IMF keeps 2024 global growth forecast intact but high uncertainty dominates outlook

Global economy projected to expand 3.2 per cent this year, followed by weaker medium-term growth, World Economic Outlook report finds

International Monetary Fund chief economist Pierre-Olivier Gourinchas speaks during the IMF-World Bank annual meetings in Washington, DC, on Tuesday. AFP

The International Monetary Fund on Tuesday maintained its 2024 projection for the global economy as inflation continues to moderate, although a high degree of uncertainty surrounds the world outlook.

Looking beyond the one-year outlook, the global economy faces a feeble period of medium-term growth, the IMF said as it called for a slate of reforms in its latest World Economic Outlook during the annual meetings of the fund and the World Bank in Washington.

The IMF forecasts the global economy to grow by 3.2 per cent in 2024 and in 2025, unchanged from July's estimates. The IMF also raised its growth outlook for the US to 2.8 per cent this year, owing to stronger consumption and non-residential investment due to large wage gains.

In the euro area, growth is expected to pick up to 0.8 per cent due to better exports, before rising to 1.2 per cent in 2025 on stronger domestic demand. Falling interest rates are expected to spur economic growth in the UK by 1.1 per cent in 2024 and 1.5 per cent in 2025.

Intensifying conflicts have also led to “sizeable downside” revisions to low-income and developing countries, IMF director of research Pierre-Olivier Gourinchas said.

The IMF lowered its outlook for the Middle East and Central Asia – similar to the World Bank's projections for the region last week – by 0.4 per cent this year on Saudi Arabia oil production cuts and the conflict in Sudan. Growth is expected to pick up to 3.9 per cent in 2025.

At the same time, headline inflation is projected to fall to 3.5 per cent by the end of 2025, slightly below the average of 3.6 per cent over the past 20 years before the Covid-19 pandemic and well below its peak of 9.4 per cent in 2022.

“The battle against inflation is almost won,” Mr Gourinchas said during a press conference on Tuesday.

This disinflationary process has been accomplished without a global recession – known as a soft landing – which Mr Gourinchas hailed as a “major achievement”.

After years-long monetary-tightening campaign, Mr Gourinchas said inflation is now near central banks' targets. Headline inflation in the US currently sits at 2.4 per cent and1.7 per cent in the Euro area and the UK.

Most advanced economies have now begun cutting interest rates, with the Federal Reserve recently announcing its first cut this cycle, of 50 basis points in September. The European Central Bank made its third quarter-percentage-point cut of the year last week, while the UK cut rates by 25 basis points before holding steady last month.

"Despite the good news on inflation, risks are now tilted to the downside," Mr Gourinchas said.

Contributing to the heightened uncertainty are geopolitical tensions, "especially in the Middle East," he added, which could negatively impact commodity markets.

The IMF also said central banks still run the risk of tightening monetary policy for too long, which could have an adverse effect on growth.

Weak medium-term growth

Looking beyond the one-year outlook, the IMF warned of a feeble period of economic growth in the medium term.

“For many advanced and emerging market economies, the five-year-ahead forecast is weaker than the one-year-ahead forecast … suggesting that persistent headwinds to growth will remain prevalent over the medium term,” the IMF said.

The lender projects global growth to be at 3.1 per cent in five years, “the lowest in decades”.

“While much of this reflects China’s weaker outlook, medium-term prospects in other regions, including Latin America and the European Union, have also deteriorated,” it said.

China is projected to have a gradual slowdown in the coming years, with growth having “slowed only marginally” to 4.8 per cent this year.

IMF calls for policy pivot

With inflation climbing back down to most central banks' targets, the IMF argued that the latest development creates the opportunity for what it calls a “policy triple pivot”, which, the lender said, would provide significant breathing room for governments.

It said lower interest rates in major economies will ease pressure faced by emerging markets as their currencies begin to strengthen against the US dollar. The IMF also called for governments to pivot on fiscal policy and rebuild their fiscal buffers.

“While the decline in policy rates provides some scale relief by lowering funding costs, this will not be sufficient, especially as long-term real interest rates remain far above pre-pandemic levels,” it added.

The IMF recently warned about the fiscal outlook, projecting that global debt is forecast to surpass $100 trillion by the end of the year. The fund also called on nations to embrace growth-productivity reforms.