In a study released Tuesday, the IMF maintained its global growth projection for 2024 while lowering forecasts for the United States and Japan, warning of inflation risks and trade conflicts ahead.
According to the latest World Economic Outlook update, the International Monetary Fund expects the global economy to increase 3.2 percent this year, unchanged from its April prediction.
“Global activity and world trade firmed up at the turn of the year, with trade spurred by strong exports from Asia, particularly in the technology sector,” said the fund.
For 2025, it expects global growth of 3.3 percent.
Despite the fact that several nations saw higher-than-expected growth in the first three months of this year, the IMF identified noteworthy shocks in Japan and the United States.
The Washington-based lender also warned that inflationary risks have risen, with service costs preventing disinflation.
This raises the possibility of interest rates remaining high for longer, “in the context of escalating trade tensions and increased policy uncertainty.”
Trade and industrial policy are an area of concern, with countries potentially implementing measures that could have an impact on global economic integration, according to IMF head economist Pierre-Olivier Gourinchas.
When asked if risk assessments had evolved following the attempted assassination of former US President Donald Trump, the Republican Party’s nominee in the November election, Gourinchas stated that the fund will study the consequences.
Lower US forecast
While global growth appears to be solid, the IMF has cut its predictions for the United States and Japan.
The fund reduced US growth in 2024 to 2.6 percent, 0.1 percentage point lower than April’s prediction, due to a “slower-than-expected start to the year,” it said.
This year, Japan’s GDP is forecast to grow by 0.7 percent, 0.2 percentage points slower than expected.
This was primarily due to temporary supply delays and low private investment during the first quarter.
Meanwhile, the eurozone is exhibiting indications of recovery, with reasonably strong services activity, according to Gourinchas, but manufacturing remains poor.
China and India are anticipated to drive Asian economic growth, with China’s 2024 prediction raised to 5.0 percent due to a comeback in private spending and strong exports.
Meanwhile, India is expected to grow at a 7.0 percent annual rate, owing in part to improved consumer expectations.
Gourinchas also identified hazards to China arising from low confidence and unresolved property sector issues.
If internal demand falls, China will become more reliant on the external sector, a position that countries such as the United States are opposing.
Inflation risks
The IMF also warned about the danger of sticky inflation under increasing trade or geopolitical tensions, despite its expectation that inflation will return to target by the end of 2025.
Wage rise, if combined by low productivity, may make it difficult for businesses to reduce price increases.
Trade conflicts might potentially increase near-term inflation risks by raising the cost of imported goods, according to the IMF.
Higher inflation may increase the likelihood that interest rates will remain high for an extended period of time, raising financial risks.
The IMF advocated for prudent monetary policy modifications.
A revival of tariffs may also result in retaliation and a “costly race to the bottom,” according to the paper.
Another source of uncertainty is the possibility of “significant swings in economic policy as a result of the elections this year, with negative spillovers to the rest of the world.”