The International Monetary Fund (IMF) raised its forecast for global growth, projecting 3.1% in 2024. However, Europe’s prospects are not as positive.
Global growth is stronger than expected and will be 3.1% in 2024, the same as in 2023, as the US and emerging economies have shown resilience to previous crises, with strong consumption driving the growth, according to the International Monetary Fund (IMF).
The IMF has increased its previous forecast by 0.2%, in its latest World Economic Outlook report, factoring in upgrades for China, the United States, and large developing economies.
Global GDP is expected to accelerate slightly in 2025, by 3.2%.
However, the global growth is historically low, the average global GDP of the years 2000-2019 was 3.8%.
Shaky growth in Europe
The outlook for Europe has been slightly downgraded for this year, largely because of a weaker-than-expected growth in 2023. Tight monetary conditions and in some cases, the withdrawal of fiscal support after the pandemic, paired with low productivity held back the block’s performance.
European economies were also still bearing the marks of the relatively high exposure to the war in Ukraine.
The IMF estimated that the Eurozone economy has expanded by 0.5% in 2023.
Further in 2024, the IMF lowered its forecast by 0.3% compared to its previous report in October and now it projects a recovery, with the GDP growth reaching 0.9% in the block, fuelled by stronger household consumption, as slower inflation and real income growth arise.
The UK economy is facing a similar scenario with a modest recovery of 0.6% growth in 2024, following an estimated 0.5% in 2023, as the lagged negative effects of high energy prices wane. Later in 2025, the UK economy is projected to swell by 1.6%, as disinflation will likely result in the Bank of England easing financial conditions with real incomes recovering.
Germany, the strongest economy in the EU, is estimated to see a contraction, its GDP is projected to fall by 0.3% in 2023 and will recover by reaching a growth of 0.5% this year, before achieving 1.6% in 2025.
France, the second biggest economy in the bloc, is expected to have 1% growth this year and 1.7% in 2025.
Italy probably has the weakest outlook of the leading economies in the Eurozone, as the IMF estimates 0.7% growth in 2023, as well as in 2024 – and only 1.1% for next year.
Spain, on the other hand, is expected to see 1.5% growth this year, after seeing 2.4% in 2023, and is set to get back on track with 2.1% in 2025.
The forecast notes that Russia has shown a stronger-than-expected performance in 2023, due to high military spending and strong consumption.
These played a role in the IMF raising Russia’s GDP expectations to 2.6% in 2024, which could be followed by a sharp decline and show only 1.1% growth in 2025.
Growth in the world: Resilient but slow
The United States, however, proving to be more resilient than expected, is facing a slowdown from its current peaks.
Mainly due to the tight monetary conditions, and elevated borrowing costs, the IMF expects US GDP to slow from 2.5% in 2023 to 2.1% this year – and 1.7% in 2025.
The US economy is also expected to have lagged effects of gradual fiscal tightening, and the labour market being softer, with fewer vacancies and slightly higher unemployment.
This could lower consumption, the source of two-thirds of the growth in the world’s largest economy.
However, for this year, the IMF added an upward revision of 0.6% since the October 2023 report based on results of a stronger-than-expected growth in 2023.
How emerging economies are performing?
What is seen as the engine of global growth may have no more steam, as growth in emerging and developing Asia is expected to decline in the next two years. The IMF’s estimation is 5.4%, 5.2% and 4.8% for 2023, 2024 and 2025 respectively.
However, this year’s forecast has been modified upwards by 0.4%, mainly due to the better-than-expected performance from the Chinese economy.
Descending inflation across the world
Both headline and core inflation are declining in the next two years, with advanced economies leading the way.
Global headline inflation (including volatile food and energy prices ) is expected to fall from an estimated 6.8% last year to 5.8% in 2024 and 4.4% in 2025.
Advanced economies are expected to see faster disinflation, reaching 2.6% in 2024. (The inflation target for the European Central Bank, the Bank of England as well as the Federal Reserve is 2%.)
This could leave room for easing tight monetary conditions in the US and Europe.
The IMF projects key rates to remain at current levels for the Federal Reserve, the European Central Bank, and the Bank of England until the second half of 2024, before gradually declining as inflation moves closer to targets.
Risks on the horizon
The report notes that economic growth could be even higher than the current forecast due to faster-than-expected disinflation and prolonged supportive fiscal policy across the globe, as well as a speedier recovery in China and if artificial intelligence is raising productivity in the medium-term.
However, the growth could be held back by new commodity price spikes from geopolitical shocks, including continued attacks in the Red Sea fuelling inflation, leading to elevated rates for a longer than expected period. This would keep businesses from borrowing money and investing, slowing down the economic growth.
Faltering growth in China, mainly fuelled by fears concerning its property sector, could also leave a serious mark on the global economy, as it provides 25% of its GDP.
The IMF advises policymakers to carefully orchestrate the final descent of inflation while it is also important to gradually withdraw fiscal support, built up during the Covid-19 pandemic, noting that government debts are reaching very high levels.
Looser fiscal policy could support growth temporarily. However, it is time to rebuild buffers to prepare for future shocks and achieve debt sustainability, the report also noted.
According to the IMF, necessary structural reforms would reinforce productivity growth and debt sustainability.
Also, more efficient multilateral coordination is needed for, among other things, to create space for necessary investments, as well as to mitigate the effects of climate change.