On Tuesday, the International Monetary Fund lowered its global economic growth forecast for 2024 despite signs of resilience against recent shocks.
The IMF's latest World Economic Outlook report forecasts global growth to slow from 3.5 percent in 2022 to 3.0 percent in 2023 and 2.9 percent in 2024. This figure is well below the historical average of 3.8 percent, from 2000 to 2019.
Developed economies are expected to experience a significant growth slowdown, from 2.6 percent in 2022 to 1.5 percent in 2023 and 1.4 percent in 2024. Meanwhile, emerging markets and developing economies are projected to see a decline from 4.1 percent in 2022 to 4.0 percent in 2023 and 2024.
Key projections
The U.S. saw its 2023 projection increase to 2.1 percent from 1.8 percent in July, with the 2024 estimate rising to 1.5 percent from 1.0 percent. These upgrades are due to stronger business investment in the second quarter and robust consumption growth. A "soft landing," where inflation is managed without causing a significant economic downturn, can happen.
In contrast, China's growth forecast was reduced to 5.0 percent from 5.2 percent for 2023 and 4.2 percent from 4.5 percent for 2024. This is due to declining real estate investment and housing prices, banking instability, volatile commodity prices and weak consumer sentiments amid climate and geopolitical shocks.
China's economic growth slowed from 8.9 percent in Q1 of 2023 to 4.0 percent in Q2. Ample economic slack and declining energy and food prices led to inflation falling to an estimated 0.2 percent in Q2.
Growth in emerging and developing Asian countries (including India, Indonesia, Thailand, Malaysia, Vietnam and the Philippines) is predicted to increase to 5.2 percent this year. However, it is expected to dip slightly to 4.8 percent next year after considering China's projections.
The IMF cut its growth forecast for the euro area to 0.7 percent in 2023 and 1.2 percent in 2024. The agency also revised U.K.'s economic growth forecast for next year from 1.0 percent to 0.6 percent.
There is divergence among European economies, with Germany expected to contract more than previously expected. Meanwhile, France's forecast was upgraded after industrial production caught up and external demand increased.
Sub-Saharan Africa's economy is expected to grow 3.3 percent in 2023, down from 4.0 percent last year. However, it is projected to rebound to 4.0 percent growth in 2024.
Global inflation projection
Global inflation is expected to decrease gradually, dropping to 6.9 percent in 2023 and 5.8 percent in 2024. This prediction is slightly higher than the 5.2 percent forecast three months ago. Stricter monetary policies and lower global commodity prices likely cause the decline.
Central banks in major economies, including the U.S. and European Union, have raised interest rates aggressively for over a year to curb inflation that reached 8.7 percent globally in 2022, the highest level since the mid-1990s. Core inflation is expected to decrease more slowly, and most countries are not projected to reach their inflation targets until 2025.
The IMF advises central banks, especially in strong economies like the U.S., to maintain high interest rates until inflation subsides.
"Monetary policy needs to remain tight in most places until inflation is durably coming down towards targets," said Pierre-Olivier Gourinchas, the chief economist of the IMF. "We're not quite there."
According to the IMF, cutting rates too soon could undo the progress made in the past 18 months. Gourinchas suggests that once short-term inflation is starting to come down, central banks can lower rates without causing inflation to rise again.