U.S. Economy Fuels Global Growth

By David Lawder

WASHINGTON (Reuters) – The U.S. economy will continue to drive global growth through 2025, propelled by strong consumer spending despite inflation and high interest rates, according to the International Monetary Fund (IMF).

In its latest World Economic Outlook, the IMF raised economic growth forecasts for the U.S. for both 2024 and 2025, marking it as the sole developed economy with an improved outlook for these years. The IMF's chief economist noted that the Federal Reserve's aim for a "soft landing"—where inflation eases without significant job market damage—has largely been achieved.

Emerging Markets Shine
India and Brazil are also expected to stand out in growth projections, with the IMF adjusting China’s growth expectations downward for this year and next, predicting a below-trend growth rate of 4.5% for the latter.

Despite these positive updates, the IMF warned of risks including armed conflicts, potential trade wars, and the aftereffects of strict monetary policies aimed at controlling inflation.

Lael Brainard, director of the White House's National Economic Council, commented, "Today, the IMF reported that the United States is leading the advanced economies on growth for the second year in a row."

Global Economic Projections
The IMF maintains its 2024 global GDP growth projection at 3.2%, as finance leaders prepare for the IMF and World Bank annual meetings. The forecast for 2025 is slightly lower at 3.1%, indicating a decline to mediocre growth levels below those seen before the pandemic.

Pierre-Olivier Gourinchas, IMF's chief economist, stated that while the U.S. shows resilience, the risks of recession could diminish without a severe economic shock. He also noted that global inflation seems largely under control, albeit with risks of overly tight monetary policy weighing on growth and employment.

Consumer Resilience
The IMF updated its U.S. growth forecast for 2024 to 2.8%, bolstered by robust consumer expenditure due to rising wages and asset values. It also increased the 2025 outlook to 2.2%, suggesting a slowdown before returning to trend growth.

Brazil's forecast enjoyed a significant upgrade to a projected 3.0% this year, driven by stronger private consumption and investment, while Mexico's was adjusted down to 1.5% due to tightening monetary policy effects.

The outlook for China's growth in 2024 was revised down to 4.8%, although net exports are anticipated to provide some support, alleviating weaknesses in the property sector and low consumer trust. Japan’s growth outlook was diminished to 0.3% due to supply disruptions.

Meanwhile, India's growth is projected at 7.0% in 2024, reflecting strong economic performance.

Potential Trade Risks
The IMF highlighted risks related to potential tariff increases and retaliatory policies, referring to a hypothetical scenario that could significantly impact global GDP output. Moreover, increases in oil prices due to ongoing geopolitical conflicts were also flagged. The report cautioned against industrial policies meant to protect local industries, noting they frequently fail to enhance living standards sustainably.