Hong Kong Economic Journal Instant News - International Finance - IMF Lowers This Year’s Global Economic Growth Forecast to 3% - hkej.com

The International Monetary Fund (IMF) has once again downgraded its global economic growth forecast for this year, slightly lowering it to 3%, while warning of risks from the Middle East war, trade fragmentation, and a potential correction in market expectations for artificial intelligence (AI).

The IMF stated that demand-driven growth momentum in the technology sector helped offset the decline in energy supply caused by the war, preventing the global economy from experiencing a more severe recession. Global economic growth is expected to rebound to 3.4% next year, though this remains below the average of 3.5% for 2024 and 2025.

The IMF raised its overall inflation forecast for this year by 3.3 percentage points from April to 4.7%, but expects inflation to fall to 3.9% next year. The IMF noted that energy prices are currently 25% higher than before the war broke out on February 28, and will remain elevated. The new forecast assumes that the Strait of Hormuz will begin to reopen in mid-July and return to pre-war conditions by March next year.

In its latest World Economic Outlook (WEO) report, the IMF pointed out that so far, the global economy as a whole has withstood the shock of the war and performed better than expected. Energy-exporting countries, as well as those closely integrated with the technology sector, have brighter economic prospects. In contrast, commodity-importing countries that cannot benefit from AI development have generally seen their growth forecasts downgraded.

Global trade growth this year is expected to slow sharply from 5% last year to 3.5%, before rebounding to 4.3% next year. Last year's notable growth was mainly driven by a large amount of front-loading ahead of the implementation of US tariffs.

Deniz Igan, head of the World Economic Studies Division in the IMF's Research Department, said that due to the Middle East war and the blockade of the Strait of Hormuz, the global economy is facing high prices and declining confidence. Nevertheless, it has shown more resilience than expected in April. This is mainly attributed to the release of strategic petroleum reserves and commercial inventories, improved energy efficiency helping to ease supply shortages, and the private sector quickly adjusting by finding alternative routes and supply sources.

She told Reuters that the situation is okay for now, but this does not eliminate the existing risk factors, especially those brought by the war. If a peace agreement breaks down and the conflict reignites, it would bring huge risks because countries have largely exhausted their reserves, leaving much less room for maneuver.