Global Economic Growth Beats Predicted Levels

The world economic outlook has been upgraded by the International Monetary Fund.

This week, the IMF released its latest outlook, which shows a more positive outlook that envisions resilient growth. That growth is expected to be led by America as well as a pace of inflation much slower than it was last year.

On Tuesday, the IMF now says that the global economy is expected to grow by 3.1% in 2024. While that number is the same as it was for 2023, it’s still better than what it predicted back in October.

At that time, it predicted that the global economy would grow by 2.9% for 2024.

In addition to that growth, the IMF predicts that inflation will drop from its rate of 6.8% last year down to 5.8% this year. It further expects that inflation will slow down to 4.4% in 2025.

For the world’s advanced economies, the IMF predicts that inflation will dip even further — to 2.6% in 2024 and then 2% in 2025. That last prediction is pertinent, as it’s the goal that the Federal Reserve and many other world central banks target.

This latest report has increased hopes for many people that the world could experience what’s known as a “soft landing” from the high rates of inflation over the last year, rather than going into a full-fledged recession.

As the chief economist for the IMF, Pierre-Olivier Gourinchas, said:

“We are now in the final descent toward a soft landing.”

The forecasted global economic growth for 2024 and 2025 of 3.2% is lower than the average of 3.8% for the years of 2000 through 2019. That’s due in part, though, to the U.S. Fed as well as central banks in other countries being very aggressive in increasing interest rates to fight out-of-control inflation.

That slowed investments and spending, since borrowing costs were so much more costly.

Gourinchas said that he expected there will be “relatively limited” damage economically from the attacks that are being carried out in the Red Sea by Houthi rebels.

Container ships have been forced to travel around the southern tip of Africa rather than go through the Suez Canal when transporting goods to and from Europe and Asia to avoid the potential attacks. That’s led to increased charges for freight as well as disruptions in shipments.

That being said, those disruptions aren’t “a major source of reigniting supply side inflation,” according to Gourinchas. That’s a major positive, as the shipping backlogs that happened in both 2021 and 2022 caused that effect on inflation.

For the U.S. specifically, the IMF increased its estimate sharply. Last October, it predicted the U.S. economy would grow only 1.5% in 2024. Now, it predicts growth of 2.1%.

Last year, the U.S. economy grew 2.5% due to a big surge in growth near the end of the year that was fueled in large part by consumers who were willing to continue spending even though borrowing costs were much higher than normal.