IMF: Tensions, tariffs and debt weigh down global growth in the medium term

The public deficit is seen to fall only marginally, remaining at around 6% in 2029. Current policies do not stabilise the debt, which reaches almost 134% of GDP in 2029 (it was 108% in 2019). In the Eurozone, on the contrary, debt is expected to stabilise at 88% of GDP already in 2029, subject to individual country situations.

The ills of China are well known: low consumer confidence, an ageing population and, above all, the property crisis, a global risk factor. A further fall in prices is 'plausible' and could further reduce confidence and consumption.

GDP will grow by 4.8% in 2024 (-0.2% compared to July), thanks mainly to stronger-than-expected exports, but the projection on foreign markets, if it continues to be supported by massive subsidies, carries the risk of harsher reactions from the US and the EU. For 2025, the IMF expects growth of 4.5 %.

The Indian economy is returning to its growth potential as the long post-pandemic demand flare-up wears off. Thus, GDP is slowing down from 8.2% in 2023, but remains off the scale at 7% in 2024 and 6.5% in 2025.

Among the other major emerging markets, the upward revision of 0.9 % (compared to July) for Brazil in 2024 stands out, with an expected growth of 3 % (2.2 % in 2025), due to stronger consumption and private investment in the first half of the year.

After dispelling all predictions of a deep crisis due to the war, the economy of Russia may be slowing down again. If the estimates turn out to be correct, GDP will fall from an astonishing 3.6% in 2023 and 2024, to 1.3% in 2025, precisely because of the slowdown in private consumption and investment.

The Ukraine also slows down, from 5.3% in 2023 to 3% this year.

Modest growth for Israel, which slows to 0.7% this year.

"The descent of prices continues: we are reaching the point," Gourinchas points out, "where inflation is close to the targets of central banks in many countries. It is still a bit above, but it is getting very close. And the distance is expected to narrow further in 2025'.

Consequently, in the eurozone, the IMF expects cuts of 100 basis points in 2024 and 50 in 2025, with reference rates at 2.5 % by June 2025.

In the US, rates are expected to reach 2.9 per cent in the third quarter of 2026, almost a year earlier than predicted in April.

In Japan, rates will continue to rise towards 1.5%.

"Although we have avoided recession, we have a relatively poor medium-term growth projection of 3.1 per cent," says Gourinchas. Structural bottlenecks, such as an ageing population, weak investment and historically low growth in total factor productivity, weigh heavily. "It is a projection that worries us," emphasises the Fund's chief economist.

Emerging and developing markets still pay for the recent shocks. Result: the path to closing the income gap between poor and rich countries is getting longer.

In this scenario, a hypothetical global tariff increase in 2025, perhaps 10% in trade between the US, China, and Europe, and with the US imposing similar sized tariffs on the rest of the world, would drop global GDP by 0.4% by 2026. For the US, the impact would be higher: -0.4% in 2025 and -0.6% in 2026. For the rest of the world, the drop would be 0.3% by 2026.

In the IMF simulations, even a tightening of migration by the US and the EU would have tangible effects. GDP would fall by 0.5 per cent in the US and 0.4 per cent in the Eurozone, while inflation would rise by about 20 and 15 basis points respectively.

On the contrary, if China were able to strengthen its welfare, setting the conditions for a decline in the household savings rate, it would achieve extra GDP growth peaking at 2.5 per cent by 2027.

Continuing with the 'what if' scenarios, an increase in public investment in the EU (+1.5% of GDP on average, in the period 2025-30, and +0.5% thereafter) could generate extra growth in the Eurozone peaking at 2.5% by 2030, compared to the baseline scenario.