In a recent update to the outlook, the IMF said the momentum on global disinflation is slowing, signaling bumps along the path; world trade growth is expected to recover to about 3.25 per cent annually in 2024-25 (from quasi stagnation in 2023) and align with global gross domestic product (GDP) growth again; and global inflation will continue to decline.

However, varied momentum in activity at the turn of the year has somewhat narrowed the output divergence across economies as cyclical factors wane and activity becomes better aligned with its potential.

In the United States, after a sustained period of strong outperformance, a sharper-than-expected slowdown in growth reflected moderating consumption and a negative contribution from net trade.

In the United States, projected growth has been revised downward to 2.6 per cent in 2024—0.1 percentage point lower than projected in April—reflecting the slower-than-expected start to the year.

US growth is expected to slow to 1.9 per cent in 2025 as the labour market cools and consumption moderates, with fiscal policy starting to tighten gradually. By the end of 2025, US growth is projected to taper to potential, closing the positive output gap.

In Japan, the negative growth surprise stemmed from temporary supply disruptions linked to the shutdown of a major automobile plant in the first quarter. The strong shunto wage settlement in the country is expected to support a turnaround in private consumption starting in the second half, the IMF report said.

But the expectation for 2024 growth in japan has been revised downward by 0.2 percentage point, with the downward adjustment largely reflecting temporary supply disruptions and weak private investment in the first quarter.

In contrast, shoots of economic recovery materialised in Europe, led by an improvement in services activity. In the euro area, activity appears to have bottomed out.

In line with the April 2024 projection, a modest pick-up of 0.9 per cent is expected for 2024 in the zone—an upward revision of 0.1 percentage point—driven by stronger momentum in services and higher-than-expected net exports in the first half of the year. Growth is projected to rise to 1.5 per cent in 2025.

In China, resurgent domestic consumption propelled the positive upside in the first quarter, aided by what looked to be a temporary surge in exports belatedly reconnecting with last year’s rise in global demand.

For China, the growth forecast is revised upward to 5 per cent in 2024, primarily on account of a rebound in private consumption and strong exports in the first quarter. In 2025, GDP is projected to slow to 4.5 per cent, and to continue to decelerate over the medium term to 3.3 per cent by 2029, because of headwinds from aging and slowing productivity growth.

The forecast for growth in India has also been revised upward to 7 per cent this year, with the change reflecting carryover from upward revisions to growth in 2023 and improved prospects for private consumption, particularly in rural areas, the IMF said in the report.

Monetary policy rates of major central banks are still expected to decline in the second half this year, with divergence in the pace of normalisation reflecting varied inflation circumstances.

GDP growth has been revised downward for 2024 in Brazil, reflecting the near-term impact of flooding, and in Mexico, due to moderation in demand.

The growth forecast for 2024 in Saudi Arabia has been revised downward by 0.9 percentage point; the adjustment reflects mainly the extension of oil production cuts.

Projected growth in Sudan is revised markedly downward, as persisting conflict takes a larger toll on the economy. 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.

The uptick in world trade in the first quarter this year is expected to moderate as manufacturing remains subdued. Although cross-border trade restrictions have surged, harming trade between geopolitically distant blocs, the global trade-to-GDP ratio is expected to remain stable in the projection.

Inflation is expected to remain higher in emerging market and developing economies (and to drop more slowly) than in advanced economies, the IMF report said.

Higher nominal wage growth, which in some cases reflects the catch-up of real wages, if accompanied by weak productivity, could make it difficult for firms to moderate price increases, especially when profit margins are already squeezed. This could lead to further stickiness in wage and price inflation, it added.

Fibre2Fashion News Desk (DS)