In a report released Tuesday, the IMF maintained its global growth forecast for 2024 while downgrading forecasts for the United States and Japan, warning of inflation risks and trade battles ahead.
According to the most recent World Economic Outlook update, the International Monetary Fund expects the global economy to grow 3.2 percent this year, unchanged from its April forecast.
“Global activity and world trade firmed up at the turn of the year, with trade spurred by strong exports from Asia, particularly in the technology sector,” said the fund’s report.
It predicts a 3.3% global growth rate in 2025.
Despite the fact that several nations saw higher-than-expected growth in the first three months of this year, the IMF identified noteworthy shocks in Japan and the United States.
Despite stronger-than-expected growth in several nations in the first quarter of this year, the IMF cited big surprises in Japan and the United States.
The Washington-based lender also cautioned that inflationary pressures had risen, with persistently high service prices impeding disinflation.
This increases the risk of persistently high interest rates “amid escalating trade tensions and increased policy uncertainty.”
IMF Chief Economist Pierre-Olivier Gourinchas expressed concern over trade and industrial policies, noting that countries might adopt measures affecting global economic integration.
When asked if risk assessments changed after the attempted assassination of former US President Donald Trump, the Republican Party’s nominee for the November election, Gourinchas stated the fund would consider its implications.
Lower US Forecast
While global growth remains constant, the IMF has cut down its forecasts for the United States and Japan.
The IMF has lowered US growth for 2024 to 2.6 percent, 0.1 percentage points lower than the April prediction, due to a “slower-than-expected start to the year.”
Japan’s economy is now anticipated to grow by 0.7 percent this year, 0.2 percentage points lower than previously expected, owing primarily to transitory supply interruptions and poor private investment in the first quarter.
Conversely, the eurozone is exhibiting indications of recovery, with strong services activity, albeit manufacturing remains poor, according to Gourinchas.
In Asia, China and India are expected to drive growth. China’s 2024 forecast has been revised up to 5.0 percent due to a rebound in private consumption and strong exports. India is projected to grow by 7.0 percent, partly due to better consumption prospects.
However, Gourinchas also noted risks to China from weak confidence and unresolved property sector issues. If domestic demand weakens, China might rely more on the external sector, a situation the United States opposes.
Inflation Risks
The IMF warned of persistent inflation risks amid renewed trade or geopolitical tensions, although it expects inflation to return to target by the end of 2025.
Wage rise, combined with low productivity, may make it difficult for firms to lower prices.
The IMF observed that an increase in trade tensions could raise the costs of imported goods, increasing near-term inflation risks.
Higher inflation could lead to sustained high interest rates, increasing financial risks.
The IMF recommended prudent monetary policy modifications.
Tariff rebound might spark retaliation and a “costly race to the bottom,” according to the research.
Another source of concern is the possibility of “significant swings in economic policy due to elections this year, with negative spillovers to the rest of the world.”