft landing," IMF Economic Counsellor Pierre-Olivier Gourinchas said.

The US economy has already surged past its prepandemic trend, the IMF said, which now estimates more scarring for low-income developing countries, many of which are still struggling to turn the page from the pandemic and cost-of-living crises.

"While inflation trends are encouraging, we are not there yet," Gourinchas said.

The IMF economist expressed concern over the stalling of progress toward inflation targets since the beginning of the year.

"This could be a temporary setback, but there are reasons to remain vigilant," Gourinchas said.

The IMF expects policy rates of central banks in major advanced economies to start declining in the second half of 2024 as inflation is projected to continue declining toward targets and longer-term inflation expectations are likely to remain anchored.

The Federal Reserve's policy rate is expected to have declined from its current level of about 5.4 percent to 4.6 percent by the fourth quarter of this year, the WEO report said.

The Bank of England is projected to cut its policy rate from about 5.3 percent to 4.8 percent, and the European Central Bank is forecast to lower its short-term rate from about 4.0 percent to 3.3 percent. The IMF expects interest rates in Japan to rise gradually, thanks to increasing confidence that inflation will sustainably converge to target over the medium term despite the country's history of deflation.

Advaced economies' growth is projected to rise from 1.6 percent last year to 1.7 percent this year and 1.8 percent in 2025. The projection for this year was upgraded by 0.2 percentage points to reflect a revision to US growth, while an upward revision to the US broadly offsets a similar downward revision to the euro area in 2025.

U.S. growth is projected to increase to 2.7 percent this year, before slowing to 1.9 percent in 2025, as gradual fiscal tightening and a softening in labor markets slow aggregate demand, the IMF said. The upward revision of 0.6 percentage point in the projection for this year was largely due to statistical carryover effects from a stronger-than-expected growth outcome in the fourth quarter of 2023. Some of the stronger momentum expected to persist into 2024, the report said.

Eurozone growth is projected to double from an estimated 0.4 percent in 2023, which reflected relatively high exposure to the war in Ukraine, to 0.8 percent this year, and rise further to 1.5 percent in 2025. The euro area recovery is expected to be driven by stronger household consumption, as the effects of the shock to energy prices subside and a fall in inflation supports growth in real income. Among the euro economies, Germany had its growth projections for this year and next revised down by 0.3 percentage point due to feeble consumer confidence. However, this downgrade is largely offset by upgrades for several smaller economies such as Belgium and Portugal. Growth in the United Kingdom is forecast to improve from 0.1 percent last year to 0.5 percent this year, as the lagged negative effects of high energy prices wane, further to 1.5 percent in 2025, as disinflation allows financial conditions to ease and real incomes to recover. Japan's growth rate is projected to slow from an estimated 1.9 percent last year to 0.9 percent in 2024 and 1 percent in 2025, owing to fading of one-off factors that supported growth in 2023, including a surge in inbound tourism.

The growth forecast for emerging and developing Asia were revised up to 5.2 percent this year and 4.9 percent in 2025 versus 5.6 percent last year.

China's growth is forecast to slow from 5.2 percent last year to 4.6 percent this year and 4.1 percent in 2025 as the positive effects of one-off factors--including the postpandemic boost to consumption and fiscal stimulus--ease and weakness in the property sector persists.

India's growth rate is expected to remain strong at 6.8 percent this year and 6.5 percent in 2025. The robustness reflect the continuing strength in domestic demand and a rising working-age population, the WEO said.