The International Monetary Fund’s updated forecasts indicate that global economic growth remains steady despite a slower decline in inflation and rising uncertainty, documented in their most recent World Economic Outlook Update titled The Global Economy in a Sticky Spot.
The IMF forecasts that global GDP will increase by 3.2% this year, consistent with their April prediction, and by 3.3% in 2025, slightly above the April projection.
The Eurozone’s growth is anticipated to be 0.9% this year (up from the 0.8% forecast in April) and 1.5% in 2025, while in the USA, GDP is expected to grow by 2.6% this year and 1.9% in 2025.
Emerging Asian economies, China and India in particular, are the main drivers of global growth, contributing to half of the global GDP increase, thanks to solid financial recoveries post-pandemic, mostly positive demographic trends and a combination of increased domestic demand, rising tourist numbers and strong raw material exports. However, the IMF also notes that global prospects will remain weak for the next five years due to an expected loss of momentum in the Asian economies, with China’s GDP projected to grow by 3.3% in 2029.
For global inflation, the IMF predicts a reduction to 5.9% this year (consistent with the April forecast) from 6.7% in 2023 but observes a slowdown in developed economies, especially the USA.
The Fund views the risks associated with its forecasts as balanced but does go on to identify concerns regarding inflation and insufficient fiscal policies that have left many countries more vulnerable than expected before the pandemic. More specifically, ongoing deflation issues in developed economies could lead central banks, such as the U.S. Federal Reserve, to keep interest rates higher for a longer duration, something that could threaten overall growth by putting upward pressure on the dollar, adversely affecting emerging and developing economies. While inflation has decreased without largely triggering a recession, it’s the significant food and energy price hikes that create imbalance in many countries. As for the USA, their growing dependence on short-term financing and continually raising the debt-to-GDP ratio while having full employment is a very precarious fiscal stance. A combination of higher debt, slower growth and larger deficits is a recipe for the debt to gradually become unsustainable, posing risks for their domestic and the global economy.
