The IMF just raised its growth forecast for the US economy this year — but expects a slowdown in 2025

Date: 2024-10-22
economic growth
The IMF raised its US GDP growth forecast to 2.8% this year.
  • The International Monetary Fund raised its growth forecast for the US economy to 2.8% this year.
  • It expects slower growth of 2.2% next year as the government cuts back and the job market cools.
  • The IMF said aging populations and weak productivity were constraining growth for many countries.

The International Monetary Fund raised its growth forecast for the US, projecting the world's largest economy would expand by 2.8% this year instead of the 2.6% it predicted in July.

In its latest World Economic Outlook released on Tuesday, IMF staff cited stronger consumption fueled by "robust increases in real wages" and wealth effects, along with non-residential investment, as the two main reasons for the increase.

However, they predicted GDP growth would slow to 2.2% in 2025 as the US government curbs its spending and the labor market cools, sapping consumption.

The IMF projected global growth of 3.2% in both 2024 and 2025, virtually unchanged from its previous prediction. They underscored their latest forecast for global growth over the next five years of 3.1% was "mediocre" compared with the pre-pandemic average.

"Persistent structural headwinds — such as population aging and weak productivity — are holding back potential growth in many economies," the agency's staff wrote.

They projected only a slight slowdown in China to 4.8% this year due to resilient net exports, and revised their April forecast for 2025 upward by 0.4 percentage points to 4.5%. They noted the Chinese government's stimulus measures "may provide upside risk to near-term growth."

The UN financial agency said that growth in the euro area appears to have troughed in 2023, and it anticipates an acceleration to 0.8% expansion in 2024 driven by stronger exports, then 1.2% in 2025 on the back of improved domestic demand.

IMF staff revised their growth outlook for the Middle East, Central Asia, and sub-Saharan Africa downward, citing disruptions to the production and shipping of oil and other commodities as well as "conflicts, civil unrest, and extreme weather events."

In contrast, they upgraded their April forecasts for emerging and developing Asia. They now expect 5.4% growth this quarter compared to the fourth quarter of 2023, then 5% growth in 2025, an increase of 0.3 percentage points for both periods. They cited "surging demand for semiconductors and electronics, driven by significant investments in artificial intelligence, has bolstered growth."

Notably, the IMF staff modeled the potential impact of a global escalation in tariffs. They found it could reduce the level of US GDP by 0.4% compared to their baseline forecast for 2025, and by 0.6% versus the baseline for 2026.

They estimated tariffs could lower the level of global GDP by 0.3% compared to their baseline projection, and reduce global imports and exports by 4% on the same basis.

Read the original article on Business Insider

Leave Your Comments