Economy

Sluggish growth threatens global economy, warns IMF


In front of the International Monetary Fund (IMF) headquarters in Washington, DC on October 18, 2024.

The global economy has successfully made a soft landing. Monetary tightening policies have curbed inflation without triggering a recession. Global growth is expected to decelerate very slightly to 3.2% in 2024 and 2025, having reached 3.3% in 2023, according to the latest forecasts from the International Monetary Fund (IMF) published on Tuesday, October 22. At the same time, global inflation is expected to continue to decline, with price rises falling from 9.4% in the third quarter of 2022 to 3.5% by the end of 2025, and with it, an easing of interest rates that has already begun in the US and the eurozone.

Symbolizing this successful landing, US growth is projected to soar to around 2.8% in 2024, buoyed by dynamic consumption. In the eurozone however (+0.8% forecast for 2024), things are more complicated. The situation is most difficult in countries where manufacturing plays a central role, such as Germany (zero growth forecast for 2024), while the more service-oriented nations of southern Europe and even France (+1.1%) fare better.

This might seem like the end of the post-Covid-19 inflationary crisis and a return to normality. In other words, good news. But the opposite is true. The IMF highlights the risks that sluggish growth could have for the global economy as well as for social and environmental equilibrium.

“The latest forecast for global growth five years from now – at 3.1 percent – remains mediocre compared with the prepandemic average,” stated the Washington-based institution. It has calculated that average annual growth between now and the end of the decade could be one percentage point lower than it was from 2000 to 2019, noting that “another decade of weak productivity growth could seriously erode living standards and threaten financial and social stability.”

Several of the world’s growth engines have stalled, starting with China. In the third quarter of 2024, its gross domestic product (GDP) growth was the weakest it had been since the start of 2023, and although consumption and industrial production figures exceeded expectations in September, the collapse of the real estate sector remains a major challenge for Beijing. The IMF has lowered its growth forecast for 2024 by 0.2 percentage points to 4.8% and expects 4.5% in 2025.

‘Structural challenges’

Another blow to global activity is the rise of protectionism. If the World Trade Organization is to be believed, the reduction of customs barriers alone boosted global growth by 6.8% between 1995 and 2020, but this free-trade boom is fading.

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