IMF raises Turkey’s economic growth estimation

The International Monetary Fund (IMF) on Tuesday cited unexpected “resilience” in major advanced and emerging market economies and faster-than-expected easing of inflation, as it edged its forecast for global growth higher.

The IMF’s chief economist, Pierre-Olivier Gourinchas, said the global lender’s updated World Economic Outlook showed that a “soft landing” was in sight, but overall growth and global trade still remained lower than the historical average.

“We find that the global economy continues to display remarkable resilience and we are now in the final descent toward a ‘soft landing’ with inflation declining steadily and growth holding up,” Gourinchas said. “But the base of expansion remains on the slower side and there might be turbulence ahead.”

The IMF said the improved outlook was supported by stronger private and public spending despite tight monetary conditions, as well as increased labor force participation, mended supply chains and cheaper energy and commodity prices.

The IMF forecast global growth of 3.1% in 2024, up two-tenths of a percentage point from its October forecast, and said it expected unchanged growth of 3.2% in 2025. The historical average for the 2000-2019 period was 3.8%.

It forecast global trade growth of 3.3% in 2024 and 3.6% in 2025, well below the historical average of 4.9%, with gains weighed down by some 3,000 trade restrictions that were imposed in 2023.

The IMF stuck with its October forecast for headline inflation of 5.8% for 2024, but lowered the 2025 forecast to 4.4% from 4.6% in October. Excluding Argentina, which has seen inflation spike, global headline inflation would be lower, Gourinchas said.

Advanced economies should see average inflation of 2.6%, down four-tenths of a percentage point from the October forecast, with inflation set to reach central bank targets of 2% in 2025. By contrast, inflation would average 8.1% in emerging market and developing economies in 2024, before easing to 6% in 2025.

The IMF said average oil prices would drop 2.3% in 2024, versus the 0.7% decline it had predicted in October, and said prices were expected to drop 4.8% in 2025.

Red Sea attacks

The IMF said new commodity price spikes from geopolitical shocks, including continued attacks on shipping in the Red Sea, could prolong tight monetary conditions. Gourinchas told reporters the IMF was watching developments in the Middle East closely, but the broader economic impact remained “relatively limited.”

“It doesn’t seem to represent, as of now, a major source of potentially reigniting supply-side inflation,” he said.

The United States got one of the biggest upgrades in the January update of the IMF outlook, with its gross domestic product (GDP) now forecast to expand by 2.1% in 2024 versus the 1.5% forecast in October. Growth was expected to ease to 1.7% in 2025.

Gourinchas credited fiscal support and strong consumer spending for the upgrade, but said the IMF had told Washington it had concerns that some of its subsidies from domestic producers and other industrial policies could violate global trade rules.

The eurozone got a downgrade, and was now expected to grow just 0.9% in 2024 and 1.7% in 2025, with the biggest European economy – Germany – expected to see minimal GDP growth of 0.5% in 2024 instead of the 0.9% forecast in October.

China’s GDP was expected to grow by 4.6% in 2024, an upward revision of four-tenths of a percentage point from October, and 4.1% in 2025. Gourinchas said the boost reflected significant fiscal support from the authorities, and a less-severe-than-expected slowdown stemming from the property sector.

Upgrade in Türkiye outlook

The global lender sees Türkiye’s economy growing 3.1% this year, compared to its earlier forecast of 3%.

It expects it to expand by 3.2% in 2025, unchanged from its last year’s estimates.

Gourinchas said the U.S. Federal Reserve (Fed), European Central Bank (ECB) and Bank of England (BoE) were expected to keep interest rates steady at current levels until the second half of 2024, with a gradual decline expected thereafter.

The Bank of Japan (BOJ) was expected to maintain low interest rates, and that was “appropriate,” but the IMF had told it to be ready to raise rates if inflation spiked, he said.

Gourinchas added that markets had been “excessively optimistic” on the prospects for early interest rate cuts by major central banks, and a repricing could increase long-term interest rates and trigger more rapid fiscal consolidation that would weigh on growth prospects.

Growth in emerging markets and developing economies overall was expected to come in at 4.1% in 2024, with emerging and developing Europe getting an upgrade due to stronger-than-expected growth in Russia on the back of high military spending related to the ongoing war in Ukraine.

Russia’s GDP was expected to grow 2.6% in 2024, 1.5 percentage points more than expected in October, with growth seen easing to 1.1% in 2025. The IMF said there could be further revisions since the numbers were preliminary and there were questions about the extent of Russia’s fiscal stimulus.

Negative growth in Argentina dragged the forecast for the Latin America and Caribbean region lower, with growth likely to decline to 1.9% in 2024, four-tenths of a percentage point lower than in October. Growth should edge higher to 2.5% in 2025, the IMF said.

Gourinchas said the global outlook reflected more balanced upside and downside risks, with the risk of a wider conflict in the Middle East offset by the prospect that lower fuel prices could help inflation fall faster than expected.

“We see them as broadly balanced at this point,” he said, noting that a lot of the downside risks – especially with respect to disinflation – seen a year ago had not materialized.