IMF: Odds of soft landing have improved, but global growth remains weak
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The news: The International Monetary Fund’s (IMF) World Economic Outlook finds that despite the likelihood of a soft landing having improved, challenges in China’s property sector and the Middle East conflict are key downside risks that could weaken global growth.
The numbers: The IMF projects the world economy to continue growing at 3.2% during 2024 and 2025, the same pace as in 2023. A slight acceleration for advanced economies, where growth is expected to rise from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025, will be offset by a modest slowdown in emerging market and developing economies from 4.3% in 2023 to 4.2% in both 2024 and 2025.
The forecast for global growth five years from now is at its lowest in decades, at 3.1%.
The context: The IMF raised its forecast for US growth in 2024 to 2.7%, which represents a 0.6% upgrade on its previous estimate. On top of this, the IMF expects the US to grow at twice the rate of any other G7 country in 2024, with Germany’s growth rate set to be the bottom performer of the G7 group at 0.2%.
Compared to strong US growth, the IMF projects growth in China to slow from 5.2% in 2023 to 4.6% in 2024, and 4.1% in 2025. It explains that in the absence of a comprehensive restructuring policy package for the property sector in China, a larger and more prolonged drop in real estate investment could occur. In tandem with home price declines, reduced housing demand, and weakened household confidence, China’s performance will have implications on global growth.
The IMF said that markets reacted “exuberantly” to the prospect of central banks exiting tight monetary policy stances. Adding that as financial conditions eased, equity valuations soared, capital flows to most emerging market economies excluding China have been buoyant, and some low-income countries and frontier economies regained market access.
On inflation, the IMF flagged that recent core and headline inflation numbers inching upward gives markets reason to remain vigilant. Progress on taming inflation had been the result of a decline in energy prices and goods inflation, the latter having been assisted by easing supply chain frictions and China’s export price declines. However, a continued high services inflation could derail the path to disinflation.
Australian Treasurer Jim Chalmers is en route to the US to for the Spring meetings of the IMF and World Bank, and is scheduled to meet with G20 counterparts. Commenting on the findings of the IMF report, Chalmers noted that while inflation remains a key concern, the balance of risks is shifting from inflation to growth and the concerns about the outlook for the Chinese economy and increased tensions in the Middle East are adding to uncertainty. Chalmers said that Australia is “not immune” to these challenges, but that we are approaching them from a position of relative strength.
What they said: Chalmers stated: “These evolving global conditions make it an important time to engage with my counterparts and international institutions as we put the final touches on the May Budget […] The budget I hand down a month from now will be all about easing cost of living pressures without adding to inflation, gearing our economy for future growth and continuing our responsible approach to economic and fiscal management.”
The sources: IMF World Economic Outlook, Treasury press release
