IMF Forecasts ‘Soft Landing’ For Global Economy, Upgrades India
WASHINGTON, DC (IANS) – The International Monetary Fund (IMF) on January 30 forecast a “soft landing” for the global economy hammered in recent years by a deadly pandemic, skyrocketing inflation and high-interest rates, and protracted wars.
It also upgraded the growth forecast for the Indian economy by 0.2 percentage points to 6.5 percent for both 2024 and 2025, citing resilient domestic demand.
The IMF, in a World Economic Outlook report, said that the global recovery from the Covid-19 pandemic, Russia’s invasion of Ukraine, and the cost-of-living crisis is “proving surprisingly resilient”.
Inflation is declining more rapidly than expected from its 2022 peak. At the same time, it added, high-interest rates aimed at fighting inflation and a withdrawal of fiscal support amid high debt are expected to weigh on growth in 2024.
“With disinflation and steady growth, the likelihood of a hard landing has receded, and risks to global growth are broadly balanced,” it said in the report titled “Moderating Inflation and Steady Growth Open Path to Soft Landing”.
“The clouds are beginning to part. The global economy begins the final descent toward a soft landing, with inflation declining steadily and growth holding up,” said the fund’s Chief Economist Pierre-Olivier Gourinchas in an accompanying blog.
“But the pace of expansion remains slow, and turbulence may lie ahead.
“Global activity proved resilient in the second half of last year, as demand and supply factors supported major economies. On the demand side, stronger private and government spending sustained activity, despite tight monetary conditions. On the supply side, increased labor force participation, mended supply chains and cheaper energy and commodity prices helped, despite renewed geopolitical uncertainties.”
The fund attributed the upbeat forecast to “greater-than-expected resilience in the United States and several large emerging market and developing economies, as well as fiscal support in China”.
One of these emerging markets is India.
“Growth in India is projected to remain strong at 6.5 per cent in both 2024 and 2025, with an upgrade from October of 0.2 percentage point for both years, reflecting resilience in domestic demand.”
China’s growth prospects have also been upgraded from the previous forecast by 0.4 percentage points to 4.6 percent in 2024 but then, it will dip to 4.1 percent in 2025.
The 2024 upward revision is a “carryover from stronger-than-expected growth in 2023 and increased government spending on capacity building against natural disasters”, the fund said in the report.
Pradeep Srivastava
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Very encouraging news indeed! The following article from cnbc.com provides some additional information on this topic.
“IMF upgrades global growth forecast, citing U.S. resilience and policy support in China
PUBLISHED TUE, JAN 30 20248:00 AM ESTUPDATED 3 HOURS AGO
Jenni Reid”
The following are relevant excerpts.
“ The IMF believes there is now a reduced likelihood of a so-called hard landing, an economic contraction following a period of strong growth, despite new risks from commodity price spikes and supply chain issues due to geopolitical volatility in the Middle East.”
“ It forecasts growth this year of 2.1% in the U.S., 0.9% in both the euro zone and Japan, and 0.6% in the United Kingdom.”
“ “What we’ve seen is a very resilient global economy in the second half of last year, and that’s going to carry over into 2024,” the IMF’s chief economist, Pierre-Olivier Gourinchas, told CNBC’s Karen Tso on Tuesday.”
“ “This is a combination of strong demand in some of these countries, private consumption, government spending. But also, and this is quite important in the current context, a supply component as well. … So very strong labor markets, supply chain frictions that have been easing, and the decline in energy and commodity prices.””
“ The latest official figures showed the U.S. economy tearing past economists’ expectations in the fourth quarter, with growth of 3.3%.
China has faced a host of issues over the last year, including a disappointing rebound in post-pandemic spending, concerns over deflation and an ongoing property sector crisis. The government has rolled out a host of stimulus measures in response, contributing to the IMF’s upgrade.”
“ However, the IMF’s forecasts remain below the global growth average between 2000 and 2019 of 3.8%. Higher interest rates, the withdrawal of some fiscal support programs and low productivity growth continue to weigh, the institution said.”
“ But restrictive monetary policy has led to inflation falling faster than expected in most regions, which Gourinchas called the “other piece of good news” in Tuesday’s report. The IMF sees global inflation at 5.8% in 2024 and 4.4% in 2025. In advanced economies, that falls to 2.6% this year and 2% next year.”
“ “The battle against inflation is being won, and we have a higher likelihood of a soft landing. So that sets the stage for central banks, the Federal Reserve, the European Central Bank, the Bank of England, and others, to start easing their policy rates, once we know for sure that we are on that path,” Gourinchas said.”
“ “The projection right now is that central banks are going to be waiting to get a little bit more data, they are going meeting by meeting, they are data dependent, confirming that we are on that path. That’s the baseline. And then if we are, then by the second half of the year we’ll see rate cuts,” he said.
While central banks must not ease too early, there is also a risk coming into sight of policy remaining too tight for too long which would slow growth and bring inflation below 2% in advanced economies, Gourinchas added.”
January 30, 2024