WASHINGTON – The International Monetary Fund on Tuesday upgraded its economic outlook this year for China, India and Europe while modestly lowering expectations for the United States and Japan. But it says worldwide progress against accelerating prices has been slowed by stickier-than-expected inflation for services, from airline travel to restaurant meals.
Overall, the IMF said it still expects the world economy to grow a lackluster 3.2% this year, unchanged from its previous forecast in April and down a tick from 3.3% growth in 2023.
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“Global growth remains steady," Pierre-Olivier Gourinchas, the IMF's chief economist, told reporters.
Still, the world economy's expansion remains unimpressive by recent historical standards. From 2000 through 2019, before the pandemic upended economic activity, global growth had averaged 3.8% a year.
The IMF, a 190-nation lending organization, works to promote economic growth and financial stability and reduce global poverty.
Gourinchas estimated that China and India would account for nearly half of global growth this year.
Partly because of a surge in Chinese exports at the start of 2024, the IMF upgraded its growth forecast for China this year to 5% from the 4.6% it had projected in April, though down from 5.2% in 2023. The IMF forecast was posted before Beijing reported Monday that the Chinese economy, the world’s second-largest after the United States, had grown at a slower-than-expected 4.7% annual rate from April through June, down from 5.3% in the first three months of the year.
China’s economy, which once regularly grew at a double-digit annual pace, is facing significant challenges, notably the collapse of its housing market and an aging population that is leaving the country with labor shortages. By 2029, Gourinchas wrote, China’s growth will slow to 3.3%.
India’s economy is now forecast to expand 7%, up from the 6.8% the IMF had projected in April, in part because of stronger consumer spending in rural areas.
The IMF said that the “shoots of recovery materialized in Europe,” which had been battered by high energy prices and other economic damage from Russia’s 2022 invasion of Ukraine. Citing a rise in Europe’s services businesses, IMF raised its 2024 growth forecast for the 20 countries that share the euro currency by a tenth of a percentage point from its April forecast, to 0.9%. In 2023, the eurozone grew 0.5%.
But a weak first quarter in the United States led the IMF to downgrade its forecast for U.S. growth this year to 2.6% from the 2.7% it had predicted in April.
Likewise, the IMF lowered its outlook for 2024 growth in Japan to 0.7% from the 0.9% it had envisioned in April and from 1.9% in 2023. Japan’s first-quarter growth was disrupted by the shutdown of a major automobile plant, the IMF said.
After surging to 8.7% in 2022 as the global economy rapidly recovered from the pandemic recession, worldwide inflation is expected to continue easing — from 6.7% in 2023 to 5.9% this year and 4.4% in 2025.
But progress is slowing, the IMF said, because services inflation has proved persistently difficult to tame. The fund warned that some central banks may keep interest rates higher for longer than anticipated, until they’re convinced that inflation is firmly under control. Higher-than-expected borrowing costs could weaken global growth as a result.
“The good news is that as headline shocks receded, inflation came down without a recession,’’ Gourinchas wrote in a blog post that accompanied the report. The bad news, he said, is that it still isn’t back to pre-pandemic levels.