WASHINGTON, Oct 22 (Reuters) – The International Monetary Fund on Tuesday raised its 2024 economic growth forecasts for the U.S., Brazil and Britain but cut them for China, Japan and the euro zone, adding that risks abound from armed conflicts, potential new trade wars and the hangover from tight monetary policy.
Global growth is projected to be 3.2% in 2025, one-tenth of a percentage point lower than forecast in July, while medium-term growth is expected to fade to a “mediocre” 3.1% in five years, well below its pre-pandemic trend, the report showed.
Nonetheless, the IMF’s chief economist, Pierre-Olivier Gourinchas, said the U.S., India and Brazil were showing resilience and a “soft landing” in which inflation cools without massive job losses had been achieved.
“It looks like the global battle against inflation has largely been won, even if price pressures persist in some countries,” Gourinchas said in a blog post.
But he told Reuters in an interview that there is a risk that monetary policy could “mechanically” become too tight without interest rate cuts in some countries as inflation subsides, weighing on growth and jobs.
“Right now, our assessment for monetary policy in most places, it’s about where we want it to be, but if inflation keeps coming down now, central banks have to start paying attention to what’s happening on the activity side.
CONSUMER STRENGTH
The IMF revised its 2024 U.S. growth forecast upward by two-tenths of a percentage point to 2.8% due largely to stronger-than-expected consumption fueled by rising wages and asset prices. The global lender also upgraded its 2025 U.S. growth outlook by three-tenths of a percentage point to 2.2%, slightly delaying a return to trend growth.
India continues to be a bright spot, with the strongest projected growth among major economies at 7.0% in 2024 and 6.5% in 2025, unchanged from the July outlook.
TRADE RISKS
Instead, it contains a proxy adverse scenario that includes 10% two-way tariffs among the U.S., euro zone and China plus 10% U.S. tariffs on the rest of the world, reduced migration to the U.S. and Europe, and financial market turmoil that tightens financial conditions. Were this to occur, the IMF said it would reduce the overall global GDP output level by 0.8% in 2025 and 1.3% in 2026.
The IMF cautioned countries against pursuing industrial policies to protect domestic industries and workers, saying that they often fail to deliver sustained improvements in living standards.
“Economic growth must come instead from ambitious domestic reforms that boost technology and innovation, improve competition and resource allocation, further economic integration and stimulate productive private investment,” Gourinchas said in his blog post.
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Reporting by David Lawder; Editing by Paul Simao
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