IMF raises global growth forecast for 2024

Global growth is projected at 3.1 per cent in 2024 and 3.2 per cent in 2025, according to the International Monetary Fund (IMF) January 2024 World Economic Outlook (WEO) update, with the 2024 forecast 0.2 percentage points higher than that in the October 2023 WEO.

The change is on account of greater-than-expected resilience in the United States and several large emerging market and developing economies, as well as fiscal support in China, the IMF said.

The forecast for 2024–25 is, however, below the historical (2000–19) average of 3.8 per cent, with elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity, and low underlying productivity growth, the report said.

Inflation is falling faster than expected in most regions, in the midst of unwinding supply-side issues and restrictive monetary policy.

Global headline inflation is expected to fall to 5.8 per cent in 2024 and to 4.4 per cent in 2025, with the 2025 forecast revised down.

“With disinflation and steady growth, the likelihood of a hard landing has receded, and risks to global growth are broadly balanced,” the IMF said.

“On the upside, faster disinflation could lead to further easing of financial conditions. Looser fiscal policy than necessary and than assumed in the projections could imply temporarily higher growth, but at the risk of a more costly adjustment later on.”

According to the IMF, stronger structural reform momentum could bolster productivity with positive cross-border spillovers.

On the downside, new commodity price spikes from geopolitical shocks––including continued attacks in the Red Sea––and supply disruptions or more persistent underlying inflation could prolong tight monetary conditions.

Deepening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts could also cause growth disappointments, the Fund said.

“Policymakers’ near-term challenge is to successfully manage the final descent of inflation to target, calibrating monetary policy in response to underlying inflation dynamics and—where wage and price pressures are clearly dissipating—adjusting to a less restrictive stance,” the report said.

“At the same time, in many cases, with inflation declining and economies better able to absorb effects of fiscal tightening, a renewed focus on fiscal consolidation to rebuild budgetary capacity to deal with future shocks, raise revenue for new spending priorities, and curb the rise of public debt is needed.”

The IMF said that argeted and carefully sequenced structural reforms would reinforce productivity growth and debt sustainability and accelerate convergence toward higher income levels.

“More efficient multilateral coordination is needed for, among other things, debt resolution, to avoid debt distress and create space for necessary investments, as well as to mitigate the effects of climate change.”

Growth in the euro zone is projected to recover from its low rate of an estimated 0.5 per cent in 2023, which reflected relatively high exposure to the war in Ukraine, to 0.9 per cent in 2024 and 1.7 per cent in 2025. Stronger household consumption as the effects of the shock to energy prices subside and inflation falls, supporting real income growth, is expected to drive the recovery.

Compared with the October 2023 WEO forecast, however, growth is revised downward by 0.3 percentage point for 2024, largely on account of carryover from the weaker-than-expected outcome for 2023.

Growth in emerging and developing Europe is projected to pick up from an estimated 2.7 per cent in 2023 to 2.8 per cent in 2024, before declining to 2.5 per cent in 2025.

The forecast upgrade for 2024 of 0.6 percentage point over October 2023 projections is attributable to Russia’s economy, the IMF said.

Growth in Russia is projected at 2.6 per cent in 2024 and 1.1 per cent in 2025, with an upward revision of 1.5 percentage points over the October 2023 figure for 2024, reflecting carryover from stronger-than-expected growth in 2023 on account of high military spending and private consumption, supported by wage growth in a tight labour market, the report said.

(Photo: Jhon Casso)

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