Global growth is holding steady, but remains below historical averages the IMF is reporting in its latest forecast released Friday (January 17) in Washington, DC.
Inflation is moderating back towards central bank targets and growth holding steady at 3.3%, but there are risks and uncertainty the IMF said ahead of the release of the quarterly World Economic Outlook update.
“Global growth is projected to hold steady at 3.3% this year and next, aligned with weakened potential growth since the pandemic. Inflation is steadily declining—reaching 4.2% this year and 3.5% next—bringing us closer to central bank targets. This is the end of a cycle, and the beginning of a new one. But divergences across countries are widening. The U.S. economy is exceeding expectations with stronger domestic demand, while Europe faces sluggish growth and persistently high energy prices. Emerging markets show resilience, with China set for a modest recovery,” said IMF Chief Economist and Director of Research, Pierre-Olivier Gourinchas ahead of the reports release.
That divergence means that different key economies such as China, Europe and the US are facing their own challenges to tackle.
“Key risks include a sharper slowdown in Europe due to energy costs and public debt concerns, and in China, where insufficient policy support could trigger a stagnation trap. In the U.S., fiscal and trade policy shifts as well as possible curbs on immigration or a confidence boom fueled by expected deregulation could act in opposite directions to affect output but overall can stoke inflationary pressures, requiring tighter monetary policy. These dynamics could strain emerging markets through tighter financial conditions and a stronger US dollar,” said Gourinchas.
But what can be done? The IMF had three main recommendations to policymakers.
“Monetary policy must remain agile to address inflation risks while preventing expectations from de-anchoring. Fiscal policies need to be put on a more stable footing. This requires implementing credible consolidation efforts where needed. At the same time, structural reforms are key to protecting growth on this adjustment path and should be targeted at fostering innovation and competition,” Gourinchas outlined.
And the IMF also had policy advice for emerging markets.
“For emerging markets, flexible exchange rates and targeted fiscal and monetary responses are crucial,” he said.
And the Fund is re-emphasizing the benefits to growth and well-being of cooperation in international commerce.
“Stronger multilateral cooperation, especially in trade policy is essential for building a resilient global economy,” Gourinchas noted.
A full copy of the report can be found online Friday January 17, 2025 0900a ET at IMF.org
