Economic Uncertainty
International Monetary Fund chief economist Pierre-Olivier Gourinchas holds April’s World Economic Outlook report during a press briefing in Washington on April 16.Mandel Ngan/AFP via Getty Images
China and India now account for nearly half of the world’s economic growth, the International Monetary Fund (IMF) reported on Tuesday. While Asia’s emerging markets are the “main engine for the global economy,” according to the IMF’s latest World Economic Outlook, U.S. political tensions and Western-imposed tariffs are spurring mounting debt concerns and worrisome inflation.
The IMF report predicts global output to grow at 3.2 percent in 2024 and 3.3 percent next year. These projections are largely unchanged from the forecast that the organization released in April. Much of this growth is expected to come from China’s economy, which the IMF projects will grow at a rate of 5 percent this year—high in comparison to other nations but slower than the 6.1 percent rate that China’s National Bureau of Statistics has estimated. Beijing recorded a strong economic start at the beginning of 2024, but growth slumped in the spring after the country faced a real estate crash.
Political uncertainty and rising protectionism, particularly as the United States and European Union strengthen their tariffs on Chinese goods, could worsen high inflation. Both U.S. President Joe Biden and former U.S. President Donald Trump have embraced tariffs on Chinese electric vehicles, steel, semiconductors, and critical minerals as central components of their reelection bids. “The potential for significant swings in economic policy as a result of elections this year, with negative spillovers to the rest of the world, has increased the uncertainty,” the IMF report said.
Growth in the euro area remains strong, the IMF reported, but high borrowing rates continue to plague EU economies. France’s left-wing New Popular Front coalition, which secured major wins in snap elections earlier this month, has promised policy changes that would increase the nation’s debt, including via raising government spending by roughly $163 billion to pay for a series of reform proposals.
Meanwhile, global inflation remains high despite the IMF expecting levels to decrease from 6.7 percent in 2023 to 5.9 percent this year. This could force central banks to maintain high borrowing costs, even after many of them raised interest rates in 2024 to some of their highest levels in years. “Even absent further shocks, this is a significant risk to the soft-landing scenario,” wrote IMF chief economist Pierre-Olivier Gourinchas.
The United States is forecasted to grow more slowly than previously predicted, largely due to high inflation rates weakening consumer spending. Last week, Federal Reserve Chair Jerome Powell said that U.S. central bank officials need “greater confidence that inflation is moving sustainably” toward the country’s 2 percent target before cutting interest rates, and on Monday, he avoided providing a timeline for any possible reductions. Some analysts have suggested that the Fed could begin lowering borrowing costs as soon as September.