NEW YORK: The International Monetary Fund (IMF) has inched up its expectations for global economic growth this year, citing strength in the United States and some emerging markets, but forecasts an outlook amid continued inflation and geopolitical risks. warned to remain cautious.
The government said in its World Economic Outlook that it expects global economic activity to expand by 3.2% this year, an increase of 0.1 percentage points from its January forecast.
The forecast for 2025 remains unchanged at 3.2%. Bloomberg Economics forecasts global expansion of 2.9% this year and 3.1% next year.
Despite the upgrade, the IMF warned that high borrowing costs and the end of financial support were weighing on growth in the short term.
At the same time, the medium-term outlook remains the weakest in decades due to declining productivity and global trade tensions.
Pierre-Olivier Grinchat, the IMF's chief economist, warned of stubborn inflation and rising global inequality, but said: “Many challenges remain and decisive action is needed.” stated in an online memo.
The outlook paints a picture of a global economy with stagnant potential for years to come, although the worst risks of stagflation caused by the pandemic have been averted.
Although it is too early to ease monetary policy and declare victory, central banks' fight against inflation is heading in the right direction.
And the risks to growth are numerous, especially from wars in Ukraine and the Middle East.
The IMF also warned of the alarming underperformance of low-income countries compared to the rest of the world, lowering the group's growth forecasts.
These countries are experiencing higher-than-expected inflation due to the strength of the US dollar, as well as rising prices for food, fuel and fertilizer.
“The U.S. economy is already growing faster than pre-pandemic trends,” Grinchas wrote.
“However, we now estimate that further scarring will remain for low-income developing countries, many of which are still struggling to turn the page from the pandemic and cost-of-living crisis.”
Among future downside risks, the war in Ukraine and spillover violence in the Middle East risk accelerating inflation and contributing to higher interest rate expectations, weighing on markets and sentiment.
French Finance Minister Bruno Le Maire also spoke to reporters on Monday ahead of a visit to Washington and warned of the cost of the conflict.
“The real economic risks are geopolitical, whether it's events in the Red Sea, the risk of escalation in the Middle East or the continuation of the conflict in Ukraine,” he said.
“All these geopolitical events are putting a terrible strain on economic growth.”
The fund also warned of risks from China's real estate crisis and worsening global economic fragmentation, driven primarily by strategic competition between the United States and China.
China earlier released data showing economic growth in the first quarter was stronger than expected due to a strong industrial sector, but a slowdown in economic activity in March meant it would take more time to maintain momentum. It suggested that support might be needed.
Among the upside risks is that inflation may slow more than expected and central banks may ease policy sooner.
Thanks to an aggressive rate hike cycle, inflation has slowed since 2022, when it reached its fastest pace in decades.
However, the economy in some large economies, including the United States, has not yet cooled enough to meet policy goals.
But the IMF expects major advanced economies to start cutting interest rates at some point in the second half of this year.
Average global consumer prices will likely rise by 5.9% this year and 4.5% next year, in each case 0.1 percentage point faster than the previous forecast in January.
The fund raised its forecast for U.S. growth in 2024 to 2.7% from 2.1% in January.
It downgraded the eurozone's credit rating slightly, saying the delayed effects of tight monetary policy and rising energy costs over the past few years would have a negative impact on economic activity.
China, the world's second-largest economy, is expected to grow by 4.6% this year and 4.1% next year, unchanged from the January forecast.
Weakness in the real estate sector and domestic demand weighed on economic activity, and the fund warned that China's exports of surplus goods could spark trade tensions with other countries.
Russia is expected to grow the most among major countries, with growth rates expected to increase by 0.6 percentage points to 3.2% this year and 0.7% points next year, due to strong crude oil exports to India and China due to rising global prices. boosted predictions.
India's forecast for this year has been raised to 6.8% from 6.5%.
The IMF has been extremely critical of the United States, calling its recent economic performance “impressive” and a key driver of global growth, but partly due to “budgetary policies deviating from long-term fiscal sustainability.” ”. ”
This strategy by the IMF's largest shareholder raises not only short-term inflation risks to the global economy but also long-term financial stability risks by increasing costs for other countries, the fund said.
“Something will have to give,” Grinchas wrote. — Bloomberg
