IMF upgrades US economic outlook, lowers expectations from Europe, China

The International Monetary Fund on Tuesday upgraded its economic outlook for the United States this year, while lowering its expectations for growth in Europe and China. It left its forecast for global growth unchanged at a relatively lackluster 3.2 per cent for 2024.

The IMF expects the US economy the world's largest to expand 2.8 per cent this year, down slightly from 2.9 per cent in 2023 but an improvement on the 2.6 per cent it had forecast for 2024 back in July. Growth in the United States has been led by strong consumer spending, fuelled by healthy gains in inflation-adjusted wages.

Next year, though, the IMF expects the US economy to decelerate to 2.2 per cent growth. With a new presidential administration and Congress in place, the IMF envisions the nation's job market losing some momentum in 2025 as the government begins seeking to curb huge budget deficits by slowing spending, raising taxes or some combination of both.

The IMF, a 190-nation lending organisation, works to promote economic growth and financial stability and reduce global poverty. In its latest forecast, it expects China's economic growth to slow from 5.2 per cent last year to 4.8 per cent this year and 4.5 per cent in 2025. The world's No. 2 economy has been hobbled by a collapse in its housing market and by weak consumer confidence problems only partly offset by strong exports.

The 20 European countries that share the euro currency are collectively expected to eke out 0.8 per cent growth this year, twice the 2023 expansion of 0.4 per cent but a slight downgrade from the 0.9 per cent the IMF had forecast three months ago for 2024. The German economy, hurt by a slump in manufacturing and real estate, isn't expected to grow at all this year.

Worldwide inflation has been cooling from 6.7 per cent in 2023 to a forecast 5.8 per cent this year and 4.3 per cent in 2025. It's falling even faster in the world's wealthy countries, from 4.6 per cent last year to a forecast 2.6 per cent this year and 2 per cent the target range for most major central banks in 2025. The progress against inflation has allowed the Fed and the European Central Bank to finally reduce rates after they had aggressively raised them to combat the post-COVID-19 inflation surge.

The battle against inflation is almost won," IMF chief economist Pierre-Olivier Gourinchas told reporters Tuesday. "In most countries, inflation is hovering close to central bank targets."

But just as lower borrowing costs aid the world's economies, the IMF warned, the need to contain enormous government deficits will likely put a brake on growth. The overall world economy is expected to grow 3.2 per cent in both 2024 and 2025, down a tick from 3.3 per cent last year. That's an unimpressive standard: From 2000 through 2019, before the pandemic upended economic activity, global growth had averaged 3.8 per cent a year.

The IMF also continues to express concern that geopolitical tension, including antagonism between the United States and China, could make world trade less efficient. The concern is that more countries would increasingly do business with their allies instead of seeking the lowest-priced or best-made foreign goods. Still, global trade, measured by volume, is expected to grow 3.1 per cent this year and 3.4 per cent in 2025, improving on 2023's anemic 0.8 per cent increase.

Gourinchas also said that economic growth could be lower if countries take steps to reduce immigration, which has helped reduce labour shortages in the United States and other advanced economies. And he said armed conflicts such as those in Ukraine and the Middle East could also threaten the economic outlook.

India's economy is expected to 7 per cent this year and 6.5 per cent in 2025. While still strong, that pace would be down from 8.2 per cent growth last year, a result of consumers slowing their spending after a post-pandemic boom.

The IMF predicts that Japan's economy, hurt by production problems in the auto industry and a slowdown in tourism, will expand by a meagre 0.3 per cent this year before accelerating to 1.1 per cent growth in 2025.

The United Kingdom is projected to register 1.1 per cent growth this year, up from a dismal 0.3 per cent in 2023, with falling interest rates helping spur stronger consumer spending.