The International Monetary Fund or IMF raised its 2024 and 2025 economic growth forecasts for the United States in its new World Economic Outlook. The U.S. was the only developed nation to see its outlook marked up for both years. As Kavan Choksi says, as per the IMF, the United States economy is expected to remain a primary driver of global growth for the rest of 2024 and into 2025. This momentum is majorly fuelled by strong consumer spending. Consumer spending in the country has persisted despite significant inflationary pressures and the high interest rates implemented to control them.
Kavan Choksi provides insight into global growth forecasts and inflation as per IMF
According to IMF or International Monetary Fund’s New World Economic Outlook, 2024 global GDP growth is expected to be 3.2%. Global growth is additionally projected to be 3.2% in 2025, while medium-term growth is likely to be 3.1% in five years. Overall, a number of countries, including the United States have shown good resilience. In fact, the U.S. is leading the advanced economies on growth for the second year in a row.
The IMF has revised its U.S. growth forecast for 2024 upward by two-tenths of a percentage point to 2.8%. This revision has been made largely due to stronger-than-expected consumption. The increase in consumption was fueled by rising asset prices and wages. The 2025 U.S. growth outlook has also been upgraded by the IMF by three-tenths of a percentage point to 2.2%.
Coming to other nations, Brazil has witnessed a sharp upgrade of nine-tenths of a percentage point. This has raised its projected growth rate this year to 3.0%, on the back of stronger investment and private consumption. The growth in Mexico was marked down by seven-tenths of a percentage point to 1.5% owing to the impact of tighter monetary policy.
As per Kavan Choksi, the recent IMF report also underlined that the global war against inflation has largely been won, with little cost to economic growth. IMF has predicted that global inflation is likely to cool from 6.7% last year to 5.8% this year and to 4.3% in 2025. It has also been estimated that inflation shall fall much faster in wealthy nations across the world, from 4.6% in 2023 to 2.6% in 2024 and 2% in 2025. 2% is the inflation target range for most major central banks. This slowdown in inflation, to a certain extent, is a result of years of price increases in the aftermath of the pandemic. Due to the slowing inflation, the Federal Reserve and the European Central Bank have cut interest rates in 2024 subsequent to aggressively raising them with the goal of taming inflation.
Inflation had significantly accelerated as the world economy recovered from the COVID-19 recession. High borrowing rates engineered by major central banks across the world, coupled with the end of supply chain logjams, played a huge role in bringing inflation dramatically down from the four-decade highs it hit in mid-2022. The global economy had continued to grow and employers kept hiring despite higher borrowing costs.
