The International Monetary Fund on Tuesday raised its 2024 economic growth forecasts for the U.S., Brazil and Britain but cut them for China, Japan and the euro zone, adding that risks abound from armed conflicts, potential new trade wars and the hangover from tight monetary policy.
The IMF's latest World Economic Outlook said the shifts will leave 2024 global GDP growth unchanged from the 3.2% projected in July, setting a lackluster tone for growth as world finance leaders gather in Washington this week for the IMF and World Bank annual meetings.
Global growth is projected to be 3.2% in 2025, one-tenth of a percentage point lower than forecast in July, while medium-term growth is expected to fade to a "mediocre" 3.1% in five years, well below its pre-pandemic trend, the report showed.
Nonetheless, the IMF's chief economist, Pierre-Olivier Gourinchas, said the U.S., India and Brazil were showing resilience and a "soft landing" in which inflation cools without massive job losses had been achieved.
"It looks like the global battle against inflation has largely been won, even if price pressures persist in some countries," Gourinchas said in a blog post.
But he told Reuters in an interview that there is a risk that monetary policy could "mechanically" become too tight without interest rate cuts in some countries as inflation subsides, weighing on growth and jobs.
"Right now, our assessment for monetary policy in most places, it's about where we want it to be, but if inflation keeps coming down now, central banks have to start paying attention to what's happening on the activity side.
CONSUMER STRENGTH
The IMF revised its 2024 U.S. growth forecast upward by two-tenths of a percentage point to 2.8% due largely to stronger-than-expected consumption fueled by rising wages and asset prices. The global lender also upgraded its 2025 U.S. growth outlook by three-tenths of a percentage point to 2.2%, slightly delaying a return to trend growth.
The IMF cut China's 2024 growth rate by two-tenths of a percentage point to 4.8%, with a boost from net exports partly offsetting continued weakness in the property sector and low consumer confidence. The IMF's 2025 China growth forecast was unchanged at 4.5%, but the outlook does not include any impact from Beijing's recently announced fiscal stimulus plans, which are still largely undefined.
Britain's long-suffering growth outlook got a boost of four-tenths of a percentage point to 1.1% for 2024 as falling inflation and lower interest rates are expected to stoke consumer demand. The growth forecast for Japan was lowered by four-tenths of a percentage point to 0.3% due to the lingering effects of supply disruptions.
India continues to be a bright spot, with the strongest projected growth among major economies at 7.0% in 2024 and 6.5% in 2025, unchanged from the July outlook.
TRADE RISKS
In counting risks to the outlook, the IMF flagged the potential for major tariff increases and retaliatory measures, but it did not single out U.S. Republican presidential candidate Donald Trump's vow to impose tariffs of 10% on global imports to the U.S., and 60% on goods from China.
Instead, it contains a proxy adverse scenario that includes 10% two-way tariffs among the U.S., euro zone and China plus 10% U.S. tariffs on the rest of the world, reduced migration to the U.S. and Europe, and financial market turmoil that tightens financial conditions. Were this to occur, the IMF said it would reduce the overall global GDP output level by 0.8% in 2025 and 1.3% in 2026.
Other risks outlined in the report included the potential for a spike in prices of oil and other commodities should conflicts in the Middle East and Ukraine widen.
The IMF cautioned countries against pursuing industrial policies to protect domestic industries and workers, saying that they often fail to deliver sustained improvements in living standards.
"Economic growth must come instead from ambitious domestic reforms that boost technology and innovation, improve competition and resource allocation, further economic integration and stimulate productive private investment," Gourinchas said in his blog post.
