“Global activity and world trade firmed up at the turn of the year, with trade spurred by strong exports from Asia,” the IMF said. Image for representation.
| Photo Credit: AP

The International Monetary Fund (IMF) held global growth expectations for 2024 steady in a report on July 16 even as it cut forecasts for the United States and Japan, while warning of inflation risks and trade tensions ahead.

The IMF expects the world economy to grow 3.2% this year, unchanged from its April forecast, according to its World Economic Outlook update.

“Global activity and world trade firmed up at the turn of the year, with trade spurred by strong exports from Asia,” said the fund.

For 2025, it expects global growth of 3.3%.

But even as many countries saw better growth than anticipated early this year, the IMF flagged surprises in Japan and the United States.

The Washington-based lender also cautioned that risks to inflation have increased, with services prices holding up disinflation.

This increases the prospect of interest rates staying elevated for longer, “in the context of escalating trade tensions and increased policy uncertainty.”

Trade measures surged

“We see an explosion in the number of trade restrictive measures,” IMF chief economist Pierre-Olivier Gourinchas told a press briefing on July 16.

Over 3,000 such moves were implemented last year, up from an already-high level of 1,000 in 2019.

These take the form of export restrictions and industrial policies, leading to retaliation, he said.

“One concern we have is that going forward, this will weigh down on global activity,” he noted.

The IMF’s report warned that a resurgence of tariffs can trigger retaliation and a “costly race to the bottom.”

On whether risk assessments shifted after the attempted assassination of former U.S. president Donald Trump, the Republican Party’s nominee in November’s election, Mr. Gourinchas earlier told AFP the fund will consider its implications.

On July 16, he said 2024 is an election-heavy year, adding “there could be some increase in in trade measures” and distortions on industrial policy which could spill over to other countries.

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China concerns

While world growth appears stable, the IMF lowered projections for the United States and Japan.

U.S. growth in 2024 was downgraded to 2.6%, 0.1 percentage points below April’s forecast, due to a “slower-than-expected start to the year.”

Japan’s economy was seen expanding 0.2 percentage points less than expected, by 0.7% this year, mainly thanks to temporary supply disruptions and weak private investment in the first quarter.

The euro area meanwhile is showing signs of recovery with relatively strong services activity, Mr. Gourinchas said, although manufacturing shows weakness.

China and India are expected to power activity in Asia — with China’s 2024 forecast revised up to 5.0% on a private consumption rebound and strong exports.

But Mr. Gourinchas flagged risks to the world’s second biggest economy stemming from weak confidence and unresolved property sector problems.

Should domestic demand weaken, China would rely more on the external sector — a situation countries like the United States are pushing back against.

“An increase in the trade surplus might be small from (China’s) perspective. It could be big from the perspective of the rest of the world,” he said.

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Inflation risks

There also remain risks of sticky inflation amid renewed trade or geopolitical tensions, the IMF cautioned, even as it expects inflation to return to target by end-2025.

Wage growth, if accompanied by weak productivity, could make it tough for firms to ease price increases.

An escalation of trade tensions could also raise near-term inflation risks, by lifting costs of imported goods, IMF said.

Higher inflation could heighten the chances that interest rates stay elevated for longer, increasing financial risks.

The IMF called for careful monetary policy adjustments.

Representational view of a busy market in Hubballi, Karnataka. India continues to be the fastest-growing major economy
| Photo Credit: KIRAN BAKALE

Resilient growth, price stability and steady external sector outlook continue to support India’s promising economic performance amid uncertain global conditions, a Finance Ministry report said on Thursday.

Overall, India continues to be the fastest-growing major economy, with positive assessments of the growth outlook for the current financial year for India by international organisations and the RBI, the Monthly Economic Review for March said.

The IMF, in its April 2024 World Economic Outlook (WEO), has revised upwards its estimate of India’s real GDP growth for FY24 to 7.8% from 6.7% in its January 2024 update and 6.3% in its October 2023 WEO.

The report said the global economic growth landscape is seeing a gradual resurgence, marked by fading fears of recession and rebounding growth in major economies.

Geopolitical tensions remain a concern, but notwithstanding recent developments, risk perceptions have softened, offering a potential upside for growth, it said.

Talking about global economic growth recovery, the report said it is underway in major economies, although disparities persist.

“While the leading indicators signal increased economic activity and geopolitical tensions have eased slightly, recent conflicts continue to pose risks. Despite the global challenges, India stands out with its strong economic performance, highlighting broad-based growth across sectors and asserting its pivotal role in supporting the global growth trajectory,” it said.

Global slowdown led to a moderation in India’s merchandise exports and imports, it said adding that the slowing of trade has resulted in the merchandise trade deficit narrowing in FY2023-24, as exports have shown a smaller contraction than imports.

However, the non-petroleum and non-gems & jewellery merchandise exports have shown resilience with a sustained uptick in the last few months, growing at 3% in FY24.

Services exports expanded at the fastest pace in FY24, supported by rising software exports and business services exports.

Owing to these developments, it said, India’s current account deficit improved in the first nine months of 2023-24 compared to the corresponding period of the previous year.

India’s capital inflows saw a significant turnaround in 2023-24, and its foreign exchange reserves reached an all-time high in March 2024, sufficient to cover 11 months of projected imports and more than 100% of total external debt.