The global economy is projected to grow at a steady pace of 3.2 percent in 2024 and 3.3 percent in 2025, according to the July 2024 World Economic Outlook (WEO) forecast. But this growth is not expected to be uniform across all economies.
One of the key factors affecting this alignment is the performance of the services sector. Inflation in services prices is slowing the progress of disinflation, complicating the normalization of monetary policy.
This has increased the upside risks to inflation, raising the possibility of prolonged high interest rates. These developments occur in the context of escalating trade tensions and increased policy uncertainty, necessitating careful sequencing of policy measures to maintain price stability and replenish diminished buffers.
At the turn of the year, global activity and world trade experienced a boost, driven by strong exports from Asia, particularly in the technology sector. The first quarter of 2024 saw growth exceed expectations in many countries, relative to the April 2024 WEO forecast. However, there were notable exceptions in Japan and the United States.
In the United States, after a sustained period of strong performance, growth slowed more than expected due to moderating consumption and a negative contribution from net trade. Japan’s economy was negatively impacted by temporary supply disruptions caused by the shutdown of a major automobile plant in the first quarter.
In contrast, signs of economic recovery emerged in Europe, led by an improvement in services activity. In China, a resurgence in domestic consumption drove positive growth in the first quarter, aided by what appeared to be a temporary surge in exports reconnecting with the previous year’s rise in global demand.
These developments have somewhat narrowed the output divergences across economies. As cyclical factors wane, economic activity is becoming better aligned with its potential. This alignment is crucial for maintaining global economic stability and ensuring sustainable growth.
In conclusion, while the global economy is projected to grow steadily, the path to this growth is marked by varied momentum, inflation risks, and policy uncertainties. Careful policy sequencing and management are required to navigate these challenges and ensure that growth is sustainable and inclusive. The experiences of different economies highlight the importance of resilience and adaptability in the face of changing global economic conditions. As we move forward, it will be crucial to keep these lessons in mind and work towards a more balanced and sustainable global economy.
Global Economic Outlook
The global disinflation momentum is slowing, reflecting different sectoral dynamics. Higher-than-average inflation persists in services prices, tempered somewhat by stronger disinflation in goods prices. Nominal wage growth remains brisk, above price inflation in some countries, partly due to wage negotiations earlier this year and short-term inflation expectations that remain above target.
The uptick in sequential inflation in the United States during the first quarter has delayed policy normalization, putting other advanced economies, such as the euro area and Canada, where underlying inflation is cooling more in line with expectations, ahead of the United States in the easing cycle.
Global financial conditions remain accommodative, with longer-term yields generally drifting upward, in tandem with the repricing of policy paths. However, buoyant corporate valuations have kept financial conditions accommodative, broadly at the level of the April WEO.
IMF Staff Projections
IMF staff projections are based on upward revisions to commodity prices, including a rise in nonfuel prices by 5 percent in 2024. Energy commodity prices are expected to fall by about 4.6 percent in 2024, less than projected in the April WEO, reflecting elevated oil prices from deep cuts by OPEC+ and reduced, but still present, price pressure from the Middle East conflict.
Monetary policy rates of major central banks are still expected to decline in the second half of 2024, with divergence in the pace of normalization reflecting varied inflation circumstances.
Growth Projections
Growth is expected to remain stable. At 3.2 percent in 2024 and 3.3 percent in 2025, the forecast for global economic growth is broadly unchanged from that in April.
Among advanced economies, growth is expected to converge over the coming quarters. In the United States, projected growth is revised downward to 2.6 percent in 2024, reflecting the slower-than-expected start to the year.
In the euro area, a modest pickup of 0.9 percent is expected for 2024, driven by stronger momentum in services and higher-than-expected net exports in the first half of the year.
In Japan, the strong shunto wage settlement is expected to support a turnaround in private consumption starting in the second half.
The forecast for growth in emerging market and developing economies is revised upward; the projected increase is powered by stronger activity in Asia, particularly China and India.
With regard to Latin America and the Caribbean, growth has been revised downward for 2024 in Brazil, reflecting the near-term impact of flooding, and in Mexico, due to moderation in demand.
For the Middle East and Central Asia, oil production and regional conflicts continue to weigh on prospects.
The forecast for growth in sub-Saharan Africa is revised downward, mainly as a result of a 0.2 percentage point downward revision to the growth outlook in Nigeria amid weaker than expected activity in the first quarter of this year.
