The International Monetary Fund said Tuesday that the global economy is nearing a soft landing after years of geopolitical and economic turmoil. But risks remain, including stubborn inflation, the threat of escalating global conflict and rising protectionism, he warned.
In its latest World Economic Outlook report, the IMF predicted that global output in 2024 will remain stable at 3.2%, unchanged from 2023. Although the pace of expansion has been slow by historical standards, global economic activity has been surprisingly resilient, the IMF said. Central banks have aggressively raised interest rates to curb inflation, and wars in Ukraine and the Middle East have further disrupted supply chains.
The forecast was released as policymakers from around the world began arriving in Washington for the International Monetary Fund and World Bank's spring meetings. The outlook is brighter than just a year ago, when the IMF warned of potential “disruption” and a host of risks.
While the global economy proved strong last year, defying recession expectations, price pressures have not been sufficiently contained and renewed concerns over a recent surge in cheap Chinese exports have emerged. Concerns persist that trade barriers will be erected. .
“Somewhat worryingly, progress towards the inflation target has stalled somewhat since the start of the year,” Pierre-Olivier Grinchat, the IMF's chief economist, said in an essay accompanying the report. . “Oil prices have risen recently, partly due to geopolitical tensions, and service inflation remains high.”
He added: “Further trade restrictions on China's exports could also push up commodity inflation.”
The gathering comes amid heightened tensions between the United States and China over the proliferation of Chinese green energy products, including electric cars, lithium batteries and solar panels, flooding global markets. Treasury Secretary Janet L. Yellen returned from a visit to China last week and told the Treasury secretary that the Chinese government's industrial policies were hurting American workers. He warned that the United States could impose trade restrictions to protect investments in the U.S. solar power and electric vehicle industries.
The United States and China agreed to hold additional talks on “balanced growth.” Yellen will convene a meeting of the U.S.-China Financial Working Group and Economic Working Group at the Treasury Department on Tuesday afternoon.
During her visit to China, Yellen suggested that tariffs on Chinese exports of green energy products were “on the table.” The Biden administration is considering changes to tariffs imposed by the Trump administration on $300 billion worth of Chinese goods. The European Union is moving forward with its own trade restrictions against China, and concerns about China's growing dominance in clean energy production could lead to a new wave of protectionism globally.
IMF officials have warned of “fragmentation” in recent years, as economies gravitate toward trading blocs with aligned political interests. Tuesday's report warned that further restrictions on trade and investment could further accelerate inflation and weigh on the economy.
“Raising tariffs could trigger retaliatory reactions, raise costs and negatively impact both business profitability and consumer well-being,” the report said.
Officials from the Group of Seven and Group of 20 (G20) countries are scheduled to hold separate consultations on the sidelines of the meeting, which officially begins on Wednesday. Biden administration officials, including Yellen, are expected to meet with senior Ukrainian officials as they seek to build international support to expand aid to Ukraine.
The conference is being held at a vulnerable time for the global economy, which has been battered by pandemics and wars in recent years. Global financial officials will debate how to maintain economic stability in a year when elections around the world could herald dramatic policy changes.
The IMF report broadly describes the global economic growth outlook as “stable but slow,” with much of its resilience due to the strength of the United States, with growth expected to rise from 2.5% in 2023. It is expected to rise to 2.7% in 2024.
Eurozone production remains weak, with growth expected to rise to 0.8% this year from 0.4% in 2023.
China's economic growth rate is expected to increase from 5.2% in 2023 to 4.6% in 2024. But on Tuesday, China's Bureau of Statistics reported better-than-expected growth in the first quarter, saying the economy expanded at an annual rate of 6.6%. Interest rates rose as the country turned to manufacturing and exports to counter a downturn in the real estate market.
Inflation is beginning to be curbed by central banks' efforts to curb price increases by raising interest rates. The IMF predicts that the global headline inflation rate will decline from an annual average of 6.8% in 2023 to 5.9% in 2024 and 4.5% next year. However, the economic slowdown is not occurring at the same pace in all countries, and some countries are doing a better job of containing price increases than others. The IMF said a scenario in which interest rates have to remain high for an extended period could put further stress on the housing market and financial sector.
The fight against inflation in the United States is starting to stall. Price increases are slower than before, but still higher than the Federal Reserve's 2% goal. The consumer price index rose at an annual rate of 3.8% in March, excluding food and fuel prices, raising questions among economists about whether the Fed will start cutting interest rates this year.
The most notable threat to the inflation outlook is the possibility that regional conflicts will cause food and energy prices to rise. The IMF says an escalation in the conflict in Gaza, further attacks on ships in the Red Sea, and further instability from Russia's war in Ukraine are all wild cards that could disrupt supply chains and derail global economic development. Stated.
“These geopolitical shocks could complicate the ongoing deflation process, delay central bank policy easing, and negatively impact global economic growth,” the IMF said.