IMF to raise global growth forecasts due to US strength | economy

The global economy is better than expected. The most doomsday scenarios that pointed to a worldwide recession did not materialize. It is with something of a sense of relief that representatives of countries around the world gather at the spring meetings of the International Monetary Fund (IMF) in Washington next week. The economy is not in the best shape, but it is not derailed, mainly thanks to the strength of the United States. In this context, IMF economists are preparing to raise their growth forecasts, the fund's managing director Kristalina Georgieva announced in her opening speech to the assembly.

“In our report World Economic Outlook Next week we will see global growth slightly higher due to strong activity in the US and other emerging economies. Strong household consumption and business investment, easing supply chain issues have contributed to this. And inflation is coming down, a little faster than expected,” says Georgieva.

The managing director of the International Monetary Fund believes that the resilience of the global economy is aided above all by previously achieved solid economic fundamentals and strong labor markets and a growing workforce. “The strength of the labor supply is an area of ​​immigration that has been particularly effective in countries with aging populations,” he pointed out in his address to the Atlantic Council in Washington.

“In general, when looking at this panorama, it is tempting to breathe a sigh of relief,” continued Georgieva. “As predicted by some, we have avoided a period of global recession and stagnation. But there are still many reasons for concern,” he added. “The global environment has become very difficult. Geopolitical tensions increase the risks of global economic fragmentation. And, as we have learned in recent years, we operate in a world where we must expect the unexpected,” he added.

A disappointing decade

In general, he recalled, global activity remains historically weak and growth prospects have declined since the global financial crisis. Adding to the list of problems is that inflation has not been completely defeated, as recent data in the US has shown. At the same time, financial reserves have decreased and credit has increased. Also, the “scars of the plague” are still there. “The global productivity loss from 2020 is about $3.3 trillion, and the costs fall disproportionately in the most vulnerable countries,” he said.

Georgieva did not mention the figures. He pointed out that medium-term global growth projections are well below their historical average, at just over 3%. It is also not mentioned whether the progress of the forecasts refers to the latest complete report World Economic Outlook, Published in October, growth was expected to be 2.9% this year, or its update in January, raised to 3.1% in 2024 and 3.2% in 2025.

However, the director of the fund has made it clear that this pace is not satisfactory. The historical average before the pandemic (between 2000 and 2019) was 3.8%. “Unless the trend is corrected, we are headed for the 'slow twenties,' a slow and disappointing decade,” he said.

Fee reduction

In terms of inflation, the IMF expects the containment trend seen over the past year and a half to continue in 2024, creating conditions for major central banks in advanced economies to “start cutting rates in the second half of the year.” ” he said. In the case of the European Central Bank (ECB), the first cut may come soon, but in the US the possibility of a June cut has dimmed.

Georgieva also favors a skeptical wait: “Where necessary, policymakers should resist calls for premature interest rate cuts. A premature easing could lead to new inflationary surprises, necessitating new monetary tightening. Although he knows the other side of the coin: “On the other hand, too much delay can pour cold water on economic activity.”

The IMF director calls for fiscal consolidation to take advantage of soft landings and strong labor markets to achieve sustainable debt levels and build buffers against future shocks. “For all countries, rich and poor, fiscal prudence is difficult. “This is true in a year of record elections and exceptional uncertainty and great anxiety due to years of shocks,” he acknowledged.

Another priority pointed out by Georgieva is policies to revive growth, along with reforms to boost the economy's productivity. The Fund's director has called for greater international cooperation at a time of growing economic and political fragmentation. “Pandemics, wars and geopolitical tensions have changed the rules of the game in global economic relations. Policymakers are seeking a balance between efficiency and security, between cost considerations and resilience in supply chains. There are already signs of a realignment of trade relations. After the Russian invasion of Ukraine, the politically distant Trade growth between the economies fell by 2.4 percentage points more than trade between the most closely aligned countries,” he asserted.

Georgieva is aware that the wind is blowing in another direction, but she advocates “more cross-border trade and investment flows to boost productivity and address global challenges.” Of course, he also agreed that more attention should be paid to how the benefits of trade and investment are distributed in society. “We must avoid the mistakes of the past when the negative impacts of globalization were ignored in some societies, leading to reactions against an integrated world economy,” he concluded.

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