The International Monetary Fund (IMF) released an updated World Economic Outlook on January 30th, revising its 2024 global GDP growth projection upwards to 3.1%, from 2.9% in the previous forecast. The new projection reflects unexpected economic resilience, particularly in the United States and China. However, the IMF cautioned that risks remain tilted to the downside.
Upward Growth Revision Based on Economic Indicators
The IMF cited several positive developments behind its decision to upgrade the 2024 outlook, including falling inflation, easing supply constraints, a quicker COVID reopening in China, and ongoing fiscal and monetary support in some major economies. The new projection indicates the IMF believes the risk of a hard economic landing has receded into a potential soft landing.
“The global economy enters 2024 on firmer footing compared to six months ago,” said IMF Chief Economist Pierre-Olivier Gourinchas. “New shocks notwithstanding, we project the global economy to grow at about 3 percent in 2023 and moderate toward trend in 2024, with inflation gradually subsiding.”
Key 2024 IMF Global Growth Forecast Revisions
| Region/Country | Previous Forecast | Revised Forecast | Change |
|---|---|---|---|
| World Output | 2.9% | 3.1% | +0.2 pct pt |
| United States | 1.4% | 1.4% | Unchanged |
| Euro Area | 0.7% | 0.7% | Unchanged |
| China | 4.4% | 5.2% | +0.8 pct pt |
| India | 6.1% | 6.7% | +0.6 pct pt |
The biggest upgrade was for China, with growth now expected to reach 5.2% on the back of reopening momentum and policy support after COVID lockdowns hampered 2022 activity. India also saw a notable bump on resilient domestic demand. Forecasts for the United States and Eurozone were left unchanged but remain key pillars supporting the improved global outlook.
Inflation Expected to Continue Gradually Receding
After hitting multi-decade highs in many countries in 2022, the IMF outlook shows inflation retreating further in 2024 but remaining above pre-pandemic levels. “Disinflation has begun across many countries on the back of weaker growth and easing supply constraints,” Gourinchas stated. The report projects advanced economy inflation falling from 5.7% in 2023 to 2.6% by 2024, while emerging/developing economy inflation should decline from 8.1% to 5.5%.
This downward inflation trend aligns with investor optimism of peaking prices and central banks potentially pausing aggressive rate hike cycles later this year if data allows. Still, the IMF warned inflation could prove “sticky” and urged policymakers to keep tightening into 2023 until clear declines emerge.
Risks Skewed to Downside Despite Upgraded Forecast
Despite increasing its 2024 global growth outlook, the IMF emphasized risks remain tilted to the downside. Potential dangers include further supply disruptions, stubborn inflation triggering more rate hikes, financial instability from stretched asset valuations, escalation of the Russia-Ukraine war, and unmanaged COVID outbreaks in China weighing on activity.
The IMF’s Gourinchas stressed, “Make no mistake: the road back to a full global recovery with high levels of growth and job creation while maintaining low inflation remains long and narrow.” Policymakers around the world face the balancing act of nurturing growth while also taming inflation.
US Strength, China Reopening Support Growth Revisions
United States: The US economy remains surprisingly resilient heading into 2024, defying fears of an imminent downturn. The IMF kept its 1.4% GDP growth forecast unchanged – below the historical US average but still outpacing other major developed economies. Supporting factors include strong consumer demand, a red-hot job market, recovering business investment, and inventory rebuilding.
This US momentum is especially vital for the global economy as tighter Fed policy slows activity. However, America faces its own slowdown risks from sinking housing activity and potential financial volatility.
China: After extensive lockdowns hampered economic performance through much of 2022, China’s abrupt reopening and policy stimulus sets the stage for stronger 2024 growth. The IMF upgraded its Chinese GDP forecast to 5.2%, which would make China the world’s fastest growing major economy. Pent-up consumer demand from COVID restrictions could boost spending and manufacturing. Further fiscal and monetary easing is also expected after Beijing set an ambitious 5% annual growth target.
On the other hand, China’s property sector meltdown and depleted household savings undermine the consumer rebound story. And the rapid reopening risks further COVID waves before higher vaccination rates take hold. The IMF warned China remains an important swing factor shaping global activity.
India Seen as Growth Leader Amid Global Challenges
With its forecast bumped up from 6.1% to 6.7%, India is poised to again lead major economies in 2024 GDP growth – further cementing its status as an emerging bright spot. Domestic demand remains robust even as weaker global backdrop weighs on trade. The IMF praised India’s recent “critical” structural reforms, prudent fiscal/monetary policies, and push towards green energy investments.
Upside and downside risks coexist however. Growth could potentially exceed projections if private investment accelerates. But external shocks, social tensions, or financial stresses lurking beneath the surface could stifle activity.
Global Policy Support Still Needed Despite Progress
Although the IMF’s upgraded global outlook depicts a world economy showing resilience, policymakers are urged to remain vigilant by continuing targeted relief where needed. Fiscal policy should focus on vulnerable groups while avoiding across-the-board spending which could again stoke inflation.
Monetary policy also plays a key role through delicate interest rate maneuvers balancing price stability and financial stability. “This path to disinflation will be bumpy and costly, but alternatives are worse,” warned the IMF’s Gourinchas.
With risks still skewed to the downside, the world is not out of the woods yet regarding additional growth shocks. But the latest IMF projections provide hope that a soft landing remains possible on the road to recovery.
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