IMF Chief Economists outlook for 2024
Global economic prospects remain subdued and fraught with uncertainty, according to the latest survey of chief economists.
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Although 56% of chief economists expect the global economy to weaken over the next year, 20% foresee unchanged conditions and nearly a quarter expect stronger conditions.
These somewhat divided results highlight that the ambiguity that dominated the outlook over the last year continues to cloud near-term economic developments. The relative resilience of the world economy in the recent years will continue to be tested entering 2024.
Global economic activity is stalling with signs of slowdown in both the manufacturing and services sectors. Tight financial conditions weigh on consumer and business sentiments, while fiscal and monetary policy-makers are assessing trade-offs and sequencing for careful policy calibration.
The economic backdrop is marked by protracted weakness in global growth and widening divergence. The International Monetary Fund (IMF) forecasts a slight decline in global growth to 2.9% in 2024, down from 3% in 2023.
The relative resilience in global figures continues to rely on the growth performance of emerging economies, while the momentum in advanced economies is fading.
However, growth forecasts remain vulnerable to an increased risk of shocks. The geopolitical rifts highlighted as a source of global economic volatility in the last survey have since increased with new conflicts erupting or worsening in Africa, the Middle East and Latin America.
While economic headwinds remain contained, these escalations risk rupturing supply chains and sending shockwaves beyond the commodity markets. Further uncertainty hinges on the outcomes of election cycles in the coming year.
Growth expectations
Regional performance expectations are highly varied. Chief economists continue to see the most buoyant economic activity in the economies of Asia, although no region is slated for very strong growth in 2024.
The outlook for South Asia and East Asia and Pacific remains positive and broadly unchanged compared to the last survey, with 93% and 86% expecting moderate or stronger growth for South Asia and East Asia and Pacific, respectively.
China is a notable exception as weak consumption, lower industrial production and distress in property markets weigh on the prospects of a stronger rebound in 2024.
The views of chief economists have also shifted, with strong (19%) and moderate (38%) expectations in the previous survey replaced with largely moderate (69%) expectations for 2024.
The change in the outlook for Europe is particularly stark, with the share of respondents expecting weak or very weak growth almost doubling to 77% since September. In the US, the expectations are significantly weaker too, with 56% foreseeing moderate or higher growth in 2024, compared to 78% in the previous survey.
Both economies confront tight lending conditions, a slowdown in manufacturing and exposure to geopolitical rifts.
Expectations for growth have strengthened in Latin America and the Caribbean and Sub-Saharan Africa, with a slight uptick in the share of respondents expecting at least moderate growth to 70% and 65%, respectively.
In Central Asia, the improvement is more pronounced with about 84% of respondents expecting at least moderate growth in 2024, up from 66% in the previous survey.
In the Middle East and North Africa, the expectations have slightly weakened reflecting broader uncertainty about the trajectory of the Israel-Hamas war and its implications for the wider region.
Prospects remain clouded
Although 61% still foresee moderate or stronger growth in 2024, regional prospects remain clouded by weak oil demand and a sharp contraction in tourism.
The near-term outlook for the regions discussed arrives after a protracted slowdown of growth momentum across all geographies.
According to one estimate, average annual growth has declined from 2.0% in the early 2000s to 1.4% in the post- COVID-19 period in advanced economies and from 5.8% to 1.7% in emerging and developing economies.
The prospects of a rebound to pre-pandemic trajectory appear elusive: the IMF foresees 3.1% average annual growth over the next five years, the weakest medium-term outlook in decades.
Moreover, in its latest World Economic Outlook, the IMF points out that rates of convergence are slowing too, with the time needed to close half the gap in income per capita between emerging and developing economies and advanced economies increasing from 80 years in 2008 to 130 years in the latest estimates.
While technological advances may give new impetus to global productivity, policies that enhance good-quality growth are needed to revive global momentum and balance the impact across the income groups.
When asked about growth strategies available to developing economies in the current context, chief economists highlighted five in particular: laying a sound institutional framework for long-term growth, improving integration into global value chains, tapping into green transition opportunities, strengthening innovation capacity, digital infrastructure and a sound investment climate, and investing in human capital and basic services.
Tightening cycle may be nearing the end
At the start of 2024, global inflation continues to ease, propping expectations of mild ebbing in interest rates this year.
The global headline rates of inflation are projected to reach 4.8%, a sharp decline from 5.9% in 2023 and 9.2% in 2022.
Core inflation is decelerating too, albeit at a slower pace, and is expected to reach 4.5% in 2024. The easing is reflected in the latest survey results, with expectations for high inflation being pared back across all regions
The improvement in expectations is particularly marked for Europe and the US, with the share of respondents expecting high or very high inflation declining from, respectively, 71% and 47% in September to only 13% in the latest survey.
However, two-thirds of chief economists still expect moderate inflation in Europe and the US. China remains an outlier in the other direction, with 76% of respondents still expecting low or very low inflation.
Elsewhere in the world, the expectations for lower inflation strengthened, including East Asia and Pacific (30%), Central Asia (21%), and South Asia (19%), with the majority expecting moderate inflation.
Despite a significant improvement in the outlook and broadly moderate expectations, more than a quarter of respondents still expect high or very high inflation in Sub-Saharan Africa (36%), Latin America and the Caribbean (26%), Middle East and North America (25%).
Labour markets
In the latest survey the majority of chief economists also expect labour markets (77%) to loosen in advanced economies – a higher number than in September. They also expect financial conditions (70%) to loosen in the advanced economies.
These factors are reflected in the evolving monetary policy patterns. A notably more dovish communication of the US Federal Reserve at the December 2023 meeting signaled a possible pivot in the tightening cycle following a prolonged pause.
While markets are pricing as many as six interest rate cuts by the Federal Reserve and the European Central Bank this year, the policy stance remains cautious on both sides of the Atlantic as policy-makers navigate challenging domestic and global conditions.
The unusually high degree of uncertainty over economic and financial developments means the timing and extent of easing will pose a dilemma for policy-makers that continue to navigate trade-offs between tightening too much and too little.
Accumulated societal strains from domestic price pressures, protracted slowdown in economic activity and financial stability concerns will weigh on policy decisions in 2024.
In the meantime, high interest rates continue testing the resilience of economies, with the number of corporate debt defaults rising above long-term averages across both advanced and emerging economies at the end of 2023.
The World Bank also points to rising risks to sovereign debt sustainability, with debt servicing costs in low-income economies projected to rise by 39% over the next two years.
It is also worth noting that inflation remains vulnerable to shocks in commodity markets and supply chains. A prolonged disruption in the Red Sea, escalation of regional conflicts, excessive redundancy and rising climate volatility weigh on the outlook. For example, the arrival of El Niño alone could increase global food prices by up to 9%.
Geopolitical rifts compound uncertainty
Global economic developments are being profoundly shaped by deepening fragmentation. Almost seven out of ten (69%) chief economists are expecting the pace of geoeconomic fragmentation to accelerate this year.
Geoeconomically driven restructuring of the global economy has been evident for some time. The recent years have been marked by greater rivalry in the US- China relationship, partial splintering of international trade flows, and a sharp tilt towards protectionist policies.
At the start of 2024, various alliances and simmering global conflicts are buoying concerns that global economic cooperation is faltering. The gravity of the current momentum is not lost on leaders, however, with many warning of hardening cold war rhetoric and costly outcomes of fragmentation.
When asked about the implications of recent developments, chief economists continue assigning a prominent role to geopolitical factors across macroeconomic and financial developments.
About 87% expect recent geopolitical developments to stoke global economic volatility in the next three years, and eight out of ten expect it to heighten volatility in stock markets.
