IMF lowers this year's global economic growth forecast to 3%

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

The IMF stated that the global economy has avoided a sharper downturn, thanks to demand-driven growth momentum from the technology sector offsetting the decline in energy supply caused by the war. The global economic growth rate is expected to rebound to 3.4% next year, although this remains below the 3.5% average 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 said inflation should 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 around 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, performing better than expected; energy-exporting countries, as well as those closely integrated with the technology sector, have brighter economic prospects; conversely, commodity-importing countries that cannot benefit from AI development have generally had 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. The notable growth last year was mainly due to a significant front-loading wave ahead of the implementation of US tariffs.

Deniz Igan, head of the World Economic Studies Division in the IMF's Research Department, said that under the impact of the Middle East war and the blockade of the Strait of Hormuz, the global economy is facing high prices and declining confidence, yet it still shows more resilience than expected in April. This is mainly due to the release of strategic petroleum reserves and commercial inventories, energy efficiency improvements helping to alleviate supply shortages; the private sector has also adjusted quickly, finding alternative routes and supply sources.

She told Reuters that the situation is okay for now, but that does not eliminate existing risk factors, especially those brought by the war. Should the peace agreement break down and fighting resume, it would pose a huge risk, as countries have largely depleted their reserves, leaving much less room for maneuver.