IMF sees slow, steady 2024 global growth; China, war escalation pose risks

THE global economy is set for another year of slow but steady growth, the International Monetary Fund (IMF) said on Tuesday (Apr 16), with United States strength pushing world output through headwinds from lingering high inflation, weak demand in China and Europe, and spillovers from two regional wars.

The IMF forecasts global real GDP growth of 3.2 per cent for 2024 and 2025 – the same rate as in 2023. The 2024 forecast was revised upward by 0.1 percentage point from the previous World Economic Outlook’s estimate in January, largely due to a significant upward revision in the US outlook.

“The global economy continues to display remarkable resilience with growth holding steady and inflation declining, but many challenges still lie ahead,” Pierre-Olivier Gourinchas, the IMF’s chief economist, told reporters.

A potential escalation of the Middle East conflict after Iran’s rocket and drone attack on Israel could have a “strong effect” on limiting growth, he said, adding that it would raise oil prices and inflation, triggering tighter monetary policy from central banks.

The US Treasury is preparing to hit Iran with new sanctions in coming days that could limit its ability to export oil, US Treasury Secretary Janet Yellen said on Tuesday.

The report described an “adverse scenario” in which a Middle East escalation would lead to a 15 per cent increase in oil prices and higher shipping costs would hike global inflation by about 0.7 percentage points.

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The IMF forecast that global median headline inflation will fall to 2.8 per cent by the end of 2024 from 4 per cent last year, and to 2.4 per cent in 2025.

US, Europe diverge

The IMF revised its forecast for 2024 US growth sharply upward to 2.7 per cent from the 2.1 per cent projected in January, on stronger-than-expected employment and consumer spending. It expects the delayed effect of tighter monetary and fiscal policy to slow US growth to 1.9 per cent in 2025, though that also was an upward revision from the 1.7 per cent estimate in January.

European Central Bank president Christine Lagarde has cited the stark divergence between the US and Europe, which is facing slower growth and faster-falling inflation.

The latest IMF forecasts bear this out, with a downward revision to the eurozone 2024 growth forecast to 0.8 per cent from 0.9 per cent in January, primarily due to weak consumer sentiment in Germany and France. Britain’s 2024 growth forecast was revised down by 0.1 percentage point to 0.5 per cent amid high interest rates and stubbornly high inflation.

China property woes

The IMF left unchanged its forecast for China’s 2024 growth to fall to 4.6 per cent from 5.2 per cent in 2023, with a further drop to 4.1 per cent for 2025. But it warned that the lack of a comprehensive restructuring package for the country’s troubled property sector could prolong a downturn in domestic demand and worsen China’s outlook.

Such a situation could also intensify deflationary pressures, leading to a surge in cheap exports of manufactured goods that could stoke trade retaliation by other countries – a scenario that Yellen warned about during a trip to China earlier this month.

Gourinchas said, however, that China’s stronger-than-expected first-quarter growth may prompt an upward revision to the outlook.

The IMF recommended that China accelerate the exit of non-viable developers and promote the completion of unfinished housing projects, while supporting vulnerable households to help restore consumer demand.

But the global lender noted bright spots in some big emerging market countries, raising its growth forecast for Brazil in 2024 by half a percentage point to 2.2 per cent and increasing the forecast for India’s growth by 0.3 percentage point to 6.8 per cent.

It noted that the Group of 20 large emerging market countries are playing a bigger role in the global trading system and have the capability to shoulder more of the growth burden going forward.

But the IMF said low-income developing countries continue to struggle with post-pandemic adjustments and greater levels of economic “scarring” than middle-income emerging markets. As a group, these low-income developing countries saw their 2024 growth forecast cut to 4.7 per cent from an estimate of 4.9 per cent in January.

Russian resilience

In one of the biggest surprises, Russia’s 2024 growth forecast was increased to 3.2 per cent from the 2.6 per cent projected in January. The report said the increase partly reflected continued strong oil export revenues amid higher global oil prices despite a price-cap mechanism imposed by Western countries, as well as strong government spending and investment related to war production, along with higher consumer spending in a tight labour market. The IMF also upgraded Russia’s 2025 growth forecast to 1.8 per cent from 1.1 per cent in January.

Ukraine’s growth, which is highly dependent on economic aid from the West, is forecast to slow to 3.2 per cent in 2024 and accelerate to 6.5 per cent in 2025.

While initial price spikes for grains, oil and other commodities have faded since Russia’s 2022 invasion of Ukraine, a widening of the conflict could cause them to intensify. REUTERS