IMF upgrades US economic outlook amid tepid global growth forecast

The International Monetary Fund (IMF) has upgraded its economic outlook for the United States for this year, while downgrading growth expectations for Europe and China. The global growth forecast remains unchanged at a modest 3.2 per cent for 2024. According to the IMF, the US economy, the largest in the world, is projected to grow by 2.8 per cent in 2024, a slight decrease from 2.9per cent in 2023 but an improvement over the 2.6 per cent predicted in July. This growth has been driven by strong consumer spending, supported by increases in inflation-adjusted wages. However, the IMF forecasts a slowdown to 2.2 per cent growth in 2025, attributing this deceleration to potential changes in government spending and taxation with a new presidential administration and Congress.

In contrast, China's economic growth is expected to decline from 5.2 per cent last year to 4.8 per cent this year, further slowing to 4.5 per cent in 2025. The world's second-largest economy is grappling with a collapsing housing market and weak consumer confidence, despite some relief from strong exports. The eurozone, comprising 20 European countries, is expected to achieve growth of just 0.8per cent this year, an improvement from 0.4 per cent in 2023 but a downgrade from the previous 0.9 per cent forecast. Germany, in particular, is not anticipated to experience any growth this year due to a slump in manufacturing and real estate.

On the inflation front, the IMF notes a cooling trend, with global inflation projected to drop from 6.7 per cent in 2023 to 5.8 per cent this year and further to 4.3 per cent in 2025. In wealthier countries, inflation is forecast to decrease from 4.6 per cent to 2.6 percent this year, approaching central bank targets. This easing inflation has allowed the Federal Reserve and the European Central Bank to begin reducing interest rates after aggressive hikes aimed at curbing post-pandemic inflation.

IMF chief economist Pierre-Olivier Gourinchas remarked, "The battle against inflation is almost won," highlighting that inflation rates in most countries are nearing central bank targets. However, he cautioned that while lower borrowing costs could stimulate growth, the necessity to manage large government deficits might hinder economic expansion.

Globally, the economy is expected to grow by 3.2 per cent in both 2024 and 2025, a decline from 3.3 per cent in 2023. This is notably below the pre-pandemic average growth rate of 3.8 per cent from 2000 to 2019. Geopolitical tensions, particularly between the US and China, are also raising concerns about the efficiency of global trade, as countries may increasingly prefer trading with allies over seeking the best prices.

India's economy is projected to grow by 7 per cent this year and 6.5 per cent in 2025, although this marks a decrease from last year's 8.2 per cent growth due to reduced consumer spending following a post-pandemic surge. Japan is expected to experience minimal growth of 0.3 per cent this year, recovering to 1.1 per cent in 2025, while the UK is forecasted to grow by 1.1 per cent, a recovery from last year’s sluggish 0.3 per cent.