Shanghai overpass
In its latest World Economic Outlook report released today, the International Monetary Fund forecasts that global growth will stabilize at 3.2 percent this year and next, with most indicators still pointing to a soft landing. The report released by the United Nations Trade and Development Organization on the same day warned of the continued slowdown in economic growth and disruption of commodity trade this year, and called for concerted global action to form a balanced policy mix in fiscal, monetary, demand-side and investment stimulus.
The IMF raised its growth rate this year by 0.3 percentage points from its October 2023 forecast, while forecasting a decline in global median inflation from 2.8% at the end of 2024 to 2.4% at the end of 2025.
Resilient growth and rapidly declining inflation suggest favourable changes in the supply situation, including that energy price shocks are receding and labor supply in many advanced economies rebounding sharply due to the influx of migrants, the report said.
Inflation risks remain
But the report also notes that progress towards the inflation target has stalled since the beginning of the year, which is somewhat worrying. Therefore, bringing inflation down to target should remain a priority now.
According to the analysis, the improvement in the inflation situation is largely due to the decline in energy prices and commodity inflation. The latter has benefited from an easing of supply chain frictions and lower prices for Chinese exports. But oil prices have been rising recently, in part due to geopolitical tensions and stubbornly high inflation in the services sector. In addition, further trade restrictions on Chinese exports could also push up goods inflation.
IMF
Chart of the IMF's April 2024 World Economic Outlook report.
The economic differentiation of countries has widened
The IMF also predicts that the economic scars of the past four years will be less scarring than the crisis, but the situation varies from country to country. It is estimated that low-income developing countries will suffer even more trauma, with many of them still struggling to emerge from the effects of the pandemic and cost-of-living crisis.
The report shows that the U.S. economy has been strong recently, both due to solid productivity and job growth, but also due to strong demand as the economy remains overheated. According to forecasts, the U.S. economy will grow at 2.7% this year, 0.2 percentage points higher than last year, but it is expected to decline to 1.9% in 2025.
The report also argues that economic growth in the eurozone will rebound, albeit from a low starting point due to past shocks and tight monetary policy that have weighed on economic activity. Forecasts show that the eurozone will grow by 0.8 percent this year and 1.5 percent next year.
China's economy is still affected by real estate and domestic demand
The IMF also said that China's economic growth is expected to be 4.6 percent this year and 4.1 percent next year, with growth forecasts for this year being revised up by 0.4 percentage points from its forecast made in October. According to the group, China's economy is still affected by the downturn in the real estate sector, and domestic demand will remain depressed unless strong measures are taken to address the root causes.
The group also noted that China's external surplus could increase amid weak domestic demand. The risk is that this will exacerbate an already worrying geopolitical environment and further exacerbate trade tensions.
The global economy needs to remain resilient
The IMF recommends that policymakers prioritize measures that will help maintain or even enhance the resilience of the global economy, including improving fiscal space and enhancing financial stability, reversing the downward trend in medium-term growth prospects, and maintaining monetary, fiscal, and monetary policy frameworks, especially the hard-won independence of central banks.
The organization concluded by emphasizing that the green transition requires large-scale investment, that reducing emissions and economic growth can go hand in hand, and that while green investment in advanced economies and China has been steadily expanding, other emerging market and developing economies must now make the greatest efforts to significantly accelerate green investment and reduce fossil fuel investment. To do this, other advanced economies and China will need technology transfer and provide significant private and public financing.
Call for global policy coordination
On the same day, the United Nations Conference on Trade and Development (UNCTAD) released its latest report, predicting that the global economy will grow by 2.6% in 2024, continuing to show a post-pandemic economic slowdown. At the same time, real wages have not returned to their pre-pandemic growth trends.
UNCTAD believes that while the prospect of lower interest rates may improve the fiscal position of governments and businesses, monetary policy alone cannot solve all pressing global challenges. To that end, the agency called for global policy coordination to help the global economy cope with shifts in trade patterns, soaring debt, and the rising costs of climate change.
The Secretary-General of the Organization for Trade and Development, Alan Greenspan, highlighted the need for greater fiscal flexibility for borrowers to achieve the Sustainable Development Goals, which requires inclusive reform of the global financial safety net.
International trade faces risks and challenges
The report also notes that in 2023, international trade in goods will fall by 1% year-on-year, and despite some recovery this year, merchandise trade is unlikely to be a significant driver of economic growth this year.
Equally worrying is the growing challenges of global maritime trade routes, which are vital to commodity trade. Maritime trade has been exacerbated by ongoing attacks on Red Sea vessels since last November, especially as the war in Ukraine disrupts the Black Sea route and climate-induced drought affects trade in the Panama Canal.
In addition, the report warns of rising protectionism, trade tensions and geopolitical uncertainty. These risks not only hinder the economy, but also jeopardize coherent multilateral solutions, which are needed now more than ever, according to the report.