San Francisco Frontiers - IMF raises global growth outlook and flags rising economic divergence

In an update to its flagship World Economic Outlook report, the International Monetary Fund said it expects global growth to hit 3.3 percent this year, up 0.1 percentage point from its previous forecast in October, and to remain at 3.3 percent in 2026.

"Growth is steady," IMF chief economist Pierre-Olivier Gourinchas told AFP in an interview, adding that it remained below the average global growth rate in the first two decades of the 21st century of 3.7 percent.

The IMF expects the global inflation rate to continue decelerating, reaching 4.2 percent this year and 3.5 percent in 2026, with prices cooling faster in advanced economies than in emerging markets.

- Growing divergence -

"Among advanced economies, the interesting development here is the strength and resilience and growth of the US economy," Gourinchas said, pointing to the IMF's decision to hike its outlook for US growth to 2.7 percent in 2025 and to 2.1 percent in 2026.

"The labor market has been strong, there is strong demand, private demand is robust, there is good confidence," he said.

One of the risks to the IMF's forecasts is policy uncertainty in the United States, where Donald Trump is preparing to return to the White House.

The IMF did not include the Republican president-elect's policy proposals in its forecasts and instead based its projections on existing US policies.

"The bottom line is, when we look at the risk for the US, we see an upside risk on inflation," he said.

The economic picture in the United States stands in stark contrast to the Euro area, where a sharp downgrade for Germany has dampened expectations for a rebound in growth.

The IMF now forecasts Euro area growth to increase slightly to 1.0 percent this year, and 1.4 percent in 2026, below its October forecasts.

"Some of the divergence is structural," Gourinchas told reporters on Friday, noting the "persistently stronger" productivity growth in the United States than in Europe, especially in the technology sector.

This, he added, was "linked to a favorable business environment and deeper capital markets."

The Fund left its outlook for growth in Japan unchanged this year and next, and slightly increased its outlook for the United Kingdom in 2025.

In Russia, which is affected by the ongoing and costly war in Ukraine, the IMF expects growth to slow sharply from 3.8 percent in 2024 to 1.4 percent this year, and to 1.2 percent in 2026.

- 'Rebalancing' in emerging markets -

The IMF expects China's growth rate to continue cooling this year to 4.6 percent, up 0.1 percentage point from the October forecast, before easing to 4.5 percent next year.

The slight upgrade was due to the Chinese government's recently announced package of fiscal support to help prop up the slowing economy, which is struggling with a property market slump and uncertainty about trade policy once Donald Trump takes office next week.

The slowdown in growth in the world's second-largest economy is leading to something of a "rebalancing" among emerging markets, Gourinchas said, with countries including India -- which the IMF expects to grow by 6.5 percent this year and next -- playing a more important role.

Growth in the Middle East and Central Asia is expected to pick up by less than previously forecast due largely to the effect of oil production cuts by the OPEC+ group of oil-producing nations, which includes Saudi Arabia.

Economic activity is expected to rise more quickly in Latin America, the IMF said, adding that it also expected growth in sub-Saharan Africa to pick up this year.

I.Rodriguez--SFF