IMF forecasts steady global economic growth, continuing disinflation in 2025

The International Monetary Fund (IMF) plans to release its updated World Economic Outlook on January 17th, projecting stable global economic growth and continued disinflation. This announcement was made by IMF Managing Director Kristalina Georgieva at a recent press conference.

According to Reuters, Georgieva noted that the U.S. economy is performing "much better than expected." However, she emphasized that there is significant uncertainty surrounding the trade policies of the incoming administration of President-elect Donald Trump, which is adding to global economic challenges and pushing up long-term interest rates.

With inflation nearing the U.S. Federal Reserve's target and signs of a stable labor market, Georgieva stated that the Fed has the flexibility to wait for more data before making further interest rate cuts. She emphasized that, overall, interest rates are expected to remain at a "higher level for quite some time."

The IMF's global outlook update, scheduled for release on January 17th, comes just days before Trump takes office. Georgieva's remarks serve as an initial signal of the IMF's outlook for the year, though she did not provide detailed forecast figures. In its previous October report, the IMF raised its 2024 growth forecasts for the U.S., Brazil, and the UK, while lowering those for China, Japan, and the Eurozone. This adjustment was attributed to risks stemming from potential new trade conflicts, armed conflicts, and tight monetary policies.

Despite these adjustments, the IMF maintained its July forecast of 3.2% global growth for 2024, but lowered its 2025 global forecast by one-tenth of a percentage point. Georgieva cautioned that global medium-term economic growth is projected to decline to 3.1% over five years, well below pre-pandemic trends.

"Unsurprisingly, given the size and role of the U.S. economy, there is enormous interest globally in the policy direction of the incoming administration, particularly on tariffs, taxes, deregulation, and government efficiency," Georgieva stated. She noted that this uncertainty is particularly impacting trade policy, adding to the challenges facing the global economy. This is especially true for countries and regions that are more integrated into global supply chains, medium-sized economies, and those in Asia.

Georgieva observed that the situation of long-term interest rates rising while short-term rates are falling is "very unusual," not commonly seen in recent history. The IMF anticipates different trends across various regions. In the EU, economic growth is expected to stagnate, while India may see a slight weakening. According to Georgieva, Brazil is also facing rising inflation.

In China, the world's second-largest economy, the IMF is observing deflationary pressures and ongoing challenges related to domestic demand. While reforms are underway, low-income countries are particularly vulnerable, as any new shocks could have a "quite negative" impact on them, Georgieva stated. She noted that it is noteworthy that the rise in interest rates aimed at curbing inflation has not pushed the global economy into recession. However, the divergence in overall inflation trends means that central banks must closely monitor local data.

Georgieva warned that a strong dollar could lead to increased financing costs for emerging market economies, particularly low-income nations. Most countries need to reduce fiscal spending after high expenditures during the COVID-19 pandemic and implement reforms to promote sustainable growth. Georgieva emphasized that in many cases, this can be achieved while safeguarding growth prospects. "Countries cannot borrow their way out of problems. They can only grow their way out of them," she stressed, noting that the world's medium-term growth outlook is at its lowest level in decades.