IMF Warns of Increasing Risks for Global Growth

Experts from the International Monetary Fund (IMF) have revised down their forecast for the dynamic of global economic growth next year.

Separately, analysts at the mentioned organization, which is based in Washington D.C., drew attention to the growing risks associated with armed conflicts and the strengthening of protectionism policies in the trade area. At the same time, the IMF praised the efforts of central banks to combat inflation. These financial institutions have managed to make significant progress in their moves to counteract the rapid rise in prices and at the same time avoid the materialization of a recession scenario. It is worth noting that the corresponding results were demonstrated, for example, by the Federal Reserve System, despite the continuing risks.

In general, the IMF forecast once again reminds a simple and true theory that the positive economic dynamic, both on the scale of individual countries and regions, and at the global level, is what can be described as a process largely determined by the environment of its existence. The reality of the current historical moment in its political dimension is characterized by the tendency of increasing tension in the space of geopolitical relationships. It is worth noting that the present configuration of the corresponding state of affairs does not show signs of improvement, including in the relatively long term. Relationships between many world capitals, including Beijing and Washington, are on a deterioration trajectory, which carries the risk that at some point the line of fundamental degradation will be crossed, complicating the prospects and opportunities for constructive interaction. Such a background, in a negative sense reinforced by already existing and potential military conflicts in the hot phase, is unfavorable for economic development. Moreover, in the context of globalization, regional problems are very often transformed into a factor of a larger scale impact.

The IMF predicts that global output will expand by 3.2% next year. It is worth noting that the previous version of this projection, which was made public in July, provided that the corresponding figure would be fixed at 3.3%. Information about the updated vision of the mentioned prospects is contained in the World Economic Outlook released on Tuesday, October 22.

As for the forecast for the current year, in this case, no changes were recorded. The IMF expects global output to be 3.2% in 2024.

Also, the forecast released on Tuesday provides that global inflation will slow down next year and will be fixed at 4.3%. In 2024, the corresponding figure, as expected by the IMF, will be 5.8%.

For several years, the foundation has been cautioning for a couple of years that the world economy is likely to expand at its current mediocre level in the medium term. It is worth clarifying that in this case, it implies such a scale of the process in which nations will not receive an amount of resources that will be sufficient to reduce poverty and implement effective measures in the context of activities aimed at combating climate change.

IMF chief economist Pierre-Olivier Gourinchas said at a briefing that the risks are building up to the downside. He also noted that there is an increase in uncertainty in the global economy. Moreover, Pierre-Olivier Gourinchas stated that there is a geopolitical risk that contains the potential for escalation of regional conflicts. He also noted that it is being observed is the rise of protectionism, protectionist policies, and disruptions in trade, which can become factors affecting global activity.

The IMF forecast does not mention the election of the President of the United States, which will take place next month. At the same time, this political factor is most likely to be taken into account in two weeks at the annual meetings of finance ministers and central bankers from almost 200 countries, which will be held at the headquarters of the Fund and the World Bank, located three blocks from the White House.

As for the presidential elections in the United States and their results as sources of impact on the economic situation, in this case, it is worth noting that the analysts interviewed by the media agreed that the implementation of Donald Trump’s vow to impose 60% tariffs to imports from China and 10% duties on goods from other countries in the practical plane most likely will become an impulse for an increase in inflation and force the US central bank to return to the strategy of raising interest rates. In this context, it is appropriate to mention that last month the Fed began lowering the cost of borrowing.

Pierre-Olivier Gourinchas also stated during the briefing that tariffs and uncertainty in trade between the countries could lead to a reduction in global economic output level by about 0.5% in 2026.

It is worth noting that last week the IMF expressed concern about global public debt, which is expected to reach the $100 trillion mark, which is equivalent to 93% of the world’s gross domestic product (GDP). The increase in the mentioned indicator is driven by the United States and China.

