IMF raises US, Brazil, UK growth forecast; sees lacklustre global economy

The International Monetary Fund has raised its 2024 economic growth forecasts for the US, 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.

The IMF's latest World Economic Outlook on Tuesday said the shifts will leave 2024 global GDP growth unchanged from the 3.2 percent projected in July, setting a lacklustre tone for growth as world finance leaders gather in Washington this week for the IMF and World Bank annual meetings.

Global growth is projected to be 3.2 percent 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 percent in five years, well below its pre-pandemic trend, the report showed.

Nonetheless, the IMF's chief economist, Pierre-Olivier Gourinchas, said the US, 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 US growth forecast upward by two-tenths of a percentage point to 2.8 percent due largely to stronger-than-expected consumption fueled by rising wages and asset prices. The global lender also upgraded its 2025 US growth outlook by three-tenths of a percentage point to 2.2 percent, slightly delaying a return to trend growth.

Brazil got a sharp upgrade of nine-tenths of a percentage point, raising its projected growth rate this year to 3.0 percent, also on the back of stronger private consumption and investment. Mexico's growth, however, was marked down by seven-tenths of a percentage point to 1.5 percent because of the effects of tighter monetary policy.

The IMF cut China's 2024 growth rate by two-tenths of a percentage point to 4.8 percent, with a boost from net exports partly offsetting continued weakness in the property sector and low consumer confidence.

The IMF's 2025 China growth forecast was unchanged at 4.5 percent, but the outlook does not include an y impact from Beijing's recently announced fiscal stimulus plans, which are still largely undefined.

Germany will see zero growth this year, a markdown of two-tenths of a percentage point, as its manufacturing sector continues to struggle, the IMF projected. The reduction helped to drag down the forecast for overall euro zone growth slightly to 0.8 percent for 2024 and 1.2 percent for 2025 despite a half-percentage-point upgrade that pushed Spain's projected growth to 2.9 percent.

Britain's long-suffering growth outlook got a boost of four-tenths of a percentage point to 1.1 percent for 2024 as falling inflation and lower interest rates are expected to stoke consumer demand. The growth forecast for Japan was lowered by four-tenths of a percentage point to 0.3 percent due to the lingering effects of supply disruptions.

India continues to be a bright spot, with the strongest projected growth among major economies at 7.0 percent in 2024 and 6.5 percent in 2025, unchanged from the July outlook.

Trade risks

In counting risks to the outlook, the IMF flagged the potential for major tariff increases and retaliatory measures, but it did not single out US Republican presidential candidate Donald Trump's vow to impose tariffs of 10 percent on global imports to the US, and 60 percent on goods from China.

Instead, it contains a proxy adverse scenario that includes 10 percent two-way tariffs among the US, euro zone and China plus 10 percent US tariffs on the rest of the world, reduced migration to the US 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 percent in 2025 and 1.3 percent in 2026.

Other risks outlined in the report included the potential for a spike in prices of oil and other commodities should conflicts in the Middle East and Ukraine widen.

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.