The global economy has been hit by a pandemic, record levels of inflation, protracted wars and skyrocketing over the past four years, raising fears of a painful global recession. But new forecasts published on Tuesday show the world has defied the odds, averting the threat of a so-called hard landing.
Forecasts from the International Monetary Fund painted a picture of economic resilience – one that policymakers hoped to achieve as they tried to manage a series of successive crises.
In its latest economic outlook, the IMF forecast global growth of 3.1% this year — the same pace as in 2023 and an upgrade from its previous forecast of 2.9%. Forecasts for a global recession have receded, with inflation falling faster than economists expected. Central bankers, including the Federal Reserve, are expected to begin cutting interest rates in the coming months.
“The global economy has shown remarkable resilience and we are now in the final descent into a soft landing,” said Pierre-Olivier Gourinchas, the IMF’s chief economist.
Policymakers who feared they would need to put the brakes on economic growth to contain rising prices managed to tame inflation without sending the world into recession. The IMF expects global inflation to ease to 5.8 percent this year and to 4.4 percent in 2025 from 6.8 percent in 2023. It estimates that 80 percent of global economies will experience lower annual inflation this year.
The better outlook is largely due to the strength of the US economy, which grew 3.1 percent last year. That strong growth came despite the Fed’s aggressive series of rate hikes, which pushed borrowing costs to their highest levels in 22 years. Consumer spending in America remained strong while businesses continued to invest. The IMF now expects the US economy to grow by 2.1% this year, down from its previous forecast of 1.5%.
China’s economy is also growing faster than previously thought and is projected to grow 4.6 percent this year. IMF officials said the difficulties facing China’s real estate sector have not slowed the economy as much as they predicted. the Chinese government, they noted, has provided “significant” fiscal support.
Other major economies, such as India and Brazil, also appear to have performed better than expected. Perhaps most surprisingly, Russia, which has faced a barrage of Western sanctions and export restrictions since its invasion of Ukraine in February 2022, received the biggest upgrade of any country the IMF monitors despite a concerted effort to cripple its economy, Russia’s economy is expected to grow by a healthy 2.6 percent this year.
However, sluggishness remains in some major economies. Geopolitical crises and industrial rivalries were particularly fierce in the eurozone, where new data released on Tuesday showed the economy stagnated in the final three months of 2023 and grew by just 0.1% for the year.
The IMF said the “particularly subdued” growth in Europe reflected “weak consumer sentiment, the lingering effects of high energy prices and weakness in interest-sensitive manufacturing and business investment.”
There are other threats to the global economy, including geopolitical turmoil in the Middle East. The war in Gaza and related attacks on ships by Iran-backed Yemeni rebels known as the Houthis in the Red Sea are of particular concern to the IMF. underlying inflation’ that may require central bankers to keep interest rates higher for longer.
The IMF also expressed fear of President Biden’s use of industrial policy to subsidize America’s clean energy and semiconductor sectors. Mr Gurrinhas said such actions led to a “groom” in trade restrictions, which weighed on global production. He said he believes some of the measures put in place by the United States, such as rules requiring companies to use American-made parts to qualify for certain manufacturing tax credits, do not comply with international trade rules.
But Biden administration officials see these policies as among the biggest factors helping fuel America’s economic recovery.
In a speech in Chicago last week, Treasury Secretary Janet L. Yellen noted that America’s economy had outperformed that of the rest of the world, achieving stronger growth while reducing inflation faster than other large, advanced economies.
“Simply put, it was the fairest recovery on record,” he said.
