On January 30, the International Monetary Fund (IMF) released its latest World Economic Outlook report, which raised the world economic growth rate in 2024 to 3.1% from the 2.9% forecast in October last year, and the world economic growth rate in 2025 is expected to be 3.2%.

The global economy is headed for a soft landing

In the report, the IMF pointed out that the global economy has shown sufficient resilience since the second half of 2023. On the demand side, strength in private consumption and government spending compensated for tight monetary conditions and supported economic activity; On the supply side, higher labor force participation, improved supply chains, and lower energy and commodity prices have more than compensated for the negative impact of renewed geopolitical uncertainty.

With growth remaining stable and inflation steadily declining, the IMF believes that the global economy is eventually headed for a soft landing and that the risks of a hard landing have diminished.

Specifically, the report predicts that US economic growth will gradually slow, from 2.5% in 2023 to 2.1% and 1.7% in the next two years, and that tight monetary policy will still play an important role in the US economy; The euro area, on the other hand, is expected to rebound slightly after a challenging 2023, with growth of 0.9% this year and 1.7% next, as high energy prices and tight monetary policy limited demand in the euro area last year. Driven by India and Southeast Asia, Asia's emerging economies are expected to continue to lead the world in 2024 and 2025, at 5.2% and 4.8%, respectively, with India's projected growth rate of 6.5% for the second consecutive year leading the major economies.

As for inflation, the IMF cut global inflation, excluding Argentina, to 4.9% this year from its October forecast of 5.3%. Core inflation in advanced economies is expected to fall to 2.6 per cent this year, closer to the 2 per cent medium-term targets set by the US Federal Reserve and the European Central Bank.

In addition to the two core factors of slowing economic growth and inflation, the report also points out that 2024 and 2025, as global election years, typically mean that governments will increase public spending, which may partially stimulate inflation, but is more likely to boost economic activity. Rapid advances in AI could also boost investment and spur rapid productivity growth.

Despite the many positive factors in the global economy, the 3.1% and 3.2% growth rates in 2024 and 2025 are still below the 3.8% average between 2000 and 2019.

The IMF cited high interest rates, a contraction in fiscal spending under the impact of high debt, and low underlying productivity growth as the main factors affecting economic growth. In addition, geopolitical tensions have resurfaced, such as conflicts in the Middle East, which could disrupt the supply of commodities, and the Red Sea crisis, which has significantly increased transport costs between Asia and Europe. Core inflation, which is likely to be more persistent, depends on the impact of wage increases on prices, especially as negotiated wage increases in the eurozone may put renewed pressure on prices, while monetary policy, which prefers to keep interest rates higher for longer, may also put pressure on government debt, and fiscal consolidation may weigh on economic growth.