The United States is on track to grow twice as much as all other G7 countries this year, according to IMF forecasts, as strength in the world’s largest economy rattles international markets.
Strong household spending and investment will help propel U.S. growth to 2.7 percent this year, according to the fund’s latest World Economic Outlook.
This figure is higher than the 2.5 percent estimated for 2023 and represents an improvement of 0.6 percentage points over previous forecasts.
The projections highlight the role of the U.S. economy as an engine of global growth, as investors around the world reduce their expectations for interest rate cuts from the Federal Reserve.
The IMF said the next best performing G7 country this year would be Canada, with growth of 1.2 percent.
He adds that Germany’s expansion would be the lowest in the G7, at 0.2 percent. Japan is expected to grow 0.9 percent, while the UK is expected to grow just 0.5 percent after stagnating in 2023.
You see a snapshot of an interactive chart. This is probably because you are offline or JavaScript is disabled in your browser.
Global stock markets collapsed and Asian currencies were hit by the rising dollar on Tuesday, following a sell-off on Wall Street sparked by strong U.S. retail sales figures, suggesting the Fed could cut rates this year by less than previously thought.
Pierre-Olivier Gourinchas, chief economist of the IMF, told the Financial Times that although the “baseline” was still three-quarters of a point of reduction this year, the Fed could be destabilized by the strong growth of the US economy .
“If inflationary pressures persist beyond what we are currently experiencing, in the United States in particular, then we expect there to be further reductions and perhaps fewer reductions,” he said. he declares.
The Stoxx Europe 600 index closed down 1.5 percent, its worst day since July. The US S&P 500 index was little changed after the previous day’s losses. The shift in U.S. rate expectations also affected foreign exchange markets, pushing the Indian rupee to an all-time low and the Indonesian rupiah to a four-year low against the dollar.
Gourinchas added that Fed rate cuts could be delayed from this summer to the fourth quarter – potentially after the November presidential election – if inflation exceeds IMF expectations.
US President Joe Biden hopes US economic strength will help him overcome his electoral deficit against Donald Trump, the presumptive Republican nominee.
An FT-Michigan Ross poll conducted this week showed that the number of registered voters who approve of Biden’s handling of the economy is increasing but remains in the minority and nearly four in five expressed deep concerns about inflation. Any delay in the Fed’s rate cut could also hurt the president’s re-election hopes.
Right now, investors expect the Fed to cut rates by September and perhaps more than once by the end of the year.
Recent exceptional growth in the United States has helped the global economy avoid a feared hard landing following rising interest rates.
But strong demand has also increased price pressures, unlike in the United Kingdom and the euro zone.
The IMF said inflation in the United States would continue to fall, but raised its forecast for this year to 2.9 percent, above the 2.4 percent forecast for the euro zone and 2.5 percent. percent in the UK.
Gourinchas said the European Central Bank and Bank of England could cut rates sooner because they are not facing a “strong demand-pull component of inflation.”
Presenting its projections as central bank governors and finance ministers attended the joint spring meetings of the IMF and World Bank in Washington, the fund found that global economic activity had proven “surprisingly resilient”, even after central banks raised rates to curb inflation.
But he also warned of risks to the global recovery, including the possibility of further rises in commodity prices resulting from the Middle East conflict.
The overall picture remains one of tepid expansion by historical standards, with global growth expected to hold steady at 3.2% this year and next, in line with the 2023 estimate.
The IMF said the long-term consequences of the coronavirus pandemic, Russia’s large-scale invasion of Ukraine, weak productivity growth and increasing “geoeconomic fragmentation” are hampering expansion.
The cause of disinflation in advanced economies is being driven by a stronger-than-expected rise in employment, partly due to the influx of migrants, the IMF said. Since 2021, the growth of the foreign-born workforce has been faster than that of the domestic workforce in economies such as Canada, the Eurozone, the United Kingdom and the United States. United, according to the study.
Among other major economies, the IMF predicted that China’s growth would slow this year to 4.6 percent from 5.2 percent in 2023, while forecasts for India, one of the fastest growing economies fastest in the world, were increased to 6.8 percent for this year.
Russia enjoyed one of the biggest improvements, with growth expected at 3.2 percent this year, 0.6 percentage points higher than expected, followed by growth of 1.8 percent in 2025. The IMF doubled its growth forecasts in Russia in its January report. The outlook fueled concerns among G7 countries that sanctions were failing to harm Vladimir Putin’s war economy.
Gourinchas said Russian expansion was partly driven by strong oil export revenues, coupled with strong private investment.
“Domestic demand is very strong,” he said. “Sanctions continue to deteriorate and have a gradual impact on the Russian economy, but the economy itself is quite resilient. »
News Source : www.ft.com
Gn bussni