The IMF is calling on governments to take tough decisions to stabilize borrowing. In this context, it was separately noted that politicians do not demonstrate a desire to cut spending against the background of the need to finance cleaner energy, support an aging population, and bolster security. The IMF said that the risks to the debt outlook are heavily tilted to the upside.

The fund’s forecast for eurozone GDP growth for next year has been lowered to 1.2%. This indicator is 0.3% below the figure that was provided for in the July version of the appropriate projection. To a large extent, the updated outlook is due to the continued weakness of the manufacturing sector in Germany and Italy. In the current year, according to the IMF projection, the eurozone’s GDP will grow by 0.8%. In this case, the indicator decreased by 0.1% compared to the figure in the previous version of the vision of the corresponding perspectives.

The forecast for Mexico’s GDP growth prospects for the current year and 2025 has been lowered on the largest scale among major economic systems. In this case, the impact on the assessment of the IMF’s experts was the consequence of tightening monetary policy. Mexico’s GDP is expected to grow by 1.5% in 2024. This indicator is 0.7% lower than the figure contained in the previous version of the forecast. IMF experts also expect Mexico’s GDP to grow by 1.3% next year. This indicator decreased by 0.3% compared to the figure’s previous version of the forecast.

The IMF also revised downwards the outlook for China’s economic growth in 2024. Experts of this organization expect that the GDP of the Asian country in the current year will show an increase of 4.8%. The previous version of the corresponding projection provided for an increase in the appropriate indicator by 5%. The forecast was revised downwards due to continued weakness in the Chinese real estate market. This market has been on the trajectory of a downturn for several years and is actually teetering on the verge of plunging into the condition of a systemic crisis with fundamental consequences for the entire economic system of an Asian country. It is worth noting that China’s economy is currently the second largest in the world. In the context of the economic dimension of the existence of this state, another serious challenge of the current historical moment, in addition to the problematic situation in the real estate market, is the low level of consumer confidence.

Next year, according to the IMF forecast, China’s GDP will grow by 4.5%. It is worth noting that there were no changes regarding the previous outlook regarding this indicator.

Pierre-Olivier Gourinchas said during a briefing that the measures announced last month by Beijing to revive the economy go in the right direction. At the same time, he noted that the decisions announced in September by the People’s Bank of China are not sufficient to significantly accelerate economic growth in a material way. Separately, Pierre-Olivier Gourinchas clarified that more recent measures from the Ministry of Finance of the Asian country are not yet incorporated into the IMF’s forecast.

The IMF has improved its forecast for United States GDP growth in the current year and in 2025. The Fund expects the corresponding figure to increase by 2.8% in 2024. In this case, the indicator rose by 0.2% compared to those in the previous version of the forecast. As for the prospects for next year, in the relevant context, the IMF expects that the growth of the GDP of the United States will be fixed at 2.2%. This indicator increased by 0.3% compared to the figure mentioned in the previous version of the forecast. The improvement in the outlook for the dynamic of the GDP of the United States is related to the upward trajectory of consumption in this country.

The largest growth, according to the IMF forecast, will be demonstrated by the Indian economy. The Fund expects that in the current year, the GDP of this South Asian country will rise by 7%. The corresponding indicator has not been revised and corresponds to the vision contained in the previous version of the projection. As about next year, the IMF expects India’s GDP to grow by 6.5%. This indicator also showed no changes relative to the figure contained in the previous version of the forecast.

The IMF applauded central banks for successful measures to slow down the pace of the inflationary process. In this context, attention was focused on the fact that the corresponding results were recorded against the background of the absence of a recession. Pierre-Olivier Gourinchas called the specified results a major accomplishment based on expectations for the necessary steps expected a couple of years ago to achieve disinflation.

At the same time, the IMF noted that the world is facing risks related to the fact that monetary policy is more hitting economic growth than expected. Also, in the context of negative global circumstances, special attention was paid to the increased pressure of sovereign debt on emerging and developing economic systems. Moreover, in the list of risks currently facing the world, the IMF mentioned renewed spikes in food and energy prices due to the impact of factors such as climate shocks, wars, and geopolitical tensions.