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Transcript of World Economic Outlook (WEO) Update, January 2025
January 17, 2025
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER:
Phone: +1 202 623-7100Email: MEDIA@IMF.org
PARTICIPANTS:
Moderator:
JOSE LUIS DE HARO
Communications Department
Panelists:
PIERRE-OLIVIER GOURINCHAS
Economic Counselor and Director, Research Department
DENIZ IGAN
Division Chief, Research Department
* * * * *
MR. DE HARO: Happy New Year and welcome. I'm José Luis de Haro with the Communications Department here at the IMF. And we are gathered here today for the launch of the World Economic Outlook Update.
I hope that all of you have already accessed the latest edition of the World Economic Outlook Update. If not, I would recommend everyone to go to IMF.org and there you're going to find the flagship, but you're also going to find Pierre-Olivier’s blog and many other assets that we hope are going to be helpful for your reporting.
And also let me remind you, for those who are not familiar with the World Economic Outlook cycle that we are launching today, an update that means that not all the data for every country member, it's in that document. We only have numbers for a limited set of countries, so please keep that in mind. And I will remind you that basically we will have a full World Economic Outlook published in April during our Spring Meetings.
But what's best to talk a little bit of the content of this update that to be joined here today by Pierre-Olivier Gourinchas. He is the Economic Counselor; he's the Chief Economist and also the Director of the Research Department. We are also joined by Deniz Igan. She is a Division Chief with the Research Department.
As usual, Pierre-Olivier is going to start with some opening remarks and then we're going to proceed to take your questions.
I want to remind everybody that this press briefing, it's on the record, it's virtual. We will be going to reporters that are joining us on WebEx, and I will be also posing questions that we already received through our Press Center.
And without further ado, Pierre-Olivier, the floor is yours.
MR. GOURINCHAS: Thank you, José . And good morning, everyone. In our latest projections, global growth remains steady at 3.3 percent this year and next. Broadly aligned with world potential growth, inflation is declining to 4.2 percent this year and 3.5 percent next year in a return to central bank targets. This means that the very large global disruptions that started with the Pandemic, the war in Ukraine and triggered the largest inflation surge in 40 years are behind us. This is the end of a cycle and the beginning of a new one.
While the global outlook is broadly unchanged from October, divergences are widening. Among advanced economies, the United States is stronger than previously projected, expected to grow at 2.7 percent this year. By contrast, growth in the euro area is revised downwards and will increase only modestly to 1 percent in 2025, reflecting low consumer confidence and the persistence of high energy prices, especially relative to the United States.
Elevated trade Policy uncertainty will contribute to anemic demand in many countries, including China, where we project 4.6 percent growth this year.
Some of the divergence is structural. For instance, the U.S. experienced persistently stronger productivity growth than Europe, especially in the technology sector, linked to a favorable business environment and deeper capital markets. Among emerging economies, potential growth has decreased for China in line with secular and demographic trends, but it has increased in other emerging markets and the two are now comparable.
Turning to the Risks Economic policy uncertainty is elevated with likely policy shifts from many newly elected governments in 2024. In the near term, risks could exacerbate divergences between countries. The euro area could slow down more than anticipated due to weak momentum in manufacturing and fiscal vulnerabilities in some countries.
For China, the risks are also to the downside. The economy is at risk of a debt deflation trap and the decline in Chinese government bond yields shows rising investor concern. Both for the euro area and China, this could lower activity and inflation.
For the U.S., many of the uncertainties originate with potential policy shifts under the new U.S. administration. While these are hard to quantify precisely at this stage, we would categorize them as follows. First, there are demand stimulating risks such as a further fiscal stimulus or a confidence boom fueled by expected deregulation efforts. This would increase output and inflation in the near term. There are also supply constraining risks such as higher tariffs or curbs on migration. This would weigh on output but also add to price pressures. The combined effect on output in the near term is uncertain but likely to the upside in our assessment. Any combination of these policies, on the other hand, is likely to add to price pressures in the U.S.
