China (Washington Insider Magazine)—On Tuesday, The International Monetary Fund encouraged its global growth forecast higher, mentioning the unexpected strength of the U.S. economy and fiscal support efforts in China.
It currently sees global growth in 2024 at 3.1%, up 0.2 percentage points from its previous October projection, followed by 3.2% expansion in 2025.
Considerable emerging market economies, including Brazil, India and Russia, have also achieved better than previously thought.
The IMF acknowledges a reduced probability of a so-called “hard landing,” an economic squeeze following a period of solid growth, despite new threats from commodity price spikes and supply chain problems due to geopolitical volatility in the Middle East.
It forecasts a boost this year of 2.1% in the U.S., 0.9% in both the eurozone and Japan, and 0.6% in the United Kingdom.
“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 on Tuesday.
“This is a combination of strong demand in some of these countries, private consumption, and government spending. But also, and this is quite important in the current context, a supply component as well … So powerful labour markets, supply chain frictions that have been easing, and the decline in energy and commodity prices.”
The latest official figures revealed the U.S. economy tearing past economists’ expectations in the fourth quarter, with growth of 3.3%. The main reason the IMF expects a soft landing in the U.S. is that supply-chain factors and the Federal Reserve are helping the decline of inflation “did not have to do the whole job” of bringing inflation down by rapidly raising interest rates, stated Tobias Adrian, head of the IMF’s monetary and capital markets department, in an interview.
The Bank of Japan anticipates “maintaining an overall accommodating stance.” Adrian said the bank’s communication has been meticulous and very clear, so the market has adjusted to the BOJ changes. He said he expected this tendency to continue.
Exposure of the banking system to commercial real estate is still a concern as tepid demand in some economies and higher borrowing costs increase default risks among commercial real estate borrowers.
China has faced many problems over the last year, including a disappointing rebound in post-pandemic spending, worries over deflation and a constant property sector crisis. The government has initiated various stimulus measures in reaction, contributing to the IMF’s upgrade.
However, the IMF’s forecasts stay below the global growth average between 2000 and 2019 of 3.8%. The institution stated that higher interest rates, the withdrawal of some fiscal asset programs and low productivity growth continue to weigh.
Restrictive monetary policy has led to inflation falling faster than anticipated in most regions, which Gourinchas called the “other piece of good news” in Tuesday’s report. The IMF witnesses global inflation at 5.8% in 2024 and 4.4% in 2025. In developed economies, that falls to 2.6% this year and 2% next year.
“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 we are on that path,” Gourinchas stated.
“The current projection is that central banks will be waiting to get more data; they are meeting by meeting and data dependent, confirming that we are on that path. That’s the baseline. And then, if we are, we’ll see rate cuts by the second half of the year,” he continued.
Meanwhile, central banks must not ease too early; there is also a chance coming into sight of policy staying too tight for too long, which would hinder growth and bring inflation below 2% in advanced economies, Gourinchas added.
