Global Economy Is Heading Toward 'Soft Landing,' I.M.F. Says

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January 30

The global economy has been battered by a pandemic, record levels of inflation, protracted wars and skyrocketing interest rates over the past four years, raising fears of a painful worldwide downturn. But fresh forecasts published on Tuesday suggest that the world has managed to defy the odds, averting the threat of a so-called hard landing.

Projections from the International Monetary Fund painted a picture of economic durability — one that policymakers have been hoping to achieve while trying to manage a series of cascading crises.

In its latest economic outlook, the I.M.F. projected global growth of 3.1 percent this year — the same pace as in 2023 and an upgrade from its previous forecast of 2.9 percent. Predictions of a global recession have receded, with inflation easing faster than economists anticipated. Central bankers, including the Federal Reserve, are expected to begin cutting interest rates in the coming months.

"The global economy has shown remarkable resilience, and we are now in the final descent to a soft landing," said Pierre-Olivier Gourinchas, the chief economist of the I.M.F.

Policymakers who feared they would need to hit the brakes on economic growth to contain rising prices have managed to tame inflation without tipping the world into a recession. The I.M.F. expects global inflation to fall to 5.8 percent this year and 4.4 percent in 2025 from 6.8 percent in 2023. It estimates that 80 percent of the world's economies will experience lower annual inflation this year.

The brighter outlook is due largely to the strength of the U.S. economy, which grew 3.1 percent last year. That robust growth came despite the Fed's aggressive series of rate increases, which raised borrowing costs to their highest levels in 22 years. Consumer spending in America has held strong while businesses have continued to invest. The I.M.F. now expects the U.S. economy to grow 2.1 percent this year, up from its previous prediction of 1.5 percent.

China's economy is also growing faster than previously thought and is projected to grow 4.6 percent this year. I.M.F. officials said the difficulties facing China's property sector had not slowed the economy as much as they predicted; the Chinese government, they noted, has provided "significant" fiscal support.

Other large economies, such as India and Brazil, also appear to be performing better than was forecast. Perhaps most surprising, Russia, which has faced a barrage of Western sanctions and export restrictions since its invasion of Ukraine in February 2022, received the biggest upgrade of all the countries tracked by the I.M.F. Despite the coordinated effort to cripple its economy, Russia's economy is expected to grow by a healthy 2.6 percent this year.

Still, sluggishness persists among some major economies. Geopolitical crises and industrial rivalries have been particularly hard on the eurozone, where fresh data released Tuesday showed the economy stagnated in the final three months of 2023 and grew by just 0.1 percent for the year.

The I.M.F. said the "notably subdued" growth in Europe reflected "weak consumer sentiment, the lingering effects of high energy prices, and weakness in interest-rate-sensitive manufacturing and business investment."

Other threats to the global economy exist, including geopolitical turmoil in the Middle East. The war in Gaza and the associated attacks on ships by the Iranian-backed Yemeni rebels known as the Houthis in the Red Sea are of particular concern to the I.M.F. It warned that if those attacks escalated, they could lead to supply disruptions and "more persistent underlying inflation" that might require central bankers to maintain higher interest rates for a longer period.

The I.M.F. also expressed trepidation about President Biden's use of industrial policy to subsidize America's clean energy and semiconductor sectors. Mr. Gourinchas said such actions had been leading to a "tit for tat" in trade restrictions, one that weighed on global output. He said he believed that some of the measures put in place by the United States, such as rules requiring companies to use American-made components to qualify for certain manufacturing tax credits, were not compliant with international trade rules.

Yet Biden administration officials view those policies as among the biggest factors helping to fuel America's economic recovery.

At a speech in Chicago last week, Treasury Secretary Janet L. Yellen noted that America's economy had outpaced those in the rest of the world, achieving stronger growth while cooling inflation more quickly than other large, advanced economies.

"Put simply, it's been the fairest recovery on record," she said.