Global economy heading for 'soft landing', says IMF

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The global economy has been hit by a pandemic, record levels of inflation, protracted wars and soaring interest rates over the past four years, raising fears of a painful global recession. But new forecasts released Tuesday suggest the world has managed to defy the odds, avoiding the threat of a so-called hard landing.

The International Monetary Fund's projections painted a picture of economic durability, a picture that authorities hoped to achieve as they attempted to manage a series of cascading crises.

In its latest economic outlook, the IMF projected global growth of 3.1 percent this year, the same pace as in 2023 and an improvement from its previous forecast of 2.9 percent. Predictions of a global recession have receded and inflation has fallen faster than economists anticipated. Central bankers, including the Federal Reserve, are expected to begin cutting interest rates in the coming months.

“The global economy has shown remarkable resilience and we are now on the final descent toward a soft landing,” said Pierre-Olivier Gourinchas, IMF chief economist.

Authorities who feared they would have to slow economic growth to contain rising prices have managed to control inflation without pushing the world into recession. The IMF expects global inflation to fall to 5.8 percent this year and 4.4 percent in 2025 from 6.8 percent in 2023. It estimates that 80 percent of the world's economies will experience annual inflation lower this year.

The brighter outlook is largely due to the strength of the US economy, which grew 3.1 percent last year. That strong growth came despite the Federal Reserve's aggressive series of rate hikes, which raised borrowing costs to their highest levels in 22 years. Consumer spending in the United States has remained strong while companies have continued to invest. The IMF now expects the U.S. economy to grow 2.1 percent this year, up from its previous prediction of 1.5 percent.

China's economy is also growing faster than previously thought and is projected to grow 4.6 percent this year. IMF officials said the difficulties facing China's real estate sector had not slowed the economy as much as they predicted; The Chinese government, they noted, has provided “Significant” fiscal support.

Other large economies, such as India and Brazil, also appear to be doing better than expected. Perhaps most surprising is that Russia, which has faced an onslaught of Western sanctions and export restrictions since its invasion of Ukraine in February 2022, received the biggest improvement of all countries tracked by the IMF. Despite the coordinated effort to cripple its economy, Russia's economy is expected to grow a healthy 2.6 percent this year.

Still, sluggishness persists in some major economies. Geopolitical crises and industrial rivalries have been particularly tough on the eurozone, where new data released on Tuesday showed the The economy stagnated in the last three months of 2023. and grew only 0.1 percent during the year.

The IMF said the “remarkably subdued” growth in Europe reflected “weak consumer sentiment, the persistent effects of high energy prices, and weakness in interest rate-sensitive business and manufacturing investment.”

There are other threats to the global economy, including geopolitical turmoil in the Middle East. The war in Gaza and associated attacks on ships by Iran-backed Yemeni rebels known as the Houthis in the Red Sea are of particular concern to the IMF. He warned that if such attacks intensified, they could lead to supply disruptions and underlying inflation” that could require central bankers to maintain higher interest rates for a longer period.

The IMF also expressed concern about President Biden's use of industrial policy to subsidize the US clean energy and semiconductor sectors. Gourinchas said such actions had led to a “such for that” in trade restrictions, one that affected global production. He said he believed some of the measures implemented by the United States, such as rules requiring companies to use American-made components to qualify for certain manufacturing tax credits, did not comply with international trade rules.

However, Biden administration officials consider those policies to be among the most important factors helping drive the U.S. economic recovery.

In a speech in Chicago last week, Treasury Secretary Janet L. Yellen noted that the U.S. economy had outperformed the rest of the world, achieving stronger growth and cooling inflation more quickly than other majors. advanced economies.

“Simply put, it has been the fairest recovery ever recorded,” he said.



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