Citing China’s fiscal support measures and the surprising resilience of the U.S. economy, the International Monetary Fund revised up its prediction for global growth.

It now projects 3.1% global growth in 2024, up 0.2 percentage points from its previous October estimate, and 3.2% growth in 2025.

Significant emerging market economies, such as Brazil, India, and Russia, have also outperformed earlier estimates.

Despite additional risks from commodity price increases and supply chain concerns due to geopolitical turbulence in the Middle East, the IMF believes there is now a reduced possibility of a so-called hard landing, an economic decline following a period of robust growth.

It projects 2.1% growth in the US this year, 0.9% in Japan and the euro zone, and 0.6% in the UK.

“What we’ve seen is a very resilient global economy in the second half of last year, and that’s going to carry over into 2024,” the IMF’s chief economist, Pierre-Olivier Gourinchas said

“This is a combination of strong demand in some of these countries, private consumption, government spending. But also, and this is quite important in the current context, a supply component as well. … So very strong labor markets, supply chain frictions that have been easing, and the decline in energy and commodity prices.”

According to the most recent official statistics, the U.S. economy grew by 3.3% in the fourth quarter, smashing analysts’ projections.

Over the past year, China has dealt with a number of problems, such as an unsatisfactory recovery in post-pandemic spending, worries about deflation, and an ongoing crisis in the property industry. In response, the government has implemented a number of stimulus programmes, which have helped the IMF upgrade.

The IMF’s projections, however, are still below the 3.8% average global growth rate from 2000 to 2019. Low productivity growth, higher interest rates, and the end of several government support programmes are still factors, according to the institution.

However, as a result of tight monetary policy, inflation has decreased more quickly than anticipated in the majority of regions, which Gourinchas referred to as the “other piece of good news” in Tuesday’s report. According to the IMF, global inflation will be 4.4% in 2025 and 5.8% in 2024. That decreases to 2.6% in advanced economies this year and 2% the following.

“The battle against inflation is being won, and we have a higher likelihood of a soft landing. So that sets the stage for central banks, the Federal Reserve, the European Central Bank, the Bank of England, and others, to start easing their policy rates, once we know for sure that we are on that path,” Gourinchas said.

“The projection right now is that central banks are going to be waiting to get a little bit more data, they are going meeting by meeting, they are data dependent, confirming that we are on that path. That’s the baseline. And then if we are, then by the second half of the year we’ll see rate cuts,” he said.

While central banks shouldn’t loosen too soon, Gourinchas noted that there is also a chance that they will tighten policy for too long, which would slow down growth and lower inflation in advanced nations to below 2%.

(Adapted from CNBC.com)

Categories: Economy & Finance, Geopolitics, Strategy