The International Monetary Fund (IMF) maintained its global GDP growth forecast at 3.2 percent in 2024. However, it raised its 2025 forecast by 0.1 percentage point to 3.3 percent in its latest World Economic Outlook (WEO) report.
“Services price inflation is holding up progress on disinflation, which is complicating monetary policy normalization,” stated the IMF. Thus, risks to inflation have increased, raising the prospect of higher-for-even-longer interest rates amid escalating trade tensions and increased policy uncertainty.
U.S., Japan see slowdown
During the first quarter of 2024, many countries saw notable growth. However, Japan and the United States saw surprise slowdowns. In the U.S., a sharper slowdown in GDP growth reflected moderating consumption and a negative contribution from net trade. Meanwhile, the negative growth in Japan stemmed from temporary supply disruptions due to the shutdown of a major automobile plant in the first quarter. Therefore, the IMF revised its Japan growth downward by 0.2 percentage points for 2024.
In contrast, Europe saw economic recovery materialize amid improvement in services activity. Meanwhile, China’s resurgent domestic consumption propelled the positive growth in the first quarter due to a surge in exports.
These developments have narrowed the output divergences across economies as cyclical factors diminish and activity becomes better aligned with its potential.
The IMF reduced the GDP growth forecast for the United States by 0.1 percentage point to 2.6 percent, reflecting slower first-quarter consumption. However, it maintained the country’s 2025 forecast at 1.9 percent, a slower growth due to a cooling labor market and moderating spending in response to tight monetary policy.
China’s GDP to reach 5 percent this year
The IMF significantly raised its China growth forecast to 5 percent, matching the Chinese government’s target for the year, from 4.6 percent in April on a first-quarter rebound in private consumption and strong exports. The IMF also raised its 2025 China GDP growth forecast to 4.5 percent from 4.1 percent in April.
In addition, the IMF raised its 2024 eurozone GDP growth forecast by 0.1 percentage point to 0.9 percent, leaving the zone’s 2025 forecast the same at 1.5 percent.
Oil constraints continue to weigh on Middle East
For the Middle East and Central Asia, oil production and regional conflicts continue to weigh on prospects. The IMF revised its GDP growth forecast for 2024 in Saudi Arabia downward by 0.9 percentage points. This adjustment reflects mainly the extension of oil production cuts.
Meanwhile, it revised the forecast for growth in sub-Saharan Africa downward, mainly due to a 0.2 percentage point downward revision to the growth outlook in Nigeria amid weaker activity in Q1 of this year.
Trade makes a recovery
The IMF expects world trade growth to recover to about 3.25 percent annually in 2024-25 and align with global GDP growth again. The fund expects the uptick in the first quarter of this year to moderate as manufacturing remains slow.
“Although cross-border trade restrictions have surged, harming trade between geopolitically distant blocs, the global trade-to-GDP ratio is expected to remain stable in the projection,” added the IMF.
Read | Saudi Arabia’s annual inflation rate rises to 1.5 percent in June 2024: GASTAT
Global inflation will continue to decline
In advanced economies, the IMF expects the pace of disinflation to slow in 2024 and 2025. That is because inflation in prices for services will likely be more persistent and commodity prices will be higher. However, the gradual cooling of labor markets, in addition to an expected decline in energy prices, should bring headline inflation back to target by the end of 2025.
Meanwhile, inflation is expected to remain higher in emerging market and developing economies than in advanced economies. However, falling energy prices have declined inflation close to prepandemic levels for the median emerging market and developing economy.
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