Higher inflation would prevent the Federal Reserve from cutting interest rates as initially planned. These policies will also likely strengthen the dollar and tighten financial conditions elsewhere, especially for emerging market and developing economies.
In the medium term, the risks are more uniformly to the downside. Curbs on migration and protectionist policies will weigh on potential output. The initial positive effect of a fiscal expansion will wane, and the associated increase in public debt could lead to fiscal vulnerabilities further down the road.
The increase in U.S. long term yields, despite the Federal Reserve easing, reflects some market nervousness about future fiscal policies. Deregulation could boost output by removing red tape and spurring innovation, but it could also increase financial vulnerabilities.
Another risk is that renewed inflation pressures so soon after the recent episode could de-anchor inflation expectations as people and businesses have become much more vigilant. Indeed, we see that near term inflation expectations have increased above central bank targets.
Turning to policies. Given this environment, central banks should remain vigilant and be ready to act forcefully if inflation were to break out again, while also monitoring carefully the buildup in financial risks.
Second, fiscal buffers need to be restored now, and countries need to do so in a way that preserves growth. As history teaches us, delaying needed adjustments in a low growth, high interest rates environment can trigger market loss of confidence that would further add to fiscal pressures. In addition, countries should continue to seek ways to improve growth by focusing their efforts on ambitious structural reforms that will help better allocate resources, increase government revenues, foster innovation and competition. On that front, it is also important to preserve and improve or multilateral institutions to help unlock a richer, more resilient and sustainable global economy.
Thank you.
MR. DE HARO: Thank you, Pierre-Olivier. And before I open the floor to all your questions, some ground rules. Three main points. The first one, if you want to ask a question, please raise your virtual hand and wait till I call you. If I do, please identify yourself, the outlet that you are representing and try to be concise. We just want to get as many questions as possible.
Second, Pierre Olivier and Deniz are here to discuss the World Economic Outlook Update. If you have questions regarding programs, regarding negotiations, regarding institutional matters, this is not the forum to tackle those. I would recommend you to reach out to us to mediamf.org and we can put you in touch with the right team to answer those questions.
And related to what I said before, we are talking about a WEO Update where we see only a limited set of numbers for certain countries. The countries that are not included in the WEO update, we are probably not going to be able to talk about them in this press briefing. But again, please reach out to us bilaterally and we will do our best to answer those questions.
Right now, I see in with the hand raised, Reuters. So please go ahead, Andrea. Andrea, we cannot hear you. Okay, so Andrea, I think that you froze and while we try to fix that, we're going to go with Financial Times. I see -- or Andrea, can we hear you now?
QUESTIONER: I don't know. Can you?
MR. DE HARO: Yes, now we can hear you loud and clear. So please go ahead.
QUESTIONER: I'm so sorry. I'm so sorry. So I was asking about the de-anchored inflation.
MR. DE HARO: Somebody muted Andrea. Somebody. It's -- okay.
QUESTIONER: Should we try again? Sorry.
MR. DE HARO: Yes, let's try again. Technology is not our friend for the start of the year. Let's go ahead.
QUESTIONER: Okay, so I was asking about the sentence in the report that talks about the possibility of de-anchored inflation expectations, and I wonder if you can walk us through that. And what your sense is of that, given all of these other risks that you've outlined, ranging from tariffs to sort of longer for higher interest rates. And then separately, I just wanted to ask about the notion that you've got the sorry about the dollar and the stronger dollar and what's happening with the dollar now and how you see that playing out given all of the, you know, sort of warnings in there about trade and isolationism or protectionism and trade measures. Thanks.
MR. GOURINCHAS: Thank you, Andrea. So on the de-anchored inflation expectations, let me start by taking a step back and reminding everyone that one of the great achievements in that inflation episode we're just coming out of is the fact that inflation expectations remained very well anchored in most countries in the world. And as a result, this helped the disinflation proceed fairly quickly and aggressively. And so central banks were able to rely on the credibility that they had accumulated over the years and convince households and businesses that they would not let inflation run away. And that really helped contain inflation pressures.
