IMF says global ‘soft landing’ in sight, lifts 2024 growth outlook
JOHANNESBURG/WASHINGTON —The International Monetary Fund on Tuesday edged its forecast for global economic growth higher, upgrading the outlook for both the United States and China – the world’s two largest economies – and citing faster-than-expected easing of inflation.
The IMF‘s chief economist, Pierre-Olivier Gourinchas, said the global lender’s updated World Economic Outlook showed that a “soft landing” was in sight, but overall growth and global trade still remained lower than the historical average.
“The global economy continues to display remarkable resilience, with inflation declining steadily and growth holding up. The chance of a ‘soft landing’ has increased,” Gourinchas told reporters in Johannesburg, adding, “We are very far from a global recession scenario.”
But he cautioned that the base of expansion was slow and risks remained, including geopolitical tensions in the Middle East and attacks in the Red Sea that could disrupt commodity prices and supply chains.
Delays in announced fiscal consolidation in what Gourinchas called “the biggest global election year in history” could boost economic activity but might also spur inflation, he added.
Strong private, public spending
The IMF said the improved outlook was supported by stronger private and public spending despite tight monetary conditions, as well as increased labor force participation, mended supply chains and cheaper energy and commodity prices.
The IMF forecast global growth of 3.1 percent in 2024, up two-tenths of a percentage point from its October forecast, and said it expected unchanged growth of 3.2 percent in 2025. The historical average for the 2000-2019 period was 3.8 percent.
Global trade was expected to expand by 3.3 percent in 2024 and 3.6 percent in 2025, well below the historical average of 4.9 percent, with gains weighed down by thousands of fresh trade restrictions.
The IMF stuck with its October forecast for headline inflation of 5.8 percent for 2024, but lowered the 2025 forecast to 4.4 percent from 4.6 percent in October. Excluding Argentina, which has seen inflation spike, global headline inflation would be lower, Gourinchas said.
Advanced economies should see average inflation of 2.6 percent, down four-tenths of a percentage point from the October forecast, with inflation set to reach central bank targets of 2 percent in 2025. By contrast, inflation would average 8.1% in emerging market and developing economies in 2024, before easing to 6% in 2025.
The IMF said average oil prices would drop 2.3 percent in 2024, versus the 0.7 percent decline it had predicted in October, and said prices were expected to drop 4.8 percent in 2025.
Red Sea attacks
“Staying on the path to a soft landing will not be easy,” Gourinchas said, noting that new commodity price spikes from geopolitical shocks, including continued attacks on shipping in the Red Sea, could prolong tight monetary conditions.
Gourinchas told reporters the IMF was watching developments in the Middle East closely, but the broader economic impact appeared “relatively limited” as of now.
“It doesn’t seem to represent, as of now, a major source of potentially reigniting supply-side inflation,” he said.
The United States got one of the biggest upgrades in the January update of the IMF outlook, with its GDP now forecast to expand by 2.1 percent in 2024 versus the 1.5 percent forecast in October. Growth was expected to ease to 1.7 percent in 2025.
Gourinchas credited fiscal support and consumer spending for the upgrade, but said the IMF had warned Washington that some of its subsidies from domestic producers and other industrial policies could violate global trade rules.
The euro area got a downgrade, and was now expected to grow just 0.9 percent in 2024 and 1.7 percent in 2025, with the biggest European economy – Germany – expected to see minimal GDP growth of 0.5 percent in 2024 instead of the 0.9 percent forecast in October.
China’s GDP was expected to grow by 4.6 percent in 2024, an upward revision of four-tenths of a percentage point from October, and 4.1 percent in 2025. Gourinchas said the boost reflected significant fiscal support from the authorities, and a less-severe-than-expected slowdown stemming from the property sector.
The U.S. Federal Reserve, European Central Bank and Bank of England were expected to start lowering interest rates gradually in the second half of 2024, Gourinchas said, adding, “We are not quite there yet.”
The Bank of Japan was expected to maintain low interest rates, and that was “appropriate,” but the IMF had told it to be ready to raise rates if inflation spiked, he said.
Gourinchas added that markets had been “excessively optimistic” on the prospects for early interest rate cuts by major central banks, and a repricing could increase long-term interest rates and trigger more rapid fiscal consolidation that would weigh on growth prospects.
Emerging market and developing economies were expected to grow by 4.1 percent in 2024, with emerging and developing Europe getting an upgrade due to stronger-than-expected growth in Russia on the back of military spending for the war in Ukraine.
Balanced upside, downside risks
Russia’s GDP was expected to grow 2.6 percent in 2024, 1.5 percentage points more than expected in October, with growth seen easing to 1.1 percent in 2025.
The IMF said there could be further revisions since the numbers were preliminary and there were questions about the extent of Russia’s fiscal stimulus.
Negative growth in Argentina depressed the forecast for the Latin America and Caribbean region, with growth seen dropping to 1.9 percent in 2024, four-tenths of a percentage point lower than in October. Growth should edge higher to 2.5 percent in 2025, the IMF said.
Gourinchas said the global outlook reflected more balanced upside and downside risks, with the risk of a wider conflict in the Middle East offset by the prospect that lower fuel prices could help inflation fall faster than expected.
“We see them as broadly balanced at this point,” he said, noting that a lot of the downside risks – especially with respect to disinflation – seen a year ago had not materialized.