In a study released on Tuesday, the IMF downgraded its projections for both the US and Japan while maintaining its predictions for global growth in 2024 and cautioning about the risks of inflation and trade tensions in the future.
In its most recent World Economic Outlook report, the IMF maintained its 3.2% annual growth prediction for the global economy from April.
“Global activity and world trade firmed up at the turn of the year, with trade spurred by strong exports from Asia, particularly in the technology sector,” the fund stated.
It projects 3.3% global growth in 2025.
However, the IMF noted what it called noteworthy shocks in Japan and the US during the first three months of this year, despite the fact that many nations enjoyed greater growth than predicted.
The Washington-based lender also cautioned that upside risks to inflation have increased, with services prices holding up disinflation.
This increases the prospect of interest rates staying elevated for longer, “in the context of escalating trade tensions and increased policy uncertainty.”
An area of concern is trade and industrial policy, with countries potentially adopting measures that impact the global economy’s integration, said IMF chief economist Pierre-Olivier Gourinchas.
Asked if risk assessments have shifted after the attempted assassination of former US president Donald Trump, the Republican Party’s nominee in November’s election, Gourinchas noted the fund will consider its implications.
Although global growth seems steady, the IMF has cut its growth forecasts for Japan and the US.
Due to a “slower-than-expected start to the year,” the fund revised down its projection for US growth in 2024 to 2.6%, which is 0.1 percentage points less than what was anticipated in April.
Japan’s GDP was predicted to grow by 0.7% this year, but it actually expanded by 0.2 percentage points less than that.
This was mostly caused by brief interruptions in the supply chain and a lackluster first-quarter private investment.
While manufacturing is poor, the euro area is recovering, according to Gourinchas, with comparatively strong services activity.
Asia’s economic growth is anticipated to be driven by China and India; China’s prediction for 2024 has been raised up to 5.0% due to a resurgence in private consumption and robust exports.
In contrast, India is expected to grow by 7.0%, in part due to improved consumption prospects.
Gourinchas also identified challenges for China arising from low confidence and unsolved issues in the real estate sector.
China would become more dependent on the outside world if domestic demand declined, a development that nations like the US are fighting.
