The International Monetary Fund (IMF) has just released its latest World Economic Outlook (WEO) report, raising its forecast for global economic growth in 2024 by 0.2 percentage points to 3.1%, thanks to the unexpected resilience of developed and emerging economies around the world.
Significant improvement
The IMF forecasts that global growth will remain below its historical average of 3.8% in 2024 and 2025 due to the continued impact of high interest rates, the withdrawal of government support to respond to the Covid-19 pandemic, and persistent low productivity.
The IMF forecasts headline inflation to remain unchanged at 5.8% in 2024, but there is a significant fundamental shift between richer and poorer countries. Specifically, inflation in advanced economies is forecast to be 2.6% in 2024, down 0.4 percentage points from the October 2023 forecast, while inflation in emerging and developing economies is expected to reach 8.1%, up 0.3 percentage points.
The main driver of the increase is Argentina, where consumer prices are set to rise more than 200% by 2023 amid an economic crisis. The IMF reversed its forecast for the country’s economic growth this year from 2% in its October 2023 report to -2.8%, in a report released on January 30.
According to the IMF, excluding Argentina, global inflation will fall to 4.9% this year. The US and China, the world's two largest economies, both saw significant improvements in their growth prospects for 2024. The IMF forecasts the US economy will grow 2.1%, down slightly from 2.5% in 2023. Meanwhile, China's economy is on track to grow 4.6% this year, up 0.4% from its previous forecast, although that is lower than the 5.2% growth in 2023.
The resilience of the US and China and the strong performance of emerging market economies have all contributed to a slightly brighter picture. India remains a bright spot in the global economy, with the IMF forecasting its economy to grow 6.5% this year, up 0.2 percentage points from its October 2023 forecast. The IMF also raised its growth forecasts for Russia, Iran and Brazil.
Effects of the fight against inflation
While many Asian economies are doing well, Europe continues to cast a shadow over the global outlook, with the IMF highlighting the Eurozone. Among the Group of Seven (G7) economies, growth in Europe remains weak, while Japan and Canada are expected to outperform, the IMF said. With the exception of Argentina, all countries covered by the report are expected to post positive growth this year. This is an improvement from 2023, when four of the 30 economies covered by the report were in recession.
“What we saw is that the global economy was very resilient in the second half of last year and that will continue into 2024,” said IMF chief economist Pierre-Olivier Gourinchas. The fight against inflation is winning, setting the stage for central banks, the US Federal Reserve, the European Central Bank, the Bank of England and other financial institutions to start easing their policy rates. The world will see interest rate cuts between now and the second half of this year.
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