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IMF optimistic about global economy: Projects steady growth and declining inflation through 2025

IMF optimistic about global economy, financial news

The International Monetary Fund (IMF) has recently revised its economic forecasts, suggesting an optimistic scenario where the global economy achieves a "soft landing" this year. This term refers to a situation where inflation is controlled effectively, minimizing the economic downturn and enabling continued economic growth, albeit at a moderate pace. This revision indicates a positive shift in expectations from earlier projections, pointing to an economy that, while dealing with inflationary pressures, avoids the severe recessions that were once feared.

The IMF's revised forecast now anticipates a global growth rate of 3.2% for the current year, a slight increase from the previously projected 3.1% in January. This update suggests that the global economy is maintaining its momentum from 2023 and is expected to sustain this growth rate into 2025. This consistency in growth rates over three years highlights a degree of economic stability across global markets, reflecting resilience in the face of ongoing economic challenges.

In its updated economic outlook, the IMF has identified robust growth in the United States as a key driver behind the improved global forecast. The U.S. economy is now expected to expand by 2.7% this year, a significant upgrade from the earlier estimate of 2.1%. This acceleration is notable, especially considering that the U.S. experienced a solid growth rate of 2.5% in the previous year. The strength of the U.S. economy, being the largest in the world, plays a crucial role in bolstering global growth through its extensive economic interactions and influence.

While the global economy continues to face challenges from persistent high inflation, the IMF forecasts a notable decrease in inflation rates worldwide. From a high of 6.8% last year, global inflation is expected to fall to 5.9% in 2024 and further to 4.5% in 2025. This trend is even more pronounced in advanced economies, where inflation is projected to decrease from 4.6% in 2023 to 2.6% this year, reaching as low as 2% by 2025. These projections are largely attributed to the impact of higher interest rates, which are helping to moderate price increases and stabilize economies.

Central banks around the world, including major institutions like the Federal Reserve, the Bank of Japan, the European Central Bank, and the Bank of England, have implemented significant interest rate hikes with the goal of reducing inflation to approximately 2%. In the United States, this strategy has led to a substantial reduction in inflation, from a peak of 9.1% in mid-2022 to 3.5% recently. However, inflation levels remain above the Federal Reserve's target, suggesting that interest rate cuts may not be forthcoming in the immediate future, as the central bank continues to prioritize inflation control.

Despite expectations of economic downturns due to higher borrowing rates, the global economy has shown remarkable resilience. Growth and employment rates have been maintained, even as inflation rates have begun to decline. This resilience was highlighted by Pierre-Olivier Gourinchas, the IMF's chief economist, who noted that the global economy has remained stable and that inflation is moving back towards target levels. This observation was made during a briefing prior to the release of the IMF's latest World Economic Outlook, underscoring a more optimistic view than many analysts had anticipated.

However, the current global economic growth rate, while stable, does not match the higher averages seen from 2000 to 2019, which were around 3.8%. The IMF forecasts growth rates of 3.2% for this year and next, which are subdued by several factors including continued high interest rates, limited productivity gains in many parts of the world, and the reduction of government economic support that was prevalent during the pandemic. These elements are acting as brakes on the potential for higher global economic growth.

The IMF also warns that the economic expansion could be disrupted by ongoing high interest rates and geopolitical tensions, such as the ongoing conflict in Gaza. These factors pose risks that could impact trade flows and lead to increases in prices for energy and other key commodities, potentially derailing the current trajectory of economic growth.

China, the world's second-largest economy, is facing multiple economic challenges that are expected to slow its growth. These challenges include a significant downturn in the real estate sector, declining consumer and business confidence, and escalating trade tensions with other major economies. As a result, the IMF projects a deceleration in China's economic growth from 5.2% in 2023 to 4.6% in 2024 and further to 4.1% in 2025. However, recent data indicates that China's economy has expanded at a 5.3% annual pace in the first quarter of the year, exceeding expectations, which suggests that the government's policies to stimulate growth and stronger demand are having an impact, as reported by AP.

Japan's economy, now ranked as the world's fourth largest after being surpassed by Germany, is projected to slow down significantly, from a growth rate of 1.9% last year to just 0.9% in 2024. This slowdown reflects broader challenges faced by developed economies in sustaining high growth rates. In Europe, the collective economies of the eurozone are expected to see modest growth of 0.8% this year, an improvement over last year's growth. The United Kingdom is similarly expected to experience slow economic progress, with growth projected to rise from a minimal 0.1% last year to 0.5% in 2024, and to 1.5% in the following year.

In the developing world, India is expected to continue to outpace China in terms of economic growth, though its growth rate is projected to decrease from 7.8% last year to 6.8% this year, and slightly further to 6.5% in 2025. Sub-Saharan Africa is expected to see a gradual increase in growth rates, from 3.4% last year to 3.8% in 2024, and to 4.1% in 2025. However, in Latin America, the economies of Brazil and Mexico are anticipated to face challenges that will lead to a slowdown in growth through 2025, with Brazil affected by high interest rates and Mexico impacted by government budget cuts.



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