Surprising Strength in the Global Economy Amid Political Crises

by webmaster

The International Monetary Fund (IMF) has released a new update to its World Economic Outlook, revealing that the global economy is displaying unexpected resilience in the face of political turmoil. The report states that with inflation on the decline and steady growth, the possibility of a hard landing has diminished.

Notably, the IMF highlights that the global economy has the potential to surpass expectations, marking a significant shift since the COVID-19 pandemic emerged.

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Positive Outlook for Global Economy

Based on the IMF’s baseline forecast, the global economy is projected to grow by 3.1% this year, matching last year’s growth rate. This indicates an upward revision of 0.2 percentage points for 2024. Furthermore, the agency estimates that growth will accelerate to a rate of 3.2% in 2025.

Soft Landing for the U.S. Economy

The IMF predicts a soft landing for the U.S. economy, with growth expected to slow to an annual rate of 2.1% in 2024, compared to 2.5% in the previous year. This upward revision of 0.6 percentage points instills optimism. However, growth in the U.S. is anticipated to further decelerate to a rate of 1.7% in 2025.

Reasons behind the U.S. Soft Landing

The primary factor contributing to the IMF’s expectation of a smooth transition for the U.S. economy is the easing of inflation, aided by supply-chain dynamics. Interestingly, the Federal Reserve’s approach of not solely relying on rapidly increasing interest rates to curb inflation played a significant role in achieving this outcome. According to Tobias Adrian, Head of the IMF’s Monetary and Capital Markets Department, the Federal Reserve did not have to shoulder the entire burden of reducing inflation levels.

In conclusion, despite ongoing political crises worldwide, the global economy has displayed remarkable strength. The IMF’s projections suggest a positive trajectory, with the U.S. economy also set for a controlled slowdown.

Economic Outlook: Contrasting Trends in Euro Area and China

The global economic landscape is marked by diverging trajectories for major economies. While China’s growth is projected to continue, the euro area is expected to face challenges.

Euro Area Struggles, China Slows Down

The euro area is anticipated to experience sluggish growth, with a meager 0.9% expected this year. This represents a decline of 0.3 percentage points compared to previous forecasts.

Meanwhile, China’s economy is projected to grow at a rate of 4.6% in 2024, down from the 5.2% growth achieved last year.

Inflation Outlook: Downward Trend

Global headline inflation is set to decrease in the coming years. After an estimated average of 6.8% in 2023, inflation is expected to decline to 5.8% in 2024 and further to 4.4% in 2025.

Advanced economies, on the other hand, are predicted to make faster progress in curbing inflation. Their growth is projected to slow down to 2.6% this year.

Widespread Expectations for Lower Inflation

Approximately 80% of the world’s economies anticipate a decrease in both headline and core inflation this year. This indicates a broader shift towards more stable price levels.

Monetary Policy Outlook

According to IMF staff estimates, major central banks are likely to maintain their current interest rate levels for the foreseeable future. The Federal Reserve, the European Central Bank, and the Bank of England are all expected to keep rates unchanged until the second half of 2024.

Additionally, the Bank of Japan is expected to maintain an accommodative stance. Their clear and cautious communication has enabled the market to adjust accordingly, and this trend is expected to persist.

Concerns in Commercial Real Estate

One ongoing concern is the exposure of the banking system to commercial real estate. In some economies, tepid demand and higher borrowing costs elevate the risks of default among commercial real estate borrowers.

Despite these challenges, the overall outlook points to a mixed economic landscape, with contrasting trends for different regions and sectors.

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