In a renewed assessment, the International Monetary Fund (IMF) has painted a cautiously optimistic picture of the global economic landscape, projecting a “soft landing” as the world looks forward to reining in inflation with minimal fiscal discomfort and maintaining a steady growth trajectory. With this outlook, the IMF anticipates a 3.2% expansion across the globe in the present year, a sliver above the 3.1% previously forecasted in January, which also happens to coincide with the growth rate of last year. Looking ahead, the organization foresees maintaining this growth into 2025 for the third consecutive year.
According to the IMF’s latest World Economic Outlook, this anticipated growth is largely fuelled by stronger-than-expected economic performance in the United States, the largest global economy. Projections for the U.S. have been bumped up to 2.7% growth – a significant increase from the 2.1% January estimate and surpassing 2023’s 2.5% expansion.
While inflation continues as a significant hurdle on a global scale, the IMF’s forecast suggests a silver lining – a projected drop in inflation rates from 6.8% in the previous year to 5.9% in 2024, followed by a further decline to 4.5% in the subsequent year. Advanced economies are particularly expected to see a more pronounced dip, with inflation predicted to fall from 4.6% in 2023 to 2.6% in the current year and ultimately reaching 2% in 2025, attributed mainly to the impact of rising interest rates.
Major central banks like the Federal Reserve, the Bank of Japan, the European Central Bank, and the Bank of England have aggressively hiked interest rates to quell inflation to the ideal target of around 2%. In the case of the United States, annual inflation rates have seen a significant drop from a peak of 9.1% in the summer of 2022 to 3.5%. However, with inflation still hovering above the Fed’s targeted levels, it is likely to hold off rate cuts for the time being.
Experts had braced for a profound economic downturn, even a recession – especially in the United States – due to these escalated borrowing rates. The reality, however, has defied these expectations; economies have demonstrated remarkable fortitude, sustaining growth and employment even as inflation rates have begun to ease.
Pierre-Olivier Gourinchas, the IMF’s chief economist, expressed his observations at a press conference on Tuesday, remarking on the global economy’s surprising resilience and the prevailing signs that point towards a “soft landing.” Yet Gourinchas tempered his report with caution, indicating that the battle against inflation shows signs of having “stalled” in the early months of the year, especially within service sectors such as healthcare and auto repairs, where price increases have been particularly tenacious.
Despite a display of resilience, the global economy is not quite surging ahead with strength. Prior to 2020, the annual average growth rate from 2000 was 3.8%, which stands noticeably higher than the 3.2% rate projected for the current and next year. Factors such as enduring high interest rates, subdued productivity gains in many parts of the world, and the winding down of government economic stimulus packages from the pandemic era are expected to suppress the prospects for growth.
Risks loom on the horizon that could potentially derail the economic expansion. Chief among these are the persistent adverse effects from higher interest rates and geopolitical tensions, including the war in Gaza. These factors threaten to disrupt trade flows and precipitate spikes in energy prices and other commodities.
The world’s second-largest economy, China, is grappling with a real estate market crash and weakening consumer and business confidence, compounded by rising trade frictions with other major economies. IMF projects China’s robust economy will slow from 5.2% in 2023 to 4.6% in 2024, and further diminish to 4.1% growth by next year. However, recent data indicated that China’s economy advanced at a faster-than-expected 5.3% annual rate in the first quarter, fueled by growth-stimulating policies and strengthened demand.
Japan, in relinquishing its position as the world’s third-largest economy to Germany last year, is also expected to witness a deceleration in growth from 1.9% to 0.9% in 2024. Economic prospects within the 20 nations comprising the eurozone are moderately brighter but still fragile, with growth projections of 0.8% this year – feeble yet twice the size of the 2023 expansion. The United Kingdom is similarly poised for modest progress, escalating from a barely noticeable 0.1% growth last year to 0.5% in 2024, and then to 1.5% in 2025.
Developing economies are projected to continue their own growth narratives. India is expected to outgrow China once more, although it will see a deceleration from 7.8% growth last year to 6.8% this year, and further to 6.5% in 2025. Sub-Saharan Africa is on track for a steady, albeit modest, acceleration – from 3.4% growth in the previous year up to 3.8% in 2024 and 4.1% the following year.
Turning the lens towards Latin America, both Brazil and Mexico are foreseen to undergo economic slowdowns through 2025. High interest rates are likely to hamper Brazil’s growth trajectory, while fiscal austerity through government budget cutbacks could be a major headwind for Mexico.
In summary, the world economy appears to be navigating through turbulent waters with a greater degree of resilience than anticipated, although considerable challenges remain on the path to sustained growth and stability.
