The IMF will raise global growth forecasts due to the strength of the United States

The world economy has held up better than expected. The most catastrophic scenarios, which pointed to a recession throughout the world, have not materialized. Representatives from countries around the world gather next week at the spring meetings of the International Monetary Fund (IMF) in Washington with something resembling a sense of relief. The economy is not in top shape, but it has not derailed either, thanks mainly to the strength of the United States. In this context, IMF economists are preparing to raise their growth forecasts, as announced this Thursday by the managing director of the Fund, Kristalina Georgieva, in her speech opening the curtain of the assembly.

“In our

World Economic Outlook

next week we will see that global growth is slightly stronger thanks to strong activity in the United States and many emerging economies. Solid household consumption and business investment, as well as the easing of supply chain problems, have contributed to this. And inflation is falling, somewhat faster than expected,” says Georgieva.

The IMF managing director believes that the resilience of the global economy is due above all to the solid macroeconomic fundamentals that had previously been achieved and that it is being helped by strong labor markets and a growing workforce. “The strength of the labor supply is due in part to immigration, which has been especially useful in countries with aging populations,” she said in her speech at the Atlantic Council in Washington.

“In general, in view of this panorama, it is tempting to breathe a sigh of relief,” Georgieva continued. “We have avoided a global recession and a period of stagflation, as some had predicted. But there are still many reasons for concern,” she added. “The global environment has become more difficult. Geopolitical tensions increase the risks of fragmentation of the global economy. And, as we have learned in recent years, we operate in a world where we must expect the unexpected,” she added.

In general, he recalled, global activity is weak in historical terms and growth prospects have slowed since the global financial crisis. Added to the catalog of problems is that inflation is not completely defeated, as the latest data in the United States has shown. At the same time, fiscal reserves have been depleted and debt has increased. Furthermore, “the scars of the pandemic” are still there. “Global production loss since 2020 is around $3.3 trillion, with the costs falling disproportionately on the most vulnerable countries,” he said.

Georgieva has not specified figures. She has only pointed out that medium-term global growth forecasts remain well below their historical average, just above 3%. Nor has it specified whether the improvement in the forecasts refers to the last complete

World Economic Outlook report,

published in October, in which growth of 2.9% was expected for this year, or to its update in January, when growth of 2.9% was raised. to 3.1% by 2024 and 3.2% by 2025.

In any case, the director of the Fund has made it clear that she finds this pace unsatisfactory. The historical average (between 2000 and 2019) was 3.8% before the pandemic. “If course is not corrected, we are heading towards 'the lukewarm twenties,' a slow and disappointing decade,” she said.

Rate reductions

Regarding inflation, the IMF expects that the containment trend seen in the last year and a half will continue in 2024, creating the conditions for the main central banks of advanced economies “to begin cutting rates in the second half of the year.” year,” he stated. In the case of the European Central Bank (ECB), the first cut may come sooner, but in the United States the possibilities of a reduction in June have faded.

Georgieva is also in favor of waiting when in doubt: “Where necessary, policymakers should resist calls for premature interest rate cuts. A premature easing could give rise to new inflationary surprises that could even make new monetary tightening necessary.” Although she is aware of the other side of the coin: “On the other hand, an excessive delay could pour cold water on economic activity.”

The IMF director calls for taking advantage of the prospects of a soft landing and strong labor markets to act on fiscal consolidation, reaching sustainable debt levels and creating buffers to face future shocks. “For all countries, rich and poor, fiscal prudence is difficult. This is especially true in a year with a record number of elections and at a time of great anxiety due to exceptional uncertainty and years of shocks,” she admitted.

Another priority that Georgieva points out is policies to revitalize growth, with reforms that increase the productivity of the economy. The director of the Fund has also called for greater international cooperation at a time of growing economic and political fragmentation. “The pandemic, wars and geopolitical tensions have changed the rules of the game of global economic relations. Policymakers seek a balance between efficiency and security, between cost considerations and resilience in supply chains. There are already signs that trade relations are being reconfigured. Since the Russian invasion of Ukraine, trade growth between politically distant bloc economies has slowed 2.4 percentage points more than trade between those that are more closely aligned,” she stressed.

Georgieva is aware that the winds are blowing in another direction, but she has advocated for “more cross-border trade and investment flows to increase productivity and address global challenges.” Of course, she has also admitted that more attention must be paid to how the benefits of trade and investment are distributed in society. “We must avoid the mistakes of the past, when the negative impacts of globalization on some communities were ignored, leading to backlash against an integrated global economy,” she concluded.