Now the danger is some of that capital may have been eroded. If you want, that capital, credibility capital may have been eroded. And if we were to have a new sequence of increase in price pressures, which, again, as I explained, is not part of our baseline, it's under some of the risks that would be associated with maybe some expansionary policies in some part of the world or some supply-constraining policies, then that capital may be eroded. And as a result, households, people, businesses may be very, very cautious and very reactive in adjusting their prices and their inflation expectations going forward. That would make the task of central banks much more difficult.
On your second point on the stronger dollar. If you have a combination of policies that leads to stronger activity and a resurgence of price pressures in the U.S. and leads the Federal Reserve and maybe other central banks to delay their easing cycle, then that will attract foreign capital, that will strengthen the dollar, and that will, in doing so, that will put pressure on the rest of the world. Many countries, especially emerging market economies, but we see that elsewhere, have imported goods that are priced or invoiced in dollars. A stronger dollar means higher prices for these goods. It means a higher domestic inflation pressures.
MR. DE HARO: Okay. I was going to call before the FT, so please go ahead.
QUESTIONER: Hi, I'm Aime Williams for the FT. You mentioned the dangers of an excessive rollback in regulations. I wondered if you could get into some specifics about which regulations are top of mind here for you. And then secondly, on monetary policy divergence, wondering how you think the ECB should respond if it cuts short-term rates, but longer-term yields rise because of movements in U.S. Treasuries, do you think the ECB should restart QE to control longer-term rates? Thanks.
MR. GOURINCHAS: Thank you. So, on your first question, I mean, there is a sense in which in the U.S. one of the risks that we describe, one of the change in policy that could happen is some move towards some amount of deregulation. Now it's certainly the case that some regulations can be eased and would favor higher growth rates. You can think about issues in terms of permitting or other things like that; one concern is in particular if you have certain regulations that are designed to contain risks and, in particular, risks in the financial sector. And you could imagine that deregulation in that area, if it is excessive, and I'm not saying it is, I'm just saying that this is one of the risks that we describe that could lead to a buildup in financial vulnerabilities and an increase in leverage in the economy and eventually a correction. So we would have something that we describe, we would describe as the risk of boom-bust dynamics.
Now on the euro area, and you point out the fact that the ECB is projected to continue cutting rates, and that's also in our projections. But we have seen both in the euro area, but also elsewhere, we've seen this tension between policy rates coming down and the yield, or the funding costs for governments, the long-term yields going up. That is a concern because if the economy slows down and the central bank needs to ease further, it gets back closer to what the situation we had in the 2010s, which is interest rates could be constrained because central banks cannot go easily below zero. What we call the zero lower bound.
Typically in an environment like this, you would say, well, maybe if the economy needs to be stimulated, you could rely more on fiscal policy. But if long-term interest rates remain high, then you don't have much fiscal space. If you have a low-growth, high-interest-rate environment, you don't have much fiscal space. And that's a worry that we have when we're looking at some regions of the world. You could have this combination of exhausting the monetary policy space, and having very little on the fiscal side. And then at that point then it becomes much more challenging to implement stabilization policies.
MR. DE HARO: Thank you, Pierre-Olivier. We're going to continue with the people that have raised their hands in WebEx. I see Eric Martin from Bloomberg and then I will go with Shu from GG Press. Eric?
QUESTIONER: Yes, thank you very much. Pierre-Olivier, I want to ask you about your forecast for China. Although China has a, a slight upgrade for this year, the levels of growth are below 5 percent, slower than in past years. How much is that impacting growth in the rest of the world, particularly the developing world? And what is the IMF's analysis of China's implementation to date of IMF recommendations regarding China's economy regarding a shift to a more consumption-driven model?
