The US will continue to be the growth engine for global economy through the rest of year and in 2025, the International Monetary Fund said on Tuesday, as it forecast robust consumer spending that was held up by a wrenching bout of inflation and consequent high interest regime.
In its latest World Economic Outlook report, the IMF raised its 2024 and 2025 economic growth forecasts for the US. It was the only developed economy to see its outlook marked up for both years as the chief economist of the IMF felt the soft landing that the Federal Reserve was seeking to rein in inflation without making a dent to the job market had largely been achieved.
"Today, the IMF reported that the United States is leading the advanced economies on growth for the second year in a row," Lael Brainard, director of the White House's National Economic Council, said in a statement.
The IMF forecast that the global output will expand 3.2 percent, 0.1 percentage point slower than its July estimate, and predicted that inflation will slow down to 4.3 percent next year from 5.8 percent in 2024. Emerging market giants India and Brazil stood out on the upside of the IMF forecasts, while it pegged the growth expectations for China at below 4.5 percent for this year and 2025.
The multilateral agency has been cautioning for a couple of years that the world economy will expand at its current mediocre level in the medium term — too little to give nations enough resources to reduce poverty and confront climate change.
“The risks are building up to the downside, and there is a growing uncertainty in the global economy,” Chief Economist Pierre-Olivier Gourinchas said. “There is geopolitical risk, with the potential for escalation of regional conflicts” that could affect commodity markets, he said. “There is a rise of protectionism, protectionist policies, disruptions in trade that could also affect global activity.”
The IMF economist, however, pointed out that some countries, including the US, were showing resilience. "The news on the US is very good in a sense," Gourinchas said. "The labour market picture remains one that is fairly robust, even though it has cooled off. I think the risks of a recession in the US in the absence of a very sharp shock would be somewhat diminished."
Although Gourinchas said it looked as if the global inflation battle had largely been won, he told Reuters in an interview 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.
The IMF raised its 2024 US growth forecast to 2.8 percent on stronger-than-expected consumption fuelled by rising wages and asset prices. The global lender also upgraded its 2025 outlook to 2.2 percent, slightly delaying a return to trend growth.
The IMF cut China's 2024 growth rate to 4.8 percent, with a boost from net exports partly offsetting continued weakness in the property sector and low consumer confidence. The 2025 China growth forecast, which was unchanged, does not include any impact from Beijing's recently announced fiscal stimulus plans, which are still largely undefined.
India continued to be a bright spot, with the strongest projected growth among major economies at 7.0 percent in 2024 and 6.5 percent in 2025, unchanged from the July outlook.
In counting risks to the global economic outlook, the IMF report flagged the potential for major tariff increases and retaliatory measures, but it did not single out US Republican presidential candidate Donald Trump's vow to impose 10 percent tariff on global imports, and 60 percent on goods from China. Instead, it contained a proxy adverse scenario that includes 10 percent two-way tariffs among the US, Euro Zone and China plus 10 percent US tariff on the rest of the world, reduced migration to the US and Europe, and financial market turmoil that tightens financial conditions. The IMF said all this would reduce the overall global GDP output level by 0.8 percent in 2025 and 1.3 percent in 2026.
[With inputs from news agencies]
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