The International Monetary Fund (IMF) has recently released a series of updates to its World Economic Outlook, shedding light on the most recent developments in all economies around the globe.
At the forefront are two critical economies: the United States and China.
As the US economy proves resilient in the face of tightening monetary policy, China’s economic momentum is fading, burdened by internal challenges.
While the IMF still provides a relatively optimistic perspective about the overall global economic performance, they have also raised some significant risks and opportunities that could shape the next few years.
Is the US still the engine of global growth?
In its latest forecast, the IMF raised its 2024 GDP growth projection for the US from 2.6% to 2.8%, making it the strongest among developed economies.
This increase is largely driven by robust consumer spending, fueled by rising wages and a tight labor market.
The US has managed to navigate through high inflation without plunging into a recession, a feat the IMF describes as a “soft landing.”
This positive outlook suggests that the Federal Reserve’s monetary tightening has not derailed economic activity as much as some had feared.
The resilience of US consumer spending is a key pillar supporting this growth.
Despite earlier concerns about the impact of higher interest rates, American households continue to drive economic activity.
This strength has helped the US maintain its role as a stabilizing force in a global economy otherwise characterized by uncertainty.
According to the IMF’s chief economist, Pierre-Olivier Gourinchas, the risks of a recession in the US are now diminished, provided that there are no sharp shocks to the economy.
Yet, while the outlook is positive, it is not without challenges.
The upcoming US presidential election adds significant uncertainty to the economy’s outlook. Both candidates have discussed significant tariffs on Chinese imports, with former President Donald Trump proposing steep levies of up to 60%.
The IMF has warned that such protectionist measures could harm both the US and the global economy, reducing overall GDP growth by as much as 0.8% in 2025 if tit-for-tat tariffs escalate.
Why is China losing momentum?
In contrast to the upbeat US outlook, China’s economic growth is expected to slow significantly.
The IMF downgraded its 2024 forecast for China to 4.8%, down from an earlier estimate of 5%.
The reasons are manifold: a struggling property market, low consumer confidence, and stimulus measures that have yet to make a significant impact.
Despite recent moves by the People’s Bank of China to boost lending, the IMF has not incorporated these measures into its projections, citing a lack of detail and immediate effects.
China’s challenges are deep-rooted. The country is dealing with a property sector crisis that has eroded a key source of household wealth, further dampening consumer spending. While China has traditionally relied on exports to drive growth, weak domestic demand has led to a greater reliance on external markets. This reliance, however, is not without risks, especially as global demand remains uncertain.
Both the US treasury secretary Janet Yellen and Gourinchas emphasize the importance of boosting domestic demand in China.
According to Gourinchas, macroeconomic factors, rather than industrial policies, are driving China’s current trade surpluses.
The IMF believes that to correct these imbalances, China needs to develop stronger social safety nets and address the structural issues within its economy, such as the property sector woes.
A stronger focus on boosting consumption could help China shift away from its dependence on exports and mitigate some of the pressures that have built up over the past year.
What about the rest of the world?
Globally, the IMF forecasts growth of 3.2% for both 2024 and 2025, slightly down from its July estimates.
This outlook is tempered by a mix of opportunities and risks across regions.
For example, Latin America has seen an upward revision in its growth forecast, with Brazil’s prospects improving due to strong private consumption and investment.
Brazil’s economy is expected to expand by 3% in 2024, a significant upgrade from earlier estimates.
Source: Bloomberg
However, other regions are not faring as well.
The Eurozone is expected to grow by a mere 0.8% in 2024, with challenges persisting in Germany’s manufacturing sector and Italy’s economic activity.
Japan also faces a downturn in its growth outlook, with the IMF reducing its 2024 forecast to 0.3% due to supply disruptions and fading post-pandemic tourism benefits.
Despite these downgrades, the IMF projects a rebound for Japan in 2025, driven by rising real wages and stronger consumer spending.
Emerging markets like India remain bright spots in the global economy.
The IMF expects India’s GDP to grow by 7% in 2024, maintaining its position as one of the fastest-growing major economies.
This is partly due to a shift in global manufacturing trends, as more companies look to diversify their supply chains away from China.
However, while India’s overall growth remains strong, challenges persist in ensuring that this growth benefits the broader population.
What Are the Key Risks and Opportunities?
Overall, the global economic outlook appears stable, but with some surrounding threats.
The IMF has identified several potential risks that could undermine growth prospects, including geopolitical tensions, trade conflicts, and financial market volatility.
The US-China relationship remains particularly crucial, with tariffs and trade policies likely to influence not only bilateral relations but also the broader global economic landscape.
Additionally, the IMF is concerned about rising global debt, which is set to reach $100 trillion by the end of 2024. This represents a critical challenge for many economies, especially those with limited fiscal space.
The IMF advises countries to stabilize debt dynamics and pursue careful fiscal consolidation to avoid sudden market-driven adjustments.
As Gourinchas notes, “postponing adjustment will only mean that a larger correction is needed eventually,” highlighting the need for proactive economic management.
There are also opportunities amid these challenges. For countries like Brazil, continued investment in infrastructure and social programs could help sustain growth.
For China, a shift towards consumer-led growth could alleviate some of its economic pressures and provide a more balanced path forward.
The IMF also sees potential in global efforts to transition towards green energy, which could create new growth avenues for economies willing to invest in sustainable technologies.
The path forward
The global economic outlook for 2024 will depend heavily on how key countries handle their challenges, especially with political uncertainties on the horizon.
The US is in a strong position, but the upcoming presidential election could reshape trade, tax and environmental policies, as well as the country’s stance on the ongoing geopolitical conflicts.
Meanwhile, China must tackle deeper issues in its property market and find ways to boost consumer spending if it wants to maintain stability.
Looking further ahead to 2025, the IMF sees a slight improvement, with global growth expected to rise to 3.2%.
Yet, this depends on the ability of countries to adapt to shifting conditions.
The US needs to balance its fiscal policies, while China must make real progress on domestic reforms.
Regions like Europe and Japan will also need to focus on their structural issues to keep pace.
Whether 2024 marks a steady path toward recovery or a year of heightened risks will shape the trajectory into 2025 and beyond.
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