On January 30th, the International Monetary Fund (IMF) announced in its latest report on the outlook for the global economy that the country’s economic growth rate for 2024 has increased from the estimated 2.9% in October last year to 3.1%, while the estimated global economic growth rate for 2025 is 3.2%.
The global economy is heading towards a soft landing
The IMF stated in its complaint that there was insufficient resilience in the global economy in the second half of 2023. In terms of demand, strong private consumption and government spending have filled the tense monetary situation and supported economic movements; On the supply side, the improvement of labor force participation, supply chain improvement, and the decline in power and commodity prices have filled the negative impact brought by the once again disappearing geopolitical uncertainty.
As the economy stabilizes and inflation steadily declines, the IMF believes that the global economy will eventually move towards a soft landing, and the danger of a hard landing has weakened.
Specifically, the complaint speculates that the growth of the US economy will gradually slow down, rising from 2.5% in 2023 to 2.1% and 1.7% in the next two years. The compressed currency strategy will still have a significant impact on the US economy; The eurozone, on the other hand, has started to rebound slightly after the provocative year of 2023, with an estimated growth rate of 0.9% and 1.7% for this year and next, respectively. The high power prices and compressed currency strategies have limited the needs of the eurozone last year; Under the initiative of India and Southeast Asia, it is estimated that emerging economies in Asia will continue to outperform the world in 2024 and 2025, with growth rates of 5.2% and 4.8%, respectively. India is expected to have the highest growth rate of 6.5% for two consecutive years among major economies.
As for inflation, the IMF has lowered this year’s global inflation rate (excluding Argentina) from the estimated 5.3% in October last year to 4.9%. The focus inflation rate of developed economies is estimated to rise to 2.6% this year, which is closer to the medium-term target of 2% set by the Federal Reserve and the European Central Bank.
In addition to the two main focus factors of economic growth and inflation slowdown, the complaint also points out that the absence of the 2024 and 2025 Global Election Year usually means that authorities in various countries will increase public spending. Although it can comfort inflation in some sectors, it can also promote economic movement. The rapid progress of artificial intelligence can also enhance investment and comfort the rapid increase in labor rates.
Although the global economy does not have many positive factors, the growth rates of 3.1% and 3.2% in 2024 and 2025 are still lower than the average of 3.8% from 2000 to 2019.
The IMF identified high interest rates, the contraction of financial support under the impact of high debt, and the slow increase in the base fertility rate as the main reasons affecting economic growth. In addition, geopolitical tensions have resurfaced. For example, conflicts in the Middle East can lead to a continuous supply of commodities, and the Red Sea crisis can also significantly increase transportation costs in Asia and Europe. The sustained focus on inflation depends on the impact of artificial inflation on prices, especially in the Eurozone where negotiations for artificial inflation can put pressure on prices again. Currency strategies that tend to support higher interest rates for a longer period of time can also put pressure on government debt, and financial consolidation can affect economic growth.
The dual dangers of monetary strategy
The complaint also pointed out that the recent slowdown in inflation is largely due to the rise in commodity and power prices, rather than through economic movements. This also means that a compressed currency strategy can have limited efficiency in controlling inflation by restraining the need.
However, the IMF has still identified the positive impact of rapid interest rate hikes by central banks in two aspects. Firstly, the resolute and rapid pace of interest rate hikes has strengthened the trust of the outside world in the central bank’s confidence in inflation, obstructing the continuous decline of inflation expectations. This helps to curb artificial inflation and lower the risk of a human price spiral downward. Secondly, the compression strategy directly lowered the global power demand and raised overall inflation.
Currently, central banks around the world are facing a dual danger. On the one hand, implementing an easing strategy too early will weaken the central bank’s credit returns and can lead to a rebound in inflation; On the other hand, if we do not turn to currency normalization in a timely manner, it will endanger economic growth and carry the risk of inflation rapidly falling below the medium-term target. Moreover, emerging economies in sectors where inflation has significantly declined have already begun to raise interest rates.
The complaint suggests that inflation in the United States is to a greater extent triggered by the need, therefore the Federal Reserve needs to guard against the first type of danger; The inflation in the Eurozone is disproportionately affected by the surge in power prices, so the European Central Bank should pay more attention to the second type of danger.
This also seems to predict that the European Central Bank, which started its interest rate hike cycle later than the Federal Reserve, is more likely to start raising interest rates earlier than the Federal Reserve.
After the monetary strategy rally on January 25th, European Central Bank President Claude Lagarde also revealed the need to ensure that its strategic interest rates are supported to a sufficiently strict level when necessary. It is widely speculated that the European Central Bank will not explore the possibility of raising interest rates before April. Wall Street institutions, represented by Morgan Stanley, may not estimate that the Federal Reserve will start raising interest rates before June, but they are betting that the Federal Reserve will announce a slowdown in the rate of balance sheet tightening at the monetary strategy rally in May, in order to implement the monetary strategy slightly. This comparison is in a way vastly different from the IMF’s speculation.
The IMF has not yet pointed out that the continuous downward financial danger is the biggest provocation that it will face.
In the face of the COVID-19 epidemic and the power crisis, the authorities of all countries have assisted the public and enterprises through a series of rescue steps, and all the way raised the level of public debt. For example, developed economies in the G20 have seen their public debt to GDP ratio break through 120% in the past four years, while emerging economies in the G20 have also seen their ratio break through 70%. As interest rates sharply rise, the fake loan capital and refinancing capital of various countries actually rise disproportionately.

However, with the appreciation of currency brought about by inflation, the total debt of highly indebted countries in some sectors has actually shown no trend of rapid shrinkage after reaching a new high during the epidemic. According to a statement by the Eurostat on January 22, the ratio of public debt to GDP in the Eurozone has risen from 92.2% in the third quarter of 2022 to 89.9% in the third quarter of 2023. The ratio of debt to GDP, including those of Greece and Portugal, former “European pig countries,” has risen by 12 and 10.9 percentage points respectively in the past year.

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