The international economic organization heralded progress on inflation while warning about anti-globalization policies and geopolitical tensions.
The IMF issued an update to its world economic outlook on Tuesday, raising the growth rate for the U.S. in 2024 while holding overall global growth steady.
For the U.S., the forecast for growth this year was increased to 2.8% from 2.6% in its July estimate while also raising the 2025 projection to 2.2% from 1.9%. Global growth remained at 3.2% this year and next. The growth rate for China was reduced to 4.8% from 5% previously but remained unchanged at 4.5% for 2025.
“Strong growth forecast has come along with progress on inflation” in the U.S., IMF chief economist Pierre-Olivier Gourinchas said. “There is strong productivity growth when we look at the U.S.”
Gourinchas also said the increase in foreign-born workers in the U.S. has helped keep the labor market strong even as inflation has come down, helping raise the growth rate of the economy. This is something that the Federal Reserve and other economists have noted, although it is a political issue that has been stoked by former President Donald Trump and is cited as a top issue in the 2024 election by voters.
The outlook from the Washington-based organization of 190 countries was a mixed bag for the global economy with optimism on inflation but warnings over debt levels and increasing geopolitical and trade volatility. In particular, the IMF said continued tensions in the Mideast threaten commodity prices and overall trade in the region.
“It looks like the global battle against inflation has largely been won, even if price pressures persist in some countries,” Gourinchas said.
“After peaking at 9.4% year-on-year in the third quarter of 2022, we now project headline inflation will fall to 3.5% by the end of next year, slightly below the average during the two decades before the pandemic. In most countries, inflation is now hovering close to central bank targets, paving the way for monetary easing across major central banks.”
Gourinchas said countries need to pivot to take on the new challenges facing the world. First is a change toward lower interest rates, action that is now underway in most developed countries, including the U.S. The second is putting the fiscal policies of major countries on a better track toward reducing high debt levels. The third is to enact global pro-growth policies.
There were warnings about increasingly anti-globalization policies and protectionist trade efforts, though he refrained from mentioning specific countries. In the U.S., GOP nominee Trump has proposed aggressive increases in import tariffs, which he argues would correct what he describes as policies used by China and other exporters to the detriment of America. Most economists believe tariffs are a tax on consumers, inflationary and likely to bring reciprocal action against the U.S. by other countries.
“Moreover, while industrial and trade policy measures can sometimes boost investment and activity in the short run – especially when relying on debt-financed subsidies – they often lead to retaliation and fail to deliver sustained improvements in standards of living,” Gourinchas said. “They should be avoided when not carefully addressing well-identified market failures or narrowly defined national security concerns.”
On debt, Gourinchas noted the effect that lower interest rates could bring, but singled out the U.S. and China as two of the largest economies that are not doing enough to address their fiscal policies.
“After years of loose fiscal policy in many countries, it is now time to stabilize debt dynamics and rebuild much-needed fiscal buffers,” he said.
“For some, including the United States and China, current fiscal plans do not stabilize debt dynamics,” Gourinchas added. “In many others, while early fiscal plans showed promise after the pandemic and cost-of-living crises, there are increasing signs of slippage.”
“The path is narrow: delaying consolidation increases the risk of disorderly market-imposed adjustments, while an excessively abrupt turn toward fiscal tightening could be self-defeating and hurt economic activity,” he added.
The U.S. economy and the markets have enjoyed a strong spell over the past year, but most economists are forecasting a slowdown in 2025. Uncertainty over the election, the growing national debt and weariness of consumers are cited as the primary concerns, along with the economic slowdown underway in China and other Asian countries.
“The recent slump in globally- and tech-sensitive East Asian trade shows no respite, with advanced October Korean exports and September Taiwanese export orders data disappointing,” BCA Research wrote in a client note Tuesday morning. “Korean exports for the first 20 days of October dropped 2.9% year-over-year despite sustained demand for semiconductors, decelerating from a 1.1% decline in September.”
Ironically, concern is growing in the U.S. that the Federal Reserve’s move to cut interest rates by a half point in September may have stoked the markets and that investors are overly optimistic about stocks. As a result, Treasury yields have risen with the 10-year Treasury rising above 4% recently.
“Demand is too strong to be sure the inflation fire is out and Fed officials need to proceed cautiously given the uncertainty of the level of the neutral rates,” said Chris Rupkey, chief economist at fwdbonds.com. “The economy sure is not slowing down with the federal funds rate at 5%.”
Still, there is increasing global concern that the U.S. may move away from the pro-globalization policies that have been a staple of American economics since the late 1980s. And even with a White House occupied by Vice President Kamala Harris, the reality is that the U.S. will face pressure to address its growing debt issue. Even if Congress does not move to curb government spending, interest rates may remain higher than they otherwise would be should the Treasury have to keep refinancing the national debt.
As is often the case, the IMF said it favors economic policies that expand growth, employment and global stability rather than those that tend to respond to local political pressures.
“Economic growth must come instead from ambitious domestic reforms that boost technology and innovation, improve competition and resource allocation, further economic integration and stimulate productive private investment,” the organization said in its summary.