IMF – Steady but slow: resilience amid divergence

IMF growth forecasts

The IMF forecasts global real GDP growth of 3.2% in both 2024 and 2025 (see Table 1). The projection for 2024 is 0.1 percentage points above its January forecast and is equal to estimated world output growth in 2023.² The projection for global GDP growth in 2025 is unchanged.

Table 1. IMF’s World Economic Outlook real GDP growth projections (% change, year-on-year)

Source: IMF. Data as at 16 April 2024.

In advanced economies, growth is projected to rise from 1.6% in 2023 to 1.7% in 2024. This represents a 0.2 percentage point upward revision to the projection made in January and is attributed to a stronger growth projection for the US. Having previously expected US economic growth to slow this year, the IMF now expects it to accelerate. This reflects momentum from stronger-than-expected growth in 2023 due to robust private consumption amid a tight labour market as well as the effects of fiscal stimulus.

Conversely, the IMF trimmed the eurozone growth forecast and expects it to experience a mild recovery from 2023. Much of the downward revision is due to a cut to the IMF’s growth projection for Germany due to weak consumer sentiment. The divergence between projected output for the US and other advanced economies in 2024 is notable, though the gap is expected to narrow in 2025 as US growth slows and other advanced economies’ growth rises.

In emerging market (EM) economies, the IMF expects real GDP growth of 4.2% in both 2024 and 2025. The slightly improved outlook for 2024 is mostly due to stronger growth in India reflecting strong domestic demand and a rising working-age population.³

Risks to the outlook

The IMF believes that risks to the global outlook are balanced. This does not signify much change from the January WEO update but marks a meaningful improvement in the distribution of risks relative to WEOs in 2023.

April’s WEO highlights commodity price spikes amid regional conflicts as one of the greatest downside risks to the outlook. Were the conflict in Gaza and Israel to escalate into the wider region, or the war in Ukraine to escalate, additional supply shocks could complicate the disinflation process, eroding consumer purchasing power and delaying monetary policy easing.

While headline inflation would be the initial victim of commodity price shocks, the IMF also stressed that persistent labour market tightness or renewed supply chain disruptions could slow the decline in core inflation. If this transpired, interest rate expectations would likely rise and asset prices could fall, creating a negative wealth effect and reducing consumer demand.

Conversely, the pass-through to inflation of past price shocks could fade faster-than-expected and labour markets could loosen. The IMF views these as plausible upside risks for global growth as they would alleviate underlying inflationary pressures, allowing central banks to reduce interest rates sooner than expected.

The IMF notes that many advanced and EM economies require fiscal consolidation to reduce debt-to-GDP ratios. However, tax hikes or spending cuts beyond what is currently expected by the IMF could result in weaker growth.

However, 2024 sees many countries hold national elections and the IMF believes it is possible policymakers postpone contractionary fiscal adjustments or announce new expansionary measures to boost short-term growth. These, expansionary fiscal policies could fuel inflation and result in higher interest rates. The resultant increase in debt servicing costs could increase the cost of reducing debt-to-GDP ratios with a negative impact on long-run growth in the view of the IMF.

China’s real estate struggles are well documented and the IMF points to this as another downside risk to global real GDP growth.⁴ April’s WEO makes the point that larger and more prolonged declines in real estate investment are possible, complemented by expectations of house prices falling further and reducing housing demand. Given a large amount of Chinese households’ wealth is in real estate, this could dampen domestic demand. Resulting deflationary pressures would be negative for global growth as the IMF estimates weaker demand for trading-partner products would outweigh gains from lower commodity prices.

The document highlights the impact of artificial intelligence (AI) on economic outcomes remains uncertain. The IMF views this as an upside risk, estimating that AI could impact around 60% of workers in advanced economies, with around half of them becoming more productive and earning higher wages. This positive income effect would improve consumer demand and boost global growth.

In conclusion, the global growth outlook has been revised up marginally by the IMF relative to its previous WEO publication, and growth is now expected to remain steady over the next two years. The resilience of the US economy in 2024 is notable, as is the divergence between its rate of growth relative to other advanced economies. If the IMF’s baseline projections materialise, the stronger growth picture would likely be supportive of asset prices. Risks to the outlook remain balanced and are dominated by themes of inflation and fiscal policy.

* https://go.pardot.com/e/931253/ld-economic-outlook-april-2024/43pwm/359539446/h/2_MO9gig966UXmlfpEBx1iG-PofvMwg7heKUTrWLphA
2 https://go.pardot.com/e/931253/ic-outlook-update-january-2024/43pwq/359539446/h/2_MO9gig966UXmlfpEBx1iG-PofvMwg7heKUTrWLphA
³ India’s rising working-age population has been accompanied by higher labour force participation, which is conducive to stronger growth: https://go.pardot.com/e/931253/tors20Calendar20Year202023-pdf/43pwt/359539446/h/2_MO9gig966UXmlfpEBx1iG-PofvMwg7heKUTrWLphA
⁴ See EFGAM Macro Flash Note, ‘China: a year of base effects and property sector deleveraging’ (January 2024): https://go.pardot.com/e/931253/perty-sector-deleveraging-html/43pwx/359539446/h/2_MO9gig966UXmlfpEBx1iG-PofvMwg7heKUTrWLphA