The International Monetary Fund (IMF) has slightly upgraded its global growth forecast for 2024, projecting a 3.2% expansion, up 0.1 percentage points from its January estimate. Despite the modest improvement, the IMF warns that the global economy is entering a period of slow growth, dubbing it the "Tepid Twenties."
In its latest World Economic Outlook, the IMF highlights the surprising resilience of the global economy in the face of inflationary pressures and monetary policy shifts. "Despite gloomy predictions, the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose," said Pierre-Olivier Gourinchas, the IMF's chief economist, in a blog post accompanying the report.
The report points to the standout performance of the United States, which is expected to grow by 2.7% this year, 0.6 percentage points higher than the IMF's January forecast. The US economy has already surpassed its pre-pandemic growth trend, driven by robust productivity and employment growth. However, Gourinchas cautioned that the US economy remains overheated, calling for a "cautious and gradual approach to (monetary) easing by the Federal Reserve."
In contrast, the IMF downgraded its growth forecast for the 20 countries that use the euro to 0.8%, a decrease of 0.1 percentage points from its January projection. The European economy has struggled to regain momentum after the pandemic, weighed down by high interest rates and the lingering effects of earlier rises in energy costs.
The IMF report also highlights potential downside risks to the global economy, including a weakened Chinese economy, geopolitical tensions, trade disputes, and prolonged high interest rates. On the upside, looser fiscal policy, falling inflation, and advancements in artificial intelligence were cited as potential growth drivers.
Despite the rosier outlook, the IMF warns that progress toward inflation targets has somewhat stalled since the beginning of the year. Global headline inflation is expected to fall from an annual average of 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. Gourinchas emphasizes the importance of central banks ensuring a smooth touchdown for inflation, neither easing policies prematurely nor delaying too long.
The IMF report also raises concerns about the fiscal stance of the United States, which it considers "out of line with long-term fiscal sustainability." Gourinchas warns that high government spending and debt levels in the US pose short-term risks to the disinflation process and longer-term fiscal and financial stability risks for the global economy.
Despite the challenges ahead, IMF managing director Kristalina Georgieva offers a glimmer of hope, suggesting that the decade could be remembered as the "Transformational Twenties" if the world effectively addresses climate change and embraces AI-driven digitization.