MR. GOURINCHAS: Yes, thank you, Eric. So, yes, we have a slight upward revision to our projections for China to 4.6 percent for 2025. In fact, just last night we learned the 2024 numbers coming from the Chinese authorities, and they had a growth rate at 5 percent for 2024 that was a positive surprise compared to our projections, which were a little bit below that. So there's a little bit more momentum in the Chinese economy both in 2024 that will carry over in 2025 to some extent. And there was already a sense in our projections that there would be a little bit more growth in 2025 coming in part from the fiscal measures that the government has implemented in the last quarter of the year. And offset in part, but not fully, by the trade policy uncertainty that is weighing down on activity in many countries in the world, given the concerns about maybe a new round of trade tensions. And so the balance of these two things led us to a slight upward revision.
The broader picture is very much in line with what you described, which is that the Chinese economy needs to pivot to a more domestically driven engine of growth. This has not happened yet. Even the 2024 numbers, for instance, that were just announced show that the Chinese economy has benefited substantially from an improvement in its trade and external balance. So some of the growth is coming from good performance on the external sector. And we see that as something that is increasingly going to become difficult for the Chinese economy for a very simple reason. China is a very large economy, and it cannot just rely on the rest of the world to fuel its own domestic growth.
So this pivot is something that has been long-standing advice from ourselves. It's something that has been incorporated, I think, and a number of the measures that have been adopted by the Chinese authorities go in that direction. But more work needs to be done.
Now on the final part of your question, the spillovers of Chinese growth to the rest of the world, they are quite significant for the very same reason that China is one of the largest economies in the world. And therefore any weakness in Chinese growth, he is having spillovers to many emerging and developing countries that are having trade relationships with China and are exporting to China. And we're certainly seeing some of these as a risk factor for the global economy going forward.
MR. DE HARO: Okay, thank you, Pierre-Olivier. Let's see who is next. Just for you to know, I have two screens here. So until they don't let me see who is there, it's difficult for me to see. We're going to go with Shu with Jiji Press and then we will continue around the world.
QUESTIONER: Thank you very much, José. Thank you very much indeed. And my question is monetary policy of Bank of Japan. Next week, BoJ will discuss its monetary policy and possible its rate hike. Possibly there, it's some possibility. And what is your view on that point? Could you recommend to BoJ rate hikes now? And what is your outlook on the rate path of BoJ giving you a new growth outlook and especially under a lot of uncertainty? Thank you.
MR. GOURINCHAS: Well, thank you. So first, let me start by we're seeing a pickup in growth in Japan in 2025 in our projections to 1.1 percent. And then we're expecting that this will moderate a little bit to 0.8 percent in 2026. The 1.1 percent is actually not revised from our October projections. We already had that projection back in October.
Now, turning to monetary policy, we're seeing a very gradual tightening of monetary policy by the Bank of Japan that started already in 2024. We've had already interest rate increases, and we expect that these will continue at a moderate pace in our projections. We're in fact expecting that there will be something like two more rate hikes by the Bank of Japan in 2025 and two additional rate hikes in 2026. So a very gradual and measured pace of a tightening of monetary policy that, in our view, is warranted by the price pressures that the Japanese economy is facing and will ensure that the economy is able to achieve its price stability or its inflation target.
MR. DE HARO: Okay, thank you, Pierre-Olivier. Let me bundle a couple of questions that we have received on the UK. I don't see any UK reporter with their hand raised. So I'm going to formulate on the behalf of the questions or the reporters that have sent their questions about the UK. Most of them go along these lines. How will the UK budget impact the economy? What has given you such optimism for the UK economy in the next two years, despite the relative tensions over the budget?
MR. GOURINCHAS: Yes, thank you, José. So let me give a little bit of context also for the UK economy. We are projecting 1.6 percent growth for 2025. That's a slight upward revision by 0.1 percentage point compared to October. And that's a pickup in growth from 2024. Now, some of that revision is reflecting the fact that we have some continued pickup in real incomes and in consumption in the UK, but it also reflects some of the effect of the fiscal measures that have been announced by the authorities in their October budget that are expected to lead to higher public investment, in particular, that will support economic activity.
