Global economy headed for ‘soft landing’, says IMF

The global economy has been hit by a pandemic, record inflation levels, protracted wars and soaring interest rates over the past four years, raising fears of a painful global slowdown. But new forecasts released Tuesday suggest the world has managed to defy all odds, avoiding the threat of a so-called hard landing.

Projections from the International Monetary Fund paint a picture of economic sustainability – one that policymakers hope to achieve while trying to manage a series of cascading crises.

In its latest economic outlook, the IMF projects global growth of 3.1% this year, the same pace as in 2023 and an improvement on its previous forecast of 2.9%. Predictions of a global recession have faded, with inflation falling faster than economists expected. Central banks, including the Federal Reserve, are expected to begin cutting interest rates in the coming months.

“The global economy has demonstrated remarkable resilience and we are now in the final descent towards a soft landing,” said Pierre-Olivier Gourinchas, chief economist of the IMF.

Policymakers who feared they would have to slow economic growth to contain rising prices managed to control inflation without tipping the world into recession. The IMF expects global inflation to fall to 5.8% this year and to 4.4% in 2025, from 6.8% in 2023. It estimates that 80% of the world’s economies will experience higher annual inflation. low this year.

The brighter outlook is largely due to the strength of the U.S. economy, which grew 3.1 percent last year. This robust growth occurred despite the Fed’s aggressive series of rate hikes, which pushed borrowing costs to their highest levels in 22 years. Consumer spending in the United States remained strong as businesses continued to invest. The IMF now expects the US economy to grow 2.1 percent this year, up from its previous forecast of 1.5 percent.

China’s economy is also growing faster than previously thought and is expected to grow 4.6% this year. IMF officials said the difficulties facing China’s real estate sector have not slowed the economy as much as they had expected; the Chinese government, they noted, provided “significant” fiscal support.

Other major economies, such as India and Brazil, also appear to be performing better than expected. Perhaps most surprising is that Russia, which has faced a series of Western sanctions and export restrictions since its invasion of Ukraine in February 2022, received the biggest improvement of any country tracked by the IMF. Despite coordinated efforts to cripple its economy, the Russian economy is struggling. expected to grow a healthy 2.6 percent this year.

However, gloom persists in some major economies. Geopolitical crises and industrial rivalries have been particularly hard on the euro zone, where new data released Tuesday showed the economy stagnated in the final three months of 2023 and grew just 0.1% over the ‘year.

The IMF said “particularly insufficient” growth in Europe reflected “weak consumer confidence, the lingering effects of high energy prices, and weak investment in manufacturing and interest-rate-sensitive businesses.”

Other threats to the global economy include geopolitical unrest in the Middle East. The war in Gaza and associated attacks on ships by Iran-backed Yemeni rebels, known as Houthis, in the Red Sea are of particular concern to the IMF. He warned that if these attacks intensified they could lead to supply disruptions and “more persistent disruption”. underlying inflation” which could force central banks to maintain higher interest rates for a longer period.

The IMF also expressed concern over President Biden’s use of industrial policy to subsidize the US clean energy and semiconductor sectors. Mr. Gourinchas said such actions had led to a “hit-for-hit” in trade restrictions, a move that weighed on global production. He said he believes some of the measures the United States has put in place, such as rules requiring companies to use U.S.-made components to qualify for certain manufacturing tax credits, do not were not in compliance with international trade rules.

Yet Biden administration officials view these policies as one of the main factors helping to fuel the U.S. economic recovery.

In a speech in Chicago last week, Treasury Secretary Janet L. Yellen noted that the U.S. economy has outpaced that of the rest of the world, achieving stronger growth while cooling inflation faster than other economies. other major advanced economies.

“Simply put, this is the fairest recovery on record,” she said.