Transcript of World Economic Outlook (WEO) Update, January 2025
IMF News, January 17, 2025
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- Published: January 17, 2025
Global projections and headline findings
- Global growth remains steady at 3.3 percent this year and next.
- Global inflation is projected to decline to 4.2 percent this year and 3.5 percent next year.
- The recent large global disruptions (Pandemic, the war in Ukraine, and the associated inflation surge) are described as behind us; "This is the end of a cycle and the beginning of a new one."
Major country and regional outlooks (projections and key points)
- United States
- Growth expected to be 2.7 percent this year.
- Potential policy shifts (fiscal stimulus, deregulation, tariffs, curbs on migration) could raise near-term output and inflation; combined effects likely strengthen the dollar and tighten external financial conditions.
- Higher inflation would prevent the Federal Reserve from cutting rates as initially planned.
- Euro area
- Growth revised downwards and will increase only modestly to 1 percent in 2025.
- Risks: low consumer confidence, persistence of high energy prices (especially relative to the United States), weak manufacturing momentum, and fiscal vulnerabilities in some countries.
- Tension noted between falling short-term policy rates and rising long-term yields; limited monetary space and low fiscal space could constrain stabilization options.
- China
- Projected growth of 4.6 percent this year.
- Potential downside risks: risk of a debt-deflation trap; decline in Chinese government bond yields indicates rising investor concern.
- Longer-term structural trends: potential growth has decreased in line with secular and demographic trends; pivot to more domestically driven growth has not yet occurred.
- Japan
- Pickup in growth projected to 1.1 percent in 2025 and 0.8 percent in 2026.
- Monetary policy: Bank of Japan already tightened in 2024; IMF expects a very gradual further tightening with two more rate hikes in 2025 and two additional rate hikes in 2026.
- United Kingdom
- Projected growth of 1.6 percent for 2025 (0.1 percentage point upward revision since October).
- Factors supporting growth: increased public investment from the October budget, pickup in real incomes and consumption, expected Bank of England easing (about 1 cut per quarter in 2025).
- Argentina
- Projected growth of 5 percent in 2025 and 5 percent in 2026.
- 2024 featured a severe contraction driven by a fiscal consolidation of about 5 percent of GDP and extreme inflation (25 percent month-on-month in December 2023/early 2024 after the peso devaluation).
- Recovery drivers: rebound already observed in H2 2024 (Q3 growth 4 percent quarter-on-quarter), rising real wages, increased bank credit, and stabilization efforts.
- Recent inflation prints: December inflation about 2.7 percent; November 2.4 percent.
- Egypt
- Growth forecast revised down to 3.6 in 2025 and to 4.1 in 2026 (downgrades of 0.5 percentage point and 1 percentage point respectively).
- Main driver of downgrade: weakened confidence amid foreign exchange restrictions and shortages; recovery expected as FX market conditions and investor sentiment improve, supporting mining and manufacturing activity.
- Sub-Saharan Africa
- Projected growth of 4.2 in 2025 (unchanged from October) and 4.2 in 2026 (slight downgrade from October).
- Key constraints: conflicts, natural disasters, limited financing; vulnerability to tighter global financial conditions and a stronger dollar.
- South Africa
- Projected growth 1.5 in 2025 and 1.6 in 2026 (largely unchanged from October).
- 2024 growth was weaker than expected due to drought-related agricultural decline; recovery expected as electricity reforms advance.
- Inflation projected to moderate reflecting monetary policy actions, moderated expectations, lower global oil prices, and a largely closed output gap.
- Italy
- Growth projected below 1 percent, with 2024 and 2025 downward revisions reflecting weaker outturns, stalled momentum in EU Recovery and Resilience Plan spending, and increased geopolitical risk and policy uncertainty.
- Spain
- Estimated growth 3.1 percent for 2024 (0.2 percentage point revision) and 2.3 percent for 2025 (0.2 percentage point upward revision).
- Strength from robust exports including record tourism revenues, employment gains, gradual decline in household saving rate, resilient financial system, large current account surplus, and lower fiscal deficit.
- Russia
- Slight upward revision for 2025 to 1.4 percent; sharp slowdown from estimated 2024 growth of 3.8 percent.
- 2024 inflation 8.3 percent; sequential inflation above 9 percent.
- Policy response: Central Bank of Russia hiked interest rates to 21 percent; high rates will weigh on activity.
Trade, productivity, and structural observations
- Global trade: slight downward revision for 2025–2026 linked to elevated trade policy uncertainty and potential new rounds of trade tensions; trade-to-GDP has remained relatively stable in recent years.
- Productivity divergence: the United States has experienced persistently stronger productivity growth than Europe, notably in the technology sector. Structural factors in the EU include resource misallocation, lower business dynamism, a deficit of scalable startups, and an overabundance of low-growth mature firms.
- Policy implication: completing single market integration (capital, competition, cross-border scaling) and ambitious structural reforms are important to boost productivity and growth.
Risks and scenarios highlighted
- Elevated economic policy uncertainty due to likely policy shifts from newly elected governments in 2024.
- Near-term risks (country-specific):
- Euro area: greater-than-expected slowdown from weak manufacturing and fiscal vulnerabilities.
- China: downside risk of debt-deflation dynamics and rising investor concern in bond markets.
- United States: demand-stimulating policies (fiscal stimulus, confidence boom) could raise near-term output and inflation; supply-constraining policies (tariffs, migration curbs) could lower output and raise prices. Net near-term effect on output uncertain but assessed as likely upward; price pressures likely to increase.
- Medium-term risks (more uniformly to the downside):
- Curbs on migration and protectionist policies reducing potential output.
- Fiscal expansions raising public debt and creating fiscal vulnerabilities.
- Deregulation potentially boosting output but also raising financial vulnerabilities and the risk of boom-bust dynamics.
- Inflation expectations:
- While inflation expectations remained well anchored during the recent inflation episode, there is a risk that renewed price pressures could erode central banks’ credibility and de-anchor expectations, complicating disinflation.
Policy recommendations and priorities
- Monetary policy: central banks should remain vigilant and be ready to act forcefully if inflation breaks out again; also monitor and manage financial stability risks.
- Fiscal policy: restore fiscal buffers now, while preserving growth; delaying needed adjustments in a low-growth, high-interest-rate environment risks market loss of confidence and added fiscal pressures.
- Structural reforms: pursue ambitious reforms to improve resource allocation, increase government revenues, foster innovation and competition, and strengthen multilateral institutions to support a more resilient and sustainable global economy.
- On limited monetary space and high long-term yields: countries should use fiscal policy prudently to stabilize economies when monetary policy is constrained, but high long-term yields limit fiscal space—underscoring the need to rebuild buffers.
Transcript of World Economic Outlook (WEO) Update, January 17, 2025 — IMF Communications Department