The global economy is expected to expand at a lackluster 3.2% this year and to remain at that level in 2025, the International Monetary Fund (IMF) said in a report on Tuesday, lowering the projection for next year while warning that the stable figures masked "important" regional and sectoral shifts.
The International Monetary Fund raised its 2024 economic growth forecasts for the U.S., Brazil and Britain but cut them for China, Japan and the eurozone, adding that risks abound from armed conflicts, potential new trade wars and the hangover from tight monetary policy.
The IMF's latest World Economic Outlook (WEO) said the shifts will leave 2024 global gross domestic product (GDP) growth unchanged from the 3.2% projected in July, setting a lackluster tone for growth as world finance leaders gather in Washington this week for the IMF and World Bank annual meetings.
In its new report, the IMF also estimates that global inflation will continue to ease, hitting 5.8% this year, before falling to 4.3% in 2025.
"We are seeing inflation moving in the right direction without a major slowdown in economic growth or a global recession," IMF chief economist Pierre-Olivier Gourinchas told Agence France-Presse (AFP) in an interview ahead of the report's publication.
"In our baseline analysis, in advanced economies (inflation) will be back at central bank targets in 2025," he continued, adding it would take "a little bit longer" for emerging markets.
The Fund's WEO report noted that global growth is expected to trend to a lackluster 3.1% by 2029, and warned of growing risks to that metric.
Beneath the relatively calm outlook for growth through 2025, "the picture is far from monolithic," the Fund said, warning of "important sectoral and regional shifts" taking place over the past six months.
The report finds that the United States has remained an engine of global growth – in sharp contrast with the euro area, where expansion remains slow.
The world's largest economy is now expected to grow by 2.8% this year, down ever-so-slightly from the 2.9% seen in 2023, but still a shade better than the Fund's previous estimate in July.
It is then expected to ease somewhat to 2.2% in 2025 – up 0.3 percentage points from July – as fiscal policy is "gradually tightened and a cooling labor market slows consumption," the IMF said.
"The U.S. economy has been doing very well," Gourinchas said, pointing to strong productivity growth and the positive effects of a surge in immigration on economic growth.
He added that the United States is "very close" to achieving a soft landing -- a rare feat in monetary policy, where inflation falls to within targets without spurring a severe recession.
In Europe, growth is still trending higher but remains low by historical standards, and is on track to be at an anemic 0.8% this year, rising slightly to 1.2% in 2025.
While France and Spain saw upgrades in their outlook for 2024, the IMF cut its projections for German growth by 0.2 percentage points this year, and by half a percentage point next year, citing its "persistent weakness in manufacturing."
There was some good news in the United Kingdom, where growth is projected to accelerate in both 2024 and 2025, "as falling inflation and interest rates stimulate domestic demand."
Growth in Japan is expected to slow sharply to just 0.3% this year, before accelerating to 1.1% next year, "boosted by private consumption as real wage growth strengthens," according to the IMF.
The Fund expects the growth in economic output in China to continue to cool, easing from 5.2% last year to 4.8% this year, and then falling further to 4.5% in 2025.
"Despite persisting weakness in the real estate sector and low consumer confidence, growth is projected to have slowed only marginally," the IMF said, pointing to "better-than-expected" net exports from the world's second-largest economy.
The slowdown in India looks set to be more pronounced, with the IMF penciling in growth of 7.0% this year, down from 8.2% in 2023.
It is then set to slow even further to 6.5%, as the "pent-up demand accumulated during the pandemic" runs out, the IMF said.
The IMF expects growth in the Middle East and Central Asia to pick up slightly to 2.4% this year, before jumping to 3.9% in 2025 as the temporary effect of oil and shipping disruptions fade.
In Sub-Saharan Africa, the IMF predicts that growth will remain unchanged at 3.6% this year, rising to 4.2% in 2025 as weather shocks abate and supply constraints ease.
The report, which shared the countries' economic growth estimates, stated that the Turkish economy is expected to grow by 3% this year and 2.7% next year.
The IMF had predicted in its July estimates that the Turkish economy would grow by 3.6% in 2024 and 2.7% in 2025.
Türkiye has seen a period of tighter monetary policy in a bid to curb inflation and analysts have predicted earlier that the growth would likely slow down this year in the face of interest rate hikes.
In counting risks to the global outlook, the IMF flagged the potential for major tariff increases and retaliatory measures, but it did not single out U.S. Republican presidential candidate Donald Trump's vow to impose tariffs of 10% on global imports to the U.S., and 60% on goods from China.
Instead, it contains a proxy adverse scenario that includes 10% two-way tariffs among the U.S., eurozone and China plus 10% U.S. tariffs on the rest of the world, reduced migration to the U.S. and Europe, and financial market turmoil that tightens financial conditions. Were this to occur, the IMF said it would reduce the overall global GDP output level by 0.8% in 2025 and 1.3% in 2026.
Other risks outlined in the report included the potential for a spike in prices of oil and other commodities should conflicts in the Middle East and Ukraine widen.
The IMF cautioned countries against pursuing industrial policies to protect domestic industries and workers, saying that they often fail to deliver sustained improvements in living standards.
"Economic growth must come instead from ambitious domestic reforms that boost technology and innovation, improve competition and resource allocation, further economic integration and stimulate productive private investment," Gourinchas said in his blog post.
