IMF forecasts global growth to stabilize at 3.2% amid challenges

The International Monetary Fund (IMF) projects that global economic growth will stabilize at 3.2% for both 2024 and 2025, with minimal change. However, the IMF describes this outlook as "disappointing."

In its latest World Economic Outlook report, the IMF revealed that the global growth forecast has barely shifted since July.

The projection for next year was trimmed by just 0.1 percentage points, while this year's forecast remains steady.

Upward revisions for the United States and emerging Asian economies helped counterbalance downgrades for other advanced economies, particularly the Eurozone.

Emerging markets and developing economies are facing disruptions in the production and transportation of key commodities, along with geopolitical tensions and extreme climate events.

These factors prompted the IMF to lower its growth forecasts for regions like the Middle East, Central Asia, and Sub-Saharan Africa.

However, these downgrades were offset by a brighter outlook for emerging Asia, where surging demand for semiconductors and electronics, driven by substantial investments in artificial intelligence, is fueling growth, according to the report.

Robust U.S. consumption

In the United States, the world’s largest economy, the IMF raised its 2024 growth forecast to 2.8%, up 0.2 percentage points from July.

This increase is attributed to strong consumer spending, supported by robust wage growth, as well as a rebound in non-residential investment.

However, U.S. growth is expected to slow to 2.2% next year, although this is still 0.3 percentage points higher than earlier estimates. The slowdown is largely due to gradual fiscal tightening and a cooling labor market, which is expected to curb consumer spending.

Eurozone struggles

For the Eurozone, the report highlights that growth reached just 0.4% in 2023. It is forecast to rise to 0.8% this year and 1.2% next year, driven by strong domestic demand, thanks to rising wages and increased investment.

A gradual easing of monetary policy is also anticipated. However, the growth outlook remains slightly lower than previously forecast in July and April, by 0.1 and 0.3 percentage points, respectively.

India leads BRICS growth

Among the BRICS economies, Russia is expected to grow by 3.6% this year, a 0.4 percentage point increase from July’s forecast.

However, its growth is expected to dip to 1.3% next year, down by 0.2 percentage points from three months ago.

In Brazil, the IMF raised its 2023 growth forecast to 3%, a significant 0.9 percentage point increase from July. However, the forecast for next year was lowered to 2.2%, down 0.2 percentage points.

South Africa is projected to have the slowest growth among major BRICS economies, with 1.1% growth this year—up 0.2 percentage points from the latest forecasts—and 1.5% growth next year, a 0.3 percentage point increase.

China is expected to grow by 4.8% this year, down 0.2 percentage points from July’s forecast, with the 2024 growth forecast remaining unchanged at 4.5%.

India is poised to lead BRICS growth, with the highest growth in the region, projected at 7% this year and 6.5% next year. These figures remain unchanged since July.

Five key downside risks

The IMF also pointed out that while the global decline in inflation marks a key milestone, downside risks are mounting and now dominate the economic outlook.

These risks include the escalation of regional conflicts, the potential for prolonged tight monetary policy, a possible resurgence of financial market volatility with adverse effects on sovereign debt markets, a deeper-than-expected slowdown in China, and continued escalation of protectionist policies.

After peaking at 9.4% year-on-year in the third quarter of 2022, global headline inflation is now expected to fall to 3.5% by the end of 2025, below the average of 3.6% seen between 2000 and 2019.

Global inflation is projected to drop from an annual average of 6.7% in 2023 to 5.8% this year and 4.3% next year, with advanced economies expected to return to their inflation targets sooner than emerging markets and developing economies, according to the IMF's projections.