As a result of India's domestic demand proving more resilient than anticipated, the International Monetary Fund (IMF) has updated its growth prediction for the country, as stated in its most recent World Economic Outlook update for January. The IMF had predicted that India's GDP will rise by 6.3% in FY24; but, as of October 2023, it has revised its prediction to 6.7%. The IMF stated on Tuesday that 6.5% GDP growth is expected in India for FY25 and FY26.
The world's two largest economies, China and the United States, have improved their prospects, and the IMF has revised up its prediction for global economic growth. It also noted that inflation has eased more quickly than anticipated.
Although a "soft landing" appeared to be imminent, according to the IMF's most recent World Economic Outlook, head economist Pierre-Olivier Gourinchas noted that global trade and overall GDP were still below historical norms.
Gourinchas stated, "We find that the global economy continues to display remarkable resilience and we are now in the final descent towards a 'soft landing' with inflation declining steadily and growth holding up. But the base of expansion remains on the slower side and there might be turbulence ahead."
Stronger public and private expenditure despite tight monetary policy, improved supply chains, higher labor force participation, and lower energy and commodity prices, according to the IMF, are all contributing factors to the improving outlook. The IMF predicted 3.1% global growth in 2024, which was two tenths of a percentage point higher than its October estimate. It stated that it anticipated 3.2% growth in 2025. 3.8% was the historical average for the years 2000–2019.
With over 3,000 trade restrictions put in place in 2023, it predicted that global trade would expand by 3.3% in 2024 and 3.6% in 2025—well below the historical average of 4.9%. The IMF reduced its October estimate for 2025 to 4.4% from 4.6%, but maintained its October prediction for headline inflation of 5.8% for 2024. Global headline inflation would be lower if Argentina, which has experienced a rise in inflation, were excluded, according to Gourinchas.
With inflation expected to meet central bank targets of 2% in 2025, advanced economies should have average inflation of 2.6%, down four tenths of a percentage point from the October prediction. In comparison, the average rate of inflation in developing and emerging market economies would be 8.1% in 2024 and then drop to 6% in 2025. In contrast to its October prediction of a 0.7% reduction, the IMF now projects an average oil price drop of 2.3% in 2024 and a 4.8% decline in 2025.
Attacks by the Red Sea
According to the IMF, ongoing attacks on ships in the Red Sea and other geopolitical shocks could lead to fresh rises in commodity prices and so prolong tight monetary conditions. Gourinchas informed reporters that while the IMF was keeping a close eye on events in the Middle East, the wider economic impact was still "relatively limited."
"It doesn't seem to represent, as of now, a major source of potentially reigniting supply-side inflation," he stated.
In the January update of the IMF outlook, the United States received one of the highest upgrades, with its GDP now expected to grow by 2.1% in 2024 instead of the 1.5% predicted in October. In 2025, growth was predicted to slow to 1.7%.
Gourinchas acknowledged that the upgrade was possible because of fiscal assistance and robust consumer spending, but he also mentioned that the IMF had informed Washington that it was worried that some industrial policies and subsidies from domestic companies would go against international trade agreements. With the largest European economy, Germany, predicted to achieve low GDP growth of 0.5% in 2024 instead of the 0.9% forecast in October, the euro area was downgraded and was now expected to expand just 0.9% in 2024 and 1.7% in 2025.
The forecast for China's GDP growth in 2024 was 4.1%, up four tenths of a percentage point from October, and 4.6%. According to Gourinchas, the increase was caused by both the authorities' substantial financial support and the property sector's less severe-than-expected slump. According to him, interest rates will remain stable at their current levels into the second half of 2024, at which point they should gradually drop at the behest of the US Federal Reserve, the European Central Bank, and the Bank of England.
He stated that while the Bank of Japan was expected to keep interest rates low, and that this was "appropriate," the IMF had instructed it to be prepared to hike rates in the event that inflation surged. Furthermore, Gourinchas stated that a repricing might raise long-term interest rates and lead to more rapid fiscal consolidation, which would be detrimental to economic prospects, because markets had become "excessively optimistic" about the likelihood of early interest rate cuts by major central banks.
With emerging and developing Europe receiving a boost from Russia's stronger-than-expected growth as a result of high military spending linked to the ongoing conflict in Ukraine, growth in emerging market and developing countries worldwide was predicted to reach 4.1% in 2024.
In October, estimates for Russia's GDP growth in 2024 were 2.6%, 1.5 percentage points more than anticipated; growth was predicted to slow to 1.1% in 2025. Given that the figures were preliminary and there were uncertainties over the scope of Russia's fiscal stimulus, the IMF stated that more modifications might be made.
The prediction for the Latin America and Caribbean region was impacted by Argentina's negative growth, which caused it to fall to 1.9% in 2024 - four tenths of a percentage point less than in October. The IMF predicted growth will slightly increase to 2.5% in 2025. According to Gourinchas, there is a greater balance between upside and downside risk in the global outlook. The possibility of reduced gasoline costs contributing to an earlier than anticipated decline in inflation balances the danger of a wider conflict in the Middle East.
He stated, "We see them as broadly balanced at this point," adding that many of the downside risks that were anticipated a year ago, particularly those related to disinflation, had not come to pass.
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