The International Monetary Fund has revised its global growth forecast for 2024, bumping it up by 0.2 percentage points from its previous projection in October. The IMF credits the unexpected strength of the U.S. economy and fiscal support measures in China for this positive change. This is great news not just for the big players, but also for large emerging market economies such as Brazil, India, and Russia, which have also outperformed previous expectations.
The IMF’s chief economist, Pierre-Olivier Gourinchas, told CNBC’s Karen Tso that the resilient global economy in the second half of last year is set to carry over into 2024. This is due to a combination of strong demand, private consumption, government spending, as well as improved labor markets and easing supply chain frictions.
The U.S. economy in particular put up an impressive show in the fourth quarter of 2023, exceeding expectations and growing at a 3.3% pace. Meanwhile, China has faced several challenges over the past year, like a slow rebound in post-pandemic spending, deflation concerns, and an ongoing property sector crisis. Yet, the government’s rollout of stimulus measures has contributed to the IMF’s upgrade in global growth forecasts.
Despite these positive revisions, the IMF notes that the forecasts remain below the global growth average from 2000 to 2019, citing higher interest rates, the withdrawal of fiscal support programs, and low productivity growth as ongoing challenges.
On the bright side, restrictive monetary policies have resulted in inflation falling faster than expected in most regions. Gourinchas describes this as “the other piece of good news.” The IMF’s projections see global inflation at 5.8% in 2024 and 4.4% in 2025. Advanced economies are expected to see lower rates of 2.6% and 2% in 2024 and 2025, respectively. This could potentially set the stage for central banks to start easing their policy rates once there is more certainty about the path forward.
However, Gourinchas warns against central banks easing too early while also acknowledging the risk of policy remaining too tight for too long, which could slow growth and bring inflation below 2% in advanced economies.
Overall, despite the ongoing challenges and risks, the IMF’s revised global growth forecasts and outlook on inflation are reasons to be cautiously optimistic. The foundation for continued economic recovery and stability appears to be in place, with the hope that central banks and governments will make prudent decisions to maintain this positive trajectory.
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