Global growth faces increased risks

The International Monetary Fund (IMF) last week released its quarterly update of the World Economic Outlook. Global growth this year is now expected to reach 3.2 % and remain at that level in 2025. Strong economies in the United States and emerging and developing Asia have lifted global growth. In the US, private consumption and investment in production capacity were up, while growth was supported in Asia by strong export demand for semiconductors and electronics. The IMF expects the US economy to grow by 2.8 % this year and 2.2 % next year. Growth in emerging and developing Asia is expected to reach 5.4 % this year and 5.0 % next year. The IMF sees the Chinese economy growing by 4.8 % this year and 4.5 % next year. The Russian economy is expected to grow by 3.6 % this year and 1.3 % next year.

The IMF expects growth of the global economy over the next five years to average 3.1 % a year, which is well below the 3.8 % average between 2000 and 2019. Over the medium term, the slowing growth reflects structural economic factors, including ageing populations, lack of investment and sluggish productivity gains. The IMF sees growth in international trade, which slowed to under 1 % last year, bouncing back to a level above 3 % this year and next year, which again is still lower than the average in the two most recent pre-pandemic decades, when growth averaged 4.7 % a year. Even with signs of “geoeconomic fragmentation” emerging, growth of trade within trading blocs has provided sufficient activity to offset losses from trade between blocs and sustain overall trade growth.

The IMF’s outlook risks skew to the downside. Extreme weather events could drive up food prices, while military conflicts and geopolitical tensions could put upward pressure on commodity prices overall. Restrictive trade policies could slow the growth of global trade and thereby growth of the global economy. The trade tensions could have long-term impacts as they impede the spread of technology and knowhow from international trade and investment. The IMF’s policy recommendations stress reduction of public sector deficits to stabilise debt-servicing capacity and preserve flexibility in fiscal policy responses.

Growth forecasts from the IMF’s October update of the World Economic Outlook, %. (July WEO figures in parentheses).

Source: IMF.