The IMF World Economic Outlook, July 2024 – An Analysis
On 16th July 2024, the International Monetary Fund (IMF) released the World Economic Outlook (WEO) Update. The report states that Global Growth is estimated to be at 3.2% in 2024. There have been notable changes beneath the surface from April’s WEO report.
In this article, we are going to delve into the major points and major risks which was stated by the IMF in their WEO Update report, July 2024. This article ends with a conclusion.
State of the Global Economy
The IMF estimates that the global growth will be at 3.2% in 2024, and 3.3% in 2025. It has to be noted that the global growth rate remains broadly unchanged and in line with the IMF WEO report of April 2024. There has been notable composition change internally due to offsetting growth revisions.
Inflation remains a major concern – though it shows signs of easing. The WEO report projected that global Inflation to decline from 6.7% in 2023 to 5.9% in 2024.
In some advanced economies, especially in the United States, the pace of disinflation has slowed and there are upside risks. The revised forecasts are due to inflation in high commodity prices and persistent increases in prices of services. In developing economies and emerging markets, inflation is estimated to remain high and expected to decline more slowly than in advanced economies.
Regional Analysis
The WEO provides an examination across different regions and they are as follows.
Advanced Economies
The estimated growth of the United States has been cut down to 2.6% in 2024 (this is 0.1% lower than the IMF April projection). The Growth is further expected to slow down to 1.9% in 2025. This is due to moderation in consumption, labour market cools along with gradual fiscal policy tightening. Growth is expected to decline to potential by the end of 2025, thus closing the positive output gap.
The growth projection for the Euro area is 0.9% in 2024 and 1.5% in 2025. This is supported by strong consumption due to an increase in real wages, higher investment from easing financial conditions among gradual easy monetary policy this year. Prolonged problems in the manufacturing sector suggest the sluggish recovery in economies like Germany.
The Growth rate of Japan’s Economy is revised down to 0.2% growth for 2024. This is due to temporary supply disruptions and weak private investment in the first quarter.
Source: IMF
Emerging Market and Developing Economies
For emerging markets and developing economies, the growth forecasts are revised upward. This upward revision is due to stronger activity in Asia, mainly China and India. For China, the growth forecast is revised upward to 5% in 2024. Thanks to an increase in private consumption and strong exports in the first quarter. However, the growth projection has slowed down to 4.5% in 2025 and continue to slow down over the medium term to 3.3% by 2029.
India’s growth rate is estimated at 7% in 2024 – this is reflecting the change which is a carryover of upward revisions to growth from 2023. Thanks to the improved prospects for private consumption, particularly in rural areas.
Major Risks/ Challenges
There are two major near-term risks and they are
Disinflation:
Disinflation in advanced economies can force the Central Banks to keep the interest rate higher for a longer period. This would impact the overall growth as well as increase pressure on the Dollar. This can have harmful spillovers to emerging and developing economies.
When it comes to the disinflation path there are two main areas of concern, they are i) service prices and ii) wage inflation. Real wages are close to prepandemic levels in many economies.
Only when goods inflation declines further there may be a decline in overall inflation. An increase in service prices and wages keeps overall inflation higher than desired.
There is a substantial danger to the soft-landing scenario despite the absence of further shocks.
Fiscal Policy Challenges:
Many economies are now more vulnerable than they were before the pandemic. Many countries’ public finances are worsening. Therefore, the main challenge lies here in tackling the fiscal policy more directly. To do that it is essential to gradually and credibly rebuild their buffers. Which will help these nations to address energy and national security whenever required.
Policy Uncertainty
Policy uncertainty extends afar fiscal concerns. The dismantling of a multilateral trading system is another key concern. Enforcing unilateral tariffs or industrial policy measures whose adherence to World Trade Organization rules is doubtful.
IMF stated that we should focus on improving medium-term growth prospects through more efficient allocation of resources within and across countries – better education opportunities and equality of chances along with greener and faster innovation and stronger policy frameworks.
The major factors that determine the external balances are macroeconomy dynamics – domestic investment with global rates of return on capital and desired national savings. When these imbalances become excessive then the trade restrictions would be expensive and ineffective in addressing the macroeconomic causes.
The IMF stated that the only way to ensure a safe and prosperous economy for all is the constructive multilateral cooperation to remain intact. This has yielded results for eight decades since the Bretton Woods agreement.
Conclusion
There is not much change in the IMF WEO update report from its April, WEO Report. The increased uncertainty with negative spillovers to the rest of the world is a greater concern. These risks can worsen the debt dynamics and can lead to protectionism.
In contrast to this, if Government policies promote faster implementation of macrostructural reforms along with the promotion of multilateralism then it can have a positive spillover worldwide by boosting supply gains, growth and productivity.
The disinflation path has to be adhered to as inflation is still a concern in many economies. Monetary policy and Fiscal Policy have to be handled with care.
We need to wait and watch how the policymakers and lawmakers work in tandem to have robust global growth and less inflation.
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