IMF’s economic view: Brighter outlook for China and India but tepid global growth
WASHINGTON — The International Monetary Fund on Tuesday raised its economic outlook for China, India and Europe this year, while slightly lowering expectations for the United States and Japan. But it said global progress against rising prices had been slowed by more persistent than expected inflation in services ranging from air travel to restaurant meals.
Overall, the IMF still expects the global economy to grow by a meager 3.2% this year, unchanged from its previous forecast in April and slightly lower than the 3.3% growth in 2023.
“Global growth remains stable,” Pierre-Olivier Gourinchas, the IMF’s chief economist, told reporters.
Yet the global economy’s expansion is still unimpressive by recent historical standards. From 2000 through 2019, before the pandemic upended economic activity, global growth averaged 3.8% per year.
The IMF, a lending organization with membership of 190 countries, works to promote economic growth and financial stability and to reduce global poverty.
Gourinchas estimated that China and India would account for nearly half of global growth this year.
Partly because of a surge in Chinese exports in early 2024, the IMF raised its growth forecast for China this year to 5%, from the 4.6% it had predicted in April, but that is down from 5.2% in 2023. The IMF forecast came before Beijing reported on Monday that the Chinese economy, the world’s second-largest after the United States, grew at a slower-than-expected annual pace of 4.7% in April through June, down from 5.3% in the first three months of the year.
China’s economy, once regularly growing at double-digit annual rates, is facing significant challenges, notably a housing market collapse and an aging population that is leaving the country with a labor shortage. By 2029, Gourinchas wrote, China’s growth will slow to 3.3 percent.
India’s economy is expected to grow 7%, up from the 6.8% forecast by the IMF in April, partly due to higher consumer spending in rural areas.
The IMF said “sprouts of recovery were materializing in Europe,” which had been battered by high energy prices and other economic damage from Russia’s invasion of Ukraine in 2022. Citing a surge in Europe’s service industries, the IMF raised its 2024 growth forecast for the 20 countries that share the euro by a tenth of a percentage point from its April forecast to 0.9%. In 2023, the euro zone grew by 0.5%.
But a weak first quarter in the United States prompted the IMF to cut its forecast for US growth this year to 2.6% from 2.7% in April.
The IMF also cut its forecast for Japan’s growth in 2024 to 0.7% from 0.9% in April and to 1.9% in 2023. Japan’s growth in the first quarter was disrupted by the closure of a major auto plant, the IMF said.
After rising to 8.7% in 2022 as the global economy quickly recovered from the pandemic-induced recession, global inflation is expected to continue falling, from 6.7% in 2023 to 5.9% this year and 4.4% in 2025.
But progress is slowing, the IMF said, as services sector inflation has proven stubbornly difficult to tame. The fund warned that some central banks may keep interest rates high for longer than expected until they are confident that inflation is firmly under control. Higher-than-expected borrowing costs could weaken global growth as a result.
“The good news is that as the headline shocks subsided, inflation declined without a recession,” Gourinchas wrote in a blog post accompanying the report. The bad news, he said, is that it has still not returned to pre-pandemic levels.