The International Monetary Fund expects the globe to pull off a soft landing in 2024, skirting a recession while inflation falls.
The US, China, and large emerging markets are all expected to post higher growth as central banks begin easing high interest rates that had been used to cool economies around the world.
The IMF estimates in its new World Economic Outlook report that the global economy will grow 3.1% this year, the same as in 2023, before rising modestly by 3.2% in 2025.
The latest forecast is two-tenths of a percent higher than the international body estimated in October, reflecting the progress being made to bring down inflation and an upgrade to growth outlooks in China, the US, and large emerging markets.
"We are seeing inflation coming down faster than expected," IMF chief economist Pierre-Olivier Gourinchas said in an interview.
"So a little bit more growth, a little bit less inflation," he added. "The result is that we are now expecting that a soft landing is more likely."
Still, growth over the next few years is slated to expand below the historical average of 3.8% from 2000 to 2019. That is due to the lag effect from interest rates that are expected to stay relatively elevated even as central banks begin loosening monetary policy.
Consider the US, where Fed officials expect to cut rates by a median of three times in 2024. Growth is expected to slow to 2.1% from 3.1% last year before dropping to 1.7% in 2025 due to the lag from the Fed's aggressive rate-hiking campaign and a cooling job market.
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In the US, productivity could explain part of the reason inflation is falling and the economy is continuing to outperform, said Gourinchas, who noted that productivity has rebounded in recent quarters from where it was earlier in 2023.
"We see more growth and sort of the labor markets cooling off a little bit," he said. "The result is consistent with faster productivity growth, but we don't see that across all countries and in all places."
In Europe, growth is not as strong yet even as job creation has been strong, said Gourinchas, noting that productivity has not been part of the story there.
Meanwhile, China’s economy is estimated to rise 4.6% this year, 0.4% higher than previously estimated, thanks to stronger-than-expected growth last year and an increase in government spending.
"With disinflation and steady growth, the likelihood of a hard landing has receded, and risks to global growth are broadly balanced," the IMF said in its report.