So we see a modest increase in growth. Some of the -- that increase also I should mention is on the back of continued easing of monetary policy by the bank, the Bank of England, where we expect that the Bank of England will continue cutting policy rates throughout 2025 at about a rate of about 1 cut per quarter. And that will also support consumption growth.
So the effect of the budget. If I zoom in on the effect of the budget, as I mentioned, we see some positives coming from increased public spending. Of course, some of that budget is financed by increase in taxes, national insurance contributions have been increased, and various other taxes. That could weigh down. But the net effect in our assessment is still positive for growth for the UK economy in 2025.
MR. DE HARO: Thank you, Pierre-Olivier. We're going to move. We're going to go to Doaa. Can you -- yep, go ahead.
QUESTIONER: Hello everyone. Good morning.
MR. DE HARO: Good morning.
QUESTIONER: First of all, I would like to wish you a pleasant and Happy New Year. My name is Doaa Abdel Moneim from Egypt. My question is specifically on Egypt. The report indicates a cut to the projections for Egypt's real GDP in both fiscal year ‘25 and ‘26. We want to know the main reasons behind them. Thank you so much.
MR. GOURINCHAS: Thank you. So, Deniz, would you like to answer?
MR. IGAN: Sure. So we did, as you noted, we revised down our forecasts, our growth forecast, for Egypt in 2025 to 3.6 and in 2026 to 4.1. And this is respectively a 0.5 percentage point and 1 percentage point downgrade. The reason for that is we do see a weakened confidence in the middle of foreign exchange restrictions and shortages. That said, we do expect there's recovery to take hold. As I said, the forecast in 2026 is 3.6, and then it's going to increase to 4.1. So although FX has been worse than what we had told in October, we do continue to see recovery continuing in the Egyptian economy. And as FX market conditions improve and investor sentiment improves, this would correspond to a pickup in mining and manufacturing-related activities, and economic recovery should continue. Thank you. Let me stop here.
MR. DE HARO: Okay. I see all of my Argentine friends online. I see Liliana, I see Patricia, I see Agustin. So I want first to remind you that we're not here to talk about potential negotiations, but obviously we can talk a little bit about the outlook for Argentina. So I'm going to bundle your questions. I'm going to go first with Liliana, then with Patricia, and then with Agustin.
QUESTIONER: Okay, thank you, José. Happy New Year for you all. And my first question is, are the drivers that explained the IMF expected that Argentina is going to grow 5 percent the following years? And what about, if possible, about inflation rate? Thank you.
MR. DE HARO: Patricia, go ahead.
QUESTIONER: Hi. Yes, well, also this rate of growth that Liliana pointed out, the question that she asked, and the 5 percent that you are estimating is pretty high in comparison to what the private economists are calculating here, around 3 percent. So a bit of maybe if you have taken that into consideration. And how do negotiations affect those projections? I mean, if they can be influenced by that.
MR. DE HARO: And last but not least, Agustin, go ahead.
QUESTIONER: Hi. Happy New Year. My question is about the improvement. It's also about the improvement in Argentina growth projection. And how can the reforms of Milei's government and the development of shale oil and gas in Argentina influence this project?
MR. DE HARO: Thank you. Okay, I think that we had all the questions on Argentina, and I will pass the floor to Pierre-Olivier.
MR. GOURINCHAS: Yes. So first let me say, and for everyone listening, that yes, we are seeing a significant turnaround for Argentina’s economy in 2025 compared to 2024. Of course, 2024 was the year in which really very strong contractionary measures, especially fiscal measures, were put in place to contain inflation, which, to remind everyone, was running at 25 percent month-on-month back in December of 23, beginning of ‘24, on the back of the devaluation of the peso. So extremely high inflation levels that were really very unstable. The government put in place very contractionary fiscal measures with about a 5 percent of GDP fiscal contraction. And that is one of the main drivers behind the contraction in ‘24.
