The global economy is heading for a 'soft landing', the IMF says
The global economy has been ravaged over the past four years by a pandemic, record levels of inflation, protracted wars and sky-high interest rates, raising fears of a painful global downturn. But new forecasts published on Tuesday suggest the world has managed to defy expectations and avert the threat of a so-called hard landing.
Projections from the International Monetary Fund painted a picture of economic sustainability – one that policymakers hoped to achieve as they tried to manage a series of back-to-back crises.
In its latest economic outlook, the IMF forecast global growth of 3.1 percent this year – the same pace as in 2023 and up from its previous forecast of 2.9 percent. Predictions of a global recession have receded, with inflation falling faster than economists expected. Central bankers, including the Federal Reserve, are expected to start cutting interest rates in the coming months.
“The global economy has shown remarkable resilience and we are now on the final descent towards a soft landing,” said Pierre-Olivier Gourinchas, the IMF's chief economist.
Policymakers who feared they would have to slow economic growth to contain rising prices have managed to curb inflation without plunging the world into recession. The IMF expects global inflation to fall from 6.8 percent in 2023 to 5.8 percent this year and 4.4 percent in 2025. It estimates that 80 percent of world economies will experience lower annual inflation this year .
The better outlook is largely due to the strength of the US economy, which has been growing Last year 3.1 percent. That robust growth came despite the Fed's aggressive series of rate hikes, which sent borrowing costs to a 22-year high. Consumer spending in America remained strong, while companies continued to invest. The IMF now expects the US economy to grow 2.1 percent this year, up from its previous forecast of 1.5 percent.
The Chinese economy is also growing faster than previously thought and is expected to grow 4.6 percent this year. IMF officials said the problems facing China's real estate sector have not slowed the economy as much as they had predicted; the Chinese government, they noted, has provided that “significant” budget support.
Other major economies, such as India and Brazil, also appear to be performing better than expected. Perhaps most surprising is that Russia, which has faced a barrage of Western sanctions and export restrictions since invading Ukraine in February 2022, received the biggest upgrade of any country tracked by the IMF. Despite concerted efforts to cripple its economy, Russia's economy is expected to grow by a healthy 2.6 percent this year.
Yet sluggishness persists in some major economies. Geopolitical crises and industrial rivalry have been particularly tough on the eurozone, where new data published on Tuesday showed that the The economy stagnated in the last three months of 2023 and grew by just 0.1 percent this year.
The IMF said “remarkably subdued” growth in Europe reflected “weak consumer confidence, the lingering effects of high energy prices and weakness in interest rate-sensitive manufacturing and business investment.”
Other threats to the global economy exist, including geopolitical turmoil in the Middle East. The war in Gaza and associated attacks on ships by Iran-backed Yemeni rebels known as the Houthis in the Red Sea are of particular interest to the IMF. underlying inflation” that could require central bankers to maintain higher interest rates for a longer period of time.
The IMF also expressed concern about President Biden's use of industrial policy to subsidize the US clean energy and semiconductor sectors. Mr Gourinchas said such actions had led to a “tit for tat'in trade restrictions, a restriction that weighed on global production. He said he believed that some of the measures introduced by the United States, such as rules requiring companies to use American-made parts to qualify for certain manufacturing tax credits, were inconsistent with international trade rules.
Still, Biden administration officials see these policies as one of the biggest factors helping fuel America's economic recovery.
Speaking in Chicago last week, Treasury Secretary Janet L. Yellen noted that the U.S. economy had outpaced that of the rest of the world, achieving stronger growth and cooling inflation faster than other major advanced economies.
“Simply put, this has been the fairest recovery ever,” she said.