IMF expects global economy to achieve divergent growth paths

In its latest global economic outlook report, the International Monetary Fund (IMF) expressed optimism about the potential for a soft landing for the global economy, citing improved economic expectations in the United States and several emerging markets, reported Al-Qabas Daily.

The IMF also highlighted that China’s financial support measures are expected to contribute to global growth. However, the report also pointed out challenges such as tightening monetary conditions and increasing divergence between global growth trajectories. Concerns over high levels of public debt and fiscal deficits were also raised. Regarding inflation expectations, the IMF reduced its forecast for 2025 by 20 basis points to 4.4 percent.

However, the projections for 2024 remained unchanged at 5.8 percent, compared to 6.8 percent in 2023. The IMF identified several factors that could lead to better-than-expected global economic performance. These factors include a faster decline in inflation rates, accommodative monetary policies, and the implementation of robust structural reforms that can accelerate growth. On the other hand, negative risks such as rising commodity prices, challenges facing China’s real estate sector, and government spending cuts were mentioned as potential obstacles to growth. The recent attacks on cargo ships in the Red Sea were noted by the IMF, highlighting the resulting increase in transportation costs and disruptions.

However, these events have not yet impacted basic commodity prices significantly. Calibrating monetary policy in response to core inflation dynamics was underlined as a key challenge for policymakers worldwide. The IMF marginally raised its global GDP growth forecast for 2024 by 20 basis points to 3.1 percent. The forecast for 2025 remained unchanged but with a slightly higher growth rate of 3.2 percent.

Projections for advanced economies and emerging markets and developing economies in 2024 were increased by 10 basis points to 1.5 percent and 4.1 percent, respectively. The growth forecast for advanced economies in 2025 remained unchanged at 1.8 percent, with marginal adjustments in the growth rates of specific regions. For the United Kingdom, gradual growth is expected, from 0.5 percent in 2023 to 0.6 percent in 2024 and 1.6 percent in 2025. However, 2025 forecasts were lowered by 40 basis points due to limited growth opportunities and statistical revisions during the pandemic period.

Looking at Asia, the IMF raised its growth forecast for China in 2024 by 40 basis points to 4.6 percent following an anticipated growth of 5.2 percent in 2023. The growth rate is expected to remain at 4.1 percent in 2025. This adjustment reflects improved growth expectations for 2024 due to increased government spending to address challenges and enhance disaster preparedness. India’s economy is projected to grow by 6.5 percent in both 2024 and 2025, supported by domestic demand elasticity.

While the pace of growth for emerging and developing European economies is anticipated to accelerate from 2.7 percent in 2023 to 2.8 percent in 2024, it is expected to slow down to 2.5 percent in 2025. The growth forecast for the Russian economy was increased by 0.6 percent for 2023, reflecting a stronger-than-expected growth rate. Expectations indicate growth of 2.6 percent in 2024 and 1.1 percent in 2025, driven by rising military spending, private consumption supported by wage growth, and a tight labor market.

The IMF reduced growth expectations for the Middle East and North Africa region in 2024 by 50 basis points to 2.9 percent but raised expectations by 30 basis points to 4.2 percent for 2025. The downward revision for 2024 was mainly influenced by temporary declines in Saudi Arabia’s oil production and government cuts following OPEC agreements. However, non-oil growth is expected to remain flexible.

Saudi Arabia’s growth forecast was revised downward by 130 basis points for 2024 but raised by the same margin for 2025. The IMF expects a 3.3 percent increase in global trade volume in 2024, down 20 basis points due to trade imbalances and geoeconomic fragmentation. Emerging market and developing economies are predicted to grow by 4.5 percent in 2024, up 20 basis points, while advanced economies’ growth forecasts fell by 40 basis points to 2.6 percent. Inflation rates for fuel and non-fuel commodities are also expected to decline, aligning with anticipated lower interest rates in major economies.