The International Monetary Fund raises its global growth forecast, U.S. resilience and China’s policy support | Private Equity Weekly

The International Monetary Fund on Tuesday raised its global growth forecast, citing unexpected strength in the U.S. economy and fiscal support measures from China.

Global economic growth is currently expected to be 3.1% in 2024, 0.2 percentage points higher than the previous forecast in October, and to grow by 3.2% in 2025.

Large emerging market economies such as Brazil, India and Russia also performed better than previously expected.

The International Monetary Fund believes that the possibility of a so-called hard landing – an economic contraction after a period of strong growth – has increased, although supply chain problems from surging commodity prices and geopolitical volatility in the Middle East pose new risks. reduce.

The United States is expected to grow by 2.1% this year, the Eurozone and Japan are expected to grow by 0.9%, and the United Kingdom is expected to grow by 0.6%.

“In the second half of last year, we saw the global economy was very weak,” IMF chief economist Pierre-Olivier Gourinchas told CNBC’s Karen Tso on Tuesday. Resilient, this will continue into 2024.”

“It’s a combination of strong demand, private consumption and government spending in some of these countries. And, in the current context, supply is also very important. … So very strong labor markets, supply chain frictions have eased. , energy and commodity prices fell.”

The latest official data showed that the U.S. economy grew by 3.3% in the fourth quarter, exceeding economists’ expectations.

China faced a host of problems last year, including a disappointing post-pandemic spending rebound, deflation concerns and an ongoing real estate crisis. The government responded with a series of stimulus measures, prompting an upgrade from the International Monetary Fund.

However, the IMF forecast remains below the global average growth rate of 3.8% from 2000 to 2019. Rising interest rates, the removal of some fiscal support programs and low productivity growth continued to weigh on the economy, the agency said.

But restrictive monetary policies have caused inflation to fall faster than expected in most regions, which Gurinchas called “another piece of good news” in a report on Tuesday. The International Monetary Fund estimates global inflation to be 5.8% in 2024 and 4.4% in 2025. In developed economies, inflation will fall to 2.6% this year and 2% next year.

“The fight against inflation is being won and we have a greater chance of a soft landing. So this sets the stage for central banks, the Fed, the ECB, the Bank of England and other central banks to start easing monetary policy. Policy rates, once We are sure we are on this path,” Gurinchas said.

“The prediction now is that central banks are going to wait to get more data and they’re going to have meeting after meeting and they’re relying on the data to confirm that we’re on that path. That’s the baseline. And then if we are, then by We will see interest rate cuts in the second half of this year,” he said.

Gurinchas added that while central banks must not relax monetary policy prematurely, there is also a risk that the policy will be too tight in the long term, which will lead to slower economic growth in developed economies and an inflation rate below 2%.