WASHINGTON (AN) — Sluggish growth, cooling inflation and political angst. Those were the key themes as finance ministers and economists assembled this week to debate how best to steer the global economy.
“Notwithstanding the seeming calm, delegates behind the scenes will be filled with trepidation, aghast at the mounting global risks. Could Donald Trump win the presidency and what might that mean for multilateralism, interdependence and the U.S.’s role in the world?” former U.S. Treasury official Mark Sobel, now U.S. chairman of the Official Monetary and Financial Institutions Forum, asked in a blog post as the meetings began.
While you wouldn’t find his name on the agenda, the prospect of the return of the former U.S. president – along with his history of populist economics, promised tariffs, admiration of dictators, erratic behavior and distrust of international cooperation – cast a bleak shadow over the annual autumn meeting of the World Bank and International Monetary Fund.
The United States, the world's largest economy, will elect a new leader on Nov. 5; a Trump win could radically alter how the world does business.
Conflicts threaten global economy
Then there’s the violence in the Middle East and threat of it expanding to a regional conflict, causing a spike in the price of oil and other commodities and possibly dragging the U.S. and Iran into the fray. Economists are also concerned about the longer-than-expected contraction of China’s economy and looming possibility of a U.S.-China trade war.
Russia’s war in Ukraine appears to have no end in sight. Adding to the unease, North Korean despot Kim Jong Un dispatched thousands of his troops to fight alongside the invaders, leaving observers to wonder what he’s getting in return from Russian President Vladimir Putin.
Much of the developing world remains hostage to crushing sovereign debt that drains hope and lifeblood from struggling economies.
“Risks to the global outlook are tilted to the downside amid elevated policy uncertainty,” the IMF delicately observes in its 2024 World Economic Outlook released for the meeting.
'Anxious times' for the economy
Globally, growth is expected to remain stable, but the outlook remains lackluster; the IMF is forecasting a growth rate of 3.2% for both this year and next. The U.S. economy has seen an upgrade in its forecast, but that’s largely negated by downgrades for other advanced economies, especially among the largest European nations.
“These are anxious times,” said Kristalina Georgieva, the IMF’s managing director. “The global economy is in danger of getting stuck on a low-growth, high-debt path.”
On the plus side, the post-pandemic economy avoided a damaging recession and brought inflation under control. The IMF’s chief economist, Pierre-Olivier Gourinchas, says “the battle against inflation is almost won.”
The U.S., where inflation has fallen close to the 2% goal and consumer demand remains robust as wages and consumer spending continue to rise, is largely driving the world’s economy.
“America’s strong economic performance is leading the way as a key engine of global growth,” says U.S. Treasury Secretary Janet Yellen, who credits the fiscal policies of the administration of President Joe Biden.
Weakness seen in Euro area
Germany’s poor economic performance is a key factor in the tepid growth seen for the Euro area, 0.8% this year and up to only 1.2% in 2025. Japan continues to struggle with 0.3% growth in 2024 and 1.1% next year. The U.S. economy is growing 2.8% in 2024 and slipping to 2.2% in 2025, according to the IMF's forecasts.
India’s economy continues to hum along, with a 7% growth rate this year, dropping to 6.5% in 2025.
The IMF sees China's once seemingly unstoppable economy growing at 4.8% in 2024 and slowing to 4.5% next year, down from 5.2% last year. Given China’s outsized role in international trade, a deeper contraction in its property sector could not only dampen consumer sentiment within China but also trigger broader global repercussions. The IMF is calling on Beijing to take “decisive action.”
Experts say a rise of protectionist policies globally would only worsen trade tensions, disrupt supply chains, and reduce overall market efficiency. At the same time, more social tensions around the world could derail much-needed reforms, dampening consumer and investor confidence.
Emerging market and developing economies face their own challenges. Disruptions in commodity production and shipping, combined with ongoing conflicts, civil unrest, and extreme weather events have led to a more pessimistic outlook for Africa, Central Asia, and the Middle East.
Looking further ahead, the global growth forecast for the next five years is a modest 3.1%, a rate the IMF calls “mediocre” when compared with the pre-pandemic average. This reflects persistent structural challenges, like aging populations and weak productivity in many economies.