So what we're seeing now is we're seeing the economy's real GDP rebounding. It's already started in the second half of ‘24. The economy already started rebounding quite strongly. In fact, in the third quarter of the year, growth was already 4 percent quarter-on-quarter. So this is a very strong rebound. And we're projecting that this rebound will continue into 2025, will be fueled by rising real wages, will be fueled by increase in bank credit, and will help stabilize the Argentine economy. So this is why we're projecting a growth rate of 5 percent for 2025 and 5 percent for 2026.
Now, there have been tremendous progress on inflation, I mentioned that it was a 25 percent month on month a little bit more than a year ago. It's now the latest numbers came out a few days ago. The December inflation number is about 2.7. In November it was 2.4. It's one order of magnitude smaller. So this is an impressive achievement. And of course, more needs to be done to bring inflation down further in the coming years. And that's where the discussions with the Fund are taking place. And I'm not going to comment on this because the discussions are ongoing.
MR. DE HARO: Thank you, Pierre-Olivier. We're going to keep moving, and we're going to go to some questions that we received online. One of them goes as follows. What's behind the outlook in the year ahead for Sub-Saharan Africa as a result of recent political events of global significance? And then I also have a specific question on the outlook for South Africa.
MR. IGAR: Okay, so let me take those. So starting with Sub-Saharan Africa, what we are projecting for growth overall in 2025 is 4.2, and this is unchanged from our October WEO Report. And in 2026, we expect growth to remain stable at 4.2. And this is slight downgrade from October. And inflation, in the meantime, is going to continue to decline, although at a slightly faster pace in 2025. And it's going to stay higher than we had predicted in October in 2026.
And overall, the growth in the region remains subdued and uneven. And the main reasons behind that are the conflicts, the natural disasters, and limited financing. And that limited financing angle is actually what might open the region to further risks, given the global sources of risk that we highlight in our update. In particular, as Pierre-Olivier alluded, a stronger dollar may lead to tighter global financial conditions. And given that many Sub-Saharan African countries have, already have limited financing and excessive debt burdens that might bring downside risk to growth.
Particularly on South Africa, we are projecting 1.5 in 2025 for growth and in 2026 a slight uptick to 1.6. These are largely unchanged from our October report. And we are expecting inflation to actually be lower.
Now, the 2024 growth actually was slower than we had projected earlier. And the reason for that is the drought-related decline in agricultural activity. And we expect there's going to be also with ongoing electricity reforms, there's going to be an uptick in activity going forward. And inflation, the impact of the actions that SARB has taken are showing up. And lower inflation projections are reflecting, in addition to monetary policy actions and, related to that, moderated inflation expectations, they are reflecting also decline in global oil prices and now largely closed output gap in the country. Let me stop.
MR. DE HARO: Thank you, Deniz. And we keep the travel around the world. We're going to go back to continental Europe. I see Gianluca from Il Sole; please go ahead.
QUESTIONER: Thank you for doing this. Gianluca Di Donfrancesco from Il Sole 24 Ore in Italy. Question on Italy, you are projecting GDP growth below 1 percent also in 2026. Could you please elaborate?
MR. GOURINCHAS: Deniz, would you to.
MR. IGAN: Yes, our projection is for this year. We revised it down a little bit to 0.6. And in 2025 and 2026, as you pointed out, growth is expected to remain below 1 percent. The downward revision, slide downward revision for 2024 and 2025, are basically reflecting the weaker outturns that we have been seeing because momentum stalled on sluggish spending under the EU Finance national Recovery and Resilience Plan. And there are also the medium-term, of course, medium-term challenges that's facing the economy, although there are slightly downward revisions here and amidst increased geopolitical risk and policy uncertainty that's also weighing on our growth projections, as Pierre Olive eluded at the beginning.
MR. DE HARO: Okay. I received a question from EFE on the lack of productivity in the EU and the resilience to future shocks of tourism reliant economies such as Spain.
MR. GOURINCHAS: Yes. So let me say a few things about productivity in the EU, and maybe we'll turn to Deniz on Spain. So this is one of the striking fact when you look at both the reasons, there is a cyclical component and there is a structural component. But when we look at both of them, they point to relatively weak productivity performance in the euro area, especially when you compare it to the U.S. So we've seen productivity increasing fairly rapidly in the U.S. since the Pandemic. And of course, this is generating a tremendous amount of interest to try to understand and unpack where this is coming from.
