The global economy is approaching a soft landing after several years of geopolitical and economic turmoil, the International Monetary Fund said on Tuesday. But it warned that risks remain, including stubborn inflation, the threat of worsening world conflicts and rising protectionism.
In its latest World Economic Outlook report, the IMF projects global output to remain at 3.2 percent in 2024, unchanged from 2023. Although the pace of expansion is tepid by historical standards, the IMF said that global economic activity is surprisingly resilient as central banks aggressively raise interest rates to tame inflation and wars in Ukraine and the Middle East further disrupt supply chains.
The forecasts came as policymakers from around the world began arriving in Washington for the spring meetings of the International Monetary Fund and the World Bank. The outlook is brighter from just a year ago, when the IMF warned of underlying “turbulence” and multiple risks.
Although the world economy proved resilient last year, defying forecasts of a recession, there remain concerns that price pressures have not been sufficiently contained and that new trade barriers will be erected amid of anxiety over the recent influx of cheap Chinese exports. .
“Somewhat worryingly, progress towards inflation targets has stalled somewhat since the start of the year,” wrote Pierre-Olivier Gourinchas, the IMF’s chief economist, in an essay accompanying the report. “Oil prices have been rising recently in part because of geopolitical tensions and services inflation remains high.”
He added: “Further trade restrictions on Chinese exports could also push up commodity inflation.”
The gathering comes amid growing tensions between the United States and China over an influx of Chinese green energy products, such as electric vehicles, lithium batteries and solar panels, flooding global markets. Treasury Secretary Janet L. Yellen returned last week from a trip to China, where she told her counterparts that Beijing’s industrial policy is harming American workers. He warned that the United States could pursue trade restrictions to protect investments in America’s solar and electric vehicle industries.
The United States and China agreed to hold further talks on “balanced growth.” On Tuesday afternoon, Ms. Yellen will convene a meeting of the US-China Financial Working Group and the Economic Working Group at the Treasury Department.
During her visit to China, Ms. Yellen said tariffs on Chinese exports of green energy products are “on the table.” The Biden administration is weighing changes to tariffs imposed by the Trump administration on more than $300 billion worth of Chinese goods. The European Union is working on its own trade restrictions with China, and fears of China’s growing dominance in clean energy production could lead to a new wave of protectionism around the world.
IMF officials have been cautious about “fragmentation” in recent years, as economies deal with trading blocs with aligned political interests. Tuesday’s report warned that further restrictions on trade and investment could fuel more inflation and strain economies.
“Tariff increases can trigger retaliatory responses, raise costs, and harm both business profitability and consumer welfare,” the report said.
Officials from the Group of 7 countries and the Group of 20 will hold separate discussions on the sidelines of the meetings, which officially begin on Wednesday. Biden administration officials, including Ms. Yellen, is expected to meet with senior Ukrainian officials as they try to build international support to provide more aid to Ukraine.
The meetings are taking place at a fragile time for the global economy, which has been damaged in recent years by a pandemic and war. The world’s top financial officials will discuss ways to maintain economic stability in a year when elections around the world could signal dramatic changes in policy.
The IMF report broadly described its growth outlook for the global economy as “stable but slow,” with much of the stability bolstered by the strength of the United States, where growth is expected to increase from 2.5 percent in 2023 to 2.7 percent. in 2024.
Output in the euro area remains sluggish, with growth picking up from 0.4 percent in 2023 to 0.8 percent this year.
China’s economy is expected to grow at a rate of 4.6 percent in 2024, down from 5.2 percent in 2023. But on Tuesday, China’s statistics agency reported stronger-than-expected growth in the first quarter, with expansion the economy at a 6.6 percent annual rate, as the country turned to manufacturing and exports to combat a slump in the property market.
Efforts by central banks to curb price increases by raising interest rates have begun to tame inflation. The IMF predicts that global headline inflation will decline from an annual average rate of 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent next year. But the slowdown isn’t happening at the same rate in every country and some areas are more involved in taming price increases than others. The IMF said a scenario in which interest rates had to remain higher for a longer period of time could put further stress on housing markets and the financial sector,
The fight against inflation in the United States has begun to stall. While prices are rising more slowly than usual, they are still higher than the 2 percent the Federal Reserve is targeting. In March, the Consumer Price Index climbed 3.8 percent on an annual basis after removing food and fuel prices, raising doubts among economists about whether the Fed will start cutting interest rates this year. .
The most prominent threat to the inflation outlook is the possibility that regional conflicts could cause food and energy prices to rise. The IMF said the escalation of the conflict in Gaza, further attacks on ships in the Red Sea and further volatility related to Russia’s war in Ukraine represent wild cards that could disrupt supply chains and derail recovery. world economic development.
“Such geopolitical shocks could complicate the ongoing process of disinflation and delay central bank policy easing, with negative effects on global economic growth,” the IMF said.
