Global economy heading toward ‘soft landing,’ IMF says

Economy
By Editor_1
A solar panel factory in Dalton, Ga., Nov. 22, 2023. Fears of a global recession have largely abated, in part because of a stronger-than-expected output from some countries, including the US - Christian Monterrosa/The New York Times
By Alan Rappeport

WASHINGTON — The global economy has been battered by a pandemic, record levels of inflation, protracted wars and skyrocketing interest rates over the past four years, raising fears of a painful worldwide downturn. But fresh forecasts published Tuesday (30) suggest that the world has managed to defy the odds, averting the threat of a so-called hard landing.

Projections from the International Monetary Fund (IMF) painted a picture of economic durability — one that policymakers have been hoping to achieve while trying to manage a series of cascading crises.

In its latest economic outlook, the IMF projected global growth of 3.1% this year — the same pace as in 2023 and an upgrade from its previous forecast of 2.9%. Predictions of a global recession have receded, with inflation easing 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 in the final descent to a soft landing,” said Pierre-Olivier Gourinchas, the chief economist of the IMF.

Policymakers who feared they would need to hit the brakes on economic growth to contain rising prices have managed to tame inflation without tipping the world into a recession. The IMF expects global inflation to fall to 5.8% this year and 4.4% in 2025 from 6.8% in 2023. It estimates that 80% of the world’s economies will experience lower annual inflation this year.

The brighter outlook is due largely to the strength of the US economy, which grew 3.1% last year. That robust growth came despite the Fed’s aggressive series of rate increases, which raised borrowing costs to their highest levels in 22 years. Consumer spending in the US has held strong while businesses have continued to invest. The IMF now expects the U.S. economy to grow 2.1% this year, up from its previous prediction of 1.5%.

China’s economy is also growing faster than previously thought and is projected to grow 4.6% this year. IMF officials said the difficulties facing China’s property 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 performing better than was forecast. Perhaps most surprisingly, Russia, which has faced a barrage of Western sanctions and export restrictions since its invasion of Ukraine in February 2022, received the biggest upgrade of all the countries tracked by the IMF. Despite the coordinated effort to cripple its economy, Russia’s economy is expected to grow by a healthy 2.6% this year.

Still, sluggishness persists among some major economies. Geopolitical crises and industrial rivalries have been particularly hard on the eurozone, where fresh data released Tuesday showed the economy stagnated in the final three months of 2023 and grew just 0.1% for the year.

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

Other threats to the global economy exist, including geopolitical turmoil in the Middle East. The war in the Gaza Strip and the associated attacks on ships by the Iranian-backed Yemeni rebels known as the Houthis in the Red Sea are of particular concern to the IMF. It warned that if those attacks escalated, they could lead to supply disruptions and “more persistent underlying inflation” that might require central bankers to maintain higher interest rates for a longer period.

The IMF also expressed trepidation about President Joe Biden’s use of industrial policy to subsidize America’s clean energy and semiconductor sectors. Gourinchas said such actions had been leading to a “tit for tat” in trade restrictions, one that weighed on global output. He said he believed that some of the measures put in place by the United States, such as rules requiring companies to use US-made components to qualify for certain manufacturing tax credits, were not compliant with international trade rules.

Yet Biden administration officials view those policies as among the biggest factors helping to fuel America’s economic recovery.

At a speech in Chicago last week, Treasury Secretary Janet Yellen noted that America’s economy had outpaced those in the rest of the world, achieving stronger growth while cooling inflation more quickly than other large, advanced economies.

“Put simply, it’s been the fairest recovery on record,” she said.

-New York Times

 

 

 

 

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