July 16th 2024.
According to the latest report from the International Monetary Fund (IMF), there have been some updates to the economic outlook for various countries this year. While there is positive news for China, India, and Europe, the expectations for the United States and Japan have been slightly lowered. However, the fight against rising prices globally has been hindered by stubborn inflation in the service sector, including areas like air travel and dining out.
Overall, the IMF has maintained its prediction of a lackluster 3.2% growth for the world economy in 2021, which is the same as their previous forecast in April. This is also down from the 3.3% growth seen in 2020. Before the pandemic, the average global growth rate was at a healthier 3.8% annually from 2000 to 2019.
As an international lending organization made up of 190 nations, the IMF strives to promote economic growth, financial stability, and reduce poverty worldwide. In a blog post accompanying the latest update on the World Economic Outlook, the IMF's chief economist, Pierre-Olivier Gourinchas, highlighted that China and India are expected to contribute to almost half of the global growth this year.
One of the factors leading to the upgrade in China's growth forecast to 5% from the previous 4.6% in April is the surge in Chinese exports at the beginning of 2021. However, this is still lower than the 5.2% growth seen in 2020. It's worth noting that this forecast was made before China released its quarterly report, indicating a slower-than-expected growth rate of 4.7% between April and June, down from 5.3% in the first quarter.
Despite once being known for its double-digit annual growth, China's economy is facing significant challenges, such as the decline in its housing market and an aging population leading to a shortage of labor. Gourinchas predicts that by 2029, China's growth will slow to 3.3%.
On the other hand, India's economy is seeing a boost, with a projected growth rate of 7% in 2021, up from the 6.8% forecasted in April. This is attributed to stronger consumer spending in rural areas.
The IMF also acknowledges that there are signs of recovery in Europe, which was heavily affected by high energy prices and other economic disruptions caused by Russia's invasion of Ukraine in 2022. With the rise in services businesses, the IMF has raised its growth forecast for the eurozone by 0.1% to 0.9% for 2024, up from 0.5% in 2023.
However, the IMF has lowered its expectations for the United States, with a projected growth rate of 2.6% this year, down from 2.7% in April. Similarly, Japan's forecast has been adjusted to 0.7% growth in 2024, down from the previously predicted 0.9% and significantly lower than the 1.9% growth seen in 2023. The IMF attributes Japan's weaker growth to the shutdown of a major car manufacturing plant in the first quarter.
After a significant growth rate of 8.7% in 2022 due to the quick recovery of the global economy from the pandemic recession, inflation is expected to decrease gradually in the coming years. From 6.7% in 2023, it is predicted to drop to 5.9% in 2021 and 4.4% in 2025. However, the IMF cautions that the progress in controlling inflation has slowed down due to persistent inflation in the service sector. This could lead to central banks keeping interest rates higher for longer than expected, which may hinder global growth.
Gourinchas notes that while it is good news that inflation has decreased without causing a recession, it is still not back to pre-pandemic levels. The IMF will continue to monitor the global economy and make updates to their forecasts as needed.
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