The IMF restructured its predictions for the global economic outlook. The United States is the only major economy that can be optimistic.
The IMF revised its predictions for global GDP growth again, finding that the United States is proving to be extremely resilient despite several economic hardships. On the other hand, China appears far less resilient, continuing its disappointing economic performance of 2023.
Western nations have been battling high inflation and tight monetary policy by central banks. The United States, the European Union, and the United Kingdom reached their inflation peak in mid-2022, slowly declining since then.
At the moment, inflation in the United States seems tamed, with the latest reading placing headline consumer prices at 3.7% year-on-year. Such a steep drop was mainly caused by a quick and staunch tightening policy since March 2022.
The US Federal Reserve brought interest rates at 5.5%, with many analysts fearing a looming recession. Instead, the US economy proved to be incredibly resilient, with unemployment remaining low and consumer spending on the rise.
For this reason, the International Monetary Fund (IMF) increased expectations for the American GDP to 2.1% for 2023, a 0.3 percentage increase from the last reading, as well as to 1.5% for 2024.
According to chief economist Pierre-Olivier Gourinchas, however, “We are not quite there with inflation,” dropping only to a global average of 6.9% in 2023.
General disappointment
The United States, however, is the only major economic area to thrive according to the IMF. Indeed, the European Union and the United Kingdom appear to have fallen into stagflation, economists’ worst nightmare.
During stagflation, the economy does not grow while inflation remains high, giving central banks many headaches on what to address first.
The Eurozone fell into a technical recession in June after Germany and the Netherlands, the bloc’s first and fifth economies, officially contracted. According to the IMF, the Eurozone is set to grow only 0.7% in 2023 and 1.2% in 2024.
Similarly, the UK economy declined during the summer, and the IMF revised GDP growth predictions downward to 0.6% for 2024.
Even East Asian economies will struggle this year, and likely the next one too, according to the IMF. China, whose post-COVID recovery has been generally disappointing, is slowing down its economic miracle and many analysts expect it to stop. Deflation, historically low exports, and the collapse of the country’s real estate market might be the likely causes.
Although the IMF increased Japanese GDP growth predictions, the country’s inflation is also rising to uncomfortable levels. Nevertheless, the Bank of Japan keeps declining to take significant actions in the short term, fearing for the country’s growth.