But there is a broader picture, one that is in a sense more worrying, which is that if you go back 20 years and something that has been, of course, emphasized in, for instance, the Draghi Report that came out last year and other reports, there is this lack of productivity is actually not just the last few years. So it's not just competition from China, it's not just the impact of high energy prices following Russia's invasion of Ukraine. There is something that is more structural and that is a bit worrisome.
And you see it very clearly when you look at the tech sector. That's maybe the most striking illustration of this. A lot of the innovations that are really part of our daily lives now, whether we think about the Internet, smartphones, cloud computing, now AI, are technologies that have been developed and scaled up outside the EU for the majority.
So when we unpack this, and we did some work in our April 2024 World Economic Outlook Report, and I refer you to that analytical work that was published then, we do find that one contribution is an increased misallocation of resources, capital, and labor inside the European Union. There is also evidence of a lack of business dynamism in European countries and, most startlingly, a deficit of startups, for instance, small businesses with very promising ideas that don't find a way to scale up. And there is an overabundance of low-growth mature firms in European landscape, if you want.
And so there are a number of diagnoses there. There are a number of ways this can be addressed. One of the most promising avenue is actually to really complete the single market integration, make sure that there is effectively a single market, whether it's in terms of raising capital or in terms of competition, or in terms of accessing consumers in different member states in the European Union. And there is more work that is needed on that front.
Now, specifically on resilience and tourism-oriented economies, let me turn it over to Deniz and on Spain.
MR. IGAN: So let me give you a little bit of background on Spain. For 2024 growth, we are estimating 3.1 percent, and this is a 0.2 percentage point revision compared to October. And going forward in 2025 we have 2.3, that's again a 0.2 percentage point upward revision compared to October. Now what explains this strong, relatively strong growth, or better-than-expected growth, in Spain is partly the robust export performance, and that does include the record tourism revenues. But there's also continued recovery of domestic demand and particularly private consumption, and that reflects employment gains and a gradual decline in the household saving rate.
We do believe also Spain benefited in terms of its economic performance from the strong fundamentals, including a resilient financial system, a large current account surplus, and lower fiscal deficit, alongside a further decline in public debt-to0GDP ratio. Although that doesn't mean that there's need for additional ambitious discovery discretionary measures in order to bring down deficit in the coming years. Let me stop here.
MR. DE HARO: Perfect. We are running out of time. I'm going to go with one question, last question on Webex, and then I will read another question that we received online. I see Igor with his hand up. Please, Igor, go ahead.
QUESTIONER: Good morning. Thank you so much for this opportunity. Igor Naimushin with RIA News Agency in D.C. bureau. So my question is on Russian economy and on global trade value. So as for Russia, IMF slightly improve its outlook for Russian output for 2025. I would just like to ask what are the drivers and what processes does the IMF see in the Russian economy that will impact the output this and next year? And on global volume trade for 2025 and 2026, what are the reasons for adjustments that you have made so far, and what countries contribute most? And what further risks for the global trade do you see? Thank you so much.
MR. GOURINCHAS: Yes, thank you. So first on Russia, so we have a slight upward revision to our 2025 growth numbers to 1.4 percent. But this is a sharp slowdown from the growth in 2024. It was at 3.8 percent. Our estimate for 2024 is 3.8 percent, and there is a sharp slowdown.
So let's talk first about the revision, and let's talk about the direction of travel. The revision is largely because we have received somewhat stronger than expected data, and that led us to adjust upwards, our overall estimate for both '24 and '25. The print data has been coming in a little bit more stronger than expected. Now the slowdown between '24 and '25 reflects in part the fact that the Russian economy is running hot. It is a war economy. There is a lot of public spending going to financing a war effort, and that is fueling inflation in Russia. And we've seen inflation going up. It's inflation in '24 is 8.3 percent.
But in fact, if you look at the sequential inflation, it's even higher than that. Above 9 percent. And as a result, the Central Bank of Russia has stepped in and hiked interest rates quite strongly. Interest rates are at 21 percent. And that, of course, is going to weigh in, weigh down on activity going forward. And this is why we have a growth rate at 1.4 percent, which is actually getting closer to our estimates of potential growth for Russia going forward.
Now, the second part of your question on global trade. So we do have a slight downward revision in the growth rate for global trade for ‘25 and ‘26. And the main reason for this is the increase in trade policy and the uncertainty about whether there might be a new wave of trade tensions, a new wave of measures that would be distorting trade, leads to businesses to scale down some of these expansions. They might be planning or relying on trade linkages that they already have. And so that's where we're seeing this at this point. Still a fairly modest downward revision.
The broader picture here is that trade to global GDP has remained more or less stable over the last few years. There hasn't been really, it's bobbing along a little bit up, a little bit down. But relative to global output, it is not changing dramatically.
MR. DE HARO: Okay, and we go with the last questions that I'm going to bundle. Our colleague Hilary Joffe from Business Day South Africa and then CNBC want to know if you can comment a little bit on the high public debt levels affecting developed economy countries and also low-income countries.
MR. GOURINCHAS: Yes. So high public debt is, as I said in my opening remarks, high public debt levels is something that is a source of concern. Public debt levels have increased significantly in many countries during the pandemic and then during the surge in energy price. A number of countries put in place measures. It's not just energy prices, but actually food prices as well. So countries put in place measures to try to protect households, their population, and businesses from surges in these prices. But that has a fiscal cost.
Now, a number of countries, we see the debt to GDP numbers coming back down. There's been some adjustments. Some of it is actually just a result of inflation itself and sort of a side effect of inflation. But of course it's not the right way to reduce sustainably your debt levels. But we've seen that adjustment. But these debt levels remain elevated and in some countries they are starting to drift upwards again.
And that's a concern. Why is that a concern? Well, it's a concern because we're in an environment in which we have much higher interest rates, real interest rates that central banks have been increasing interest rate. But not only, we see also the bond markets. That's the increase in the 10-year yields. For instance, the bond markets have been signaling that, you know, their appetite for buying those debt issued by governments may be reaching some limit. And that's reflected in higher yields for those debt. And of course that makes debt dynamics more challenging.
That's one part of the equation. The other part of the equation is lower growth rates. I mean we have growth rates that are quite steady at 3.3 percent. But that's not as high as we used to have. And of course if you have lower growth, then your capacity to generate tax revenues, your capacity for your economy to grow and then absorb that debt is more limited.
So there are vulnerabilities associated with high debt levels. And these vulnerabilities can manifest themselves very suddenly. If markets lose confidence, then all of a sudden, the government can find themselves in a situation where it becomes very challenging to maintain their public finance on a sound trajectory. And we've seen that kind of nervousness already in some countries recently. We can think about what happened in Brazil in December. We can think, if we go back in advanced economy, we can think about the market response to the mini budget in the UK in 2022.
So it's certainly the case that countries will be on a much safer ground by bringing down their debt-to-GDP levels, which will also give them room if there is a crisis that happens, if there is a shock. And we live in a world in which there can be more shocks, we can have energy shocks, we can have shocks related to disruptions to the global trading system, that they will be in a position to address those shocks rather than being a little bit out of ammunition. So our recommendation here is that it's sound insurance policy to rebuild those fiscal buffers and do it over time. Of course, you don't want to kill growth, but you want to do it over time.
MR. DE HARO: Okay, I think we arrived to our destination after this quick trip around the world. I want to thank Deniz and Pierre-Olivier. And on behalf of Deniz, Pierre-Olivier, the Research Department and the Communications Department, I want to thank you all for attending this press briefing. Remember that if you have additional questions, you can send those questions to mediamf.org. And if you are here in D.C., please stay warm and have a good weekend. Thank you.
