IMF Sees Steady Growth but Warns of Rising Protectionism

The global economy is approaching a soft landing after several years of geopolitical and economic turmoil, the International Monetary Fund said on Tuesday. But it warned that risks remain, including stubborn inflation, the threat of escalating global conflicts and rising protectionism.

In its latest World Economic Outlook report, the I.M.F. projected global output to hold steady at 3.2 percent in 2024, unchanged from 2023. Although the pace of the expansion is tepid by historical standards, the I.M.F. said that global economic activity had been surprisingly resilient given that central banks aggressively raised interest rates to tame inflation and wars in Ukraine and the Middle East further disrupt supply chains.

The forecasts came as policymakers from around the world began arriving in Washington for the spring meetings of the International Monetary Fund and the World Bank. The outlook is brighter from just a year ago, when the I.M.F. was warning of underlying “turbulence” and a multitude of risks.

Although the world economy has proved to be durable over the past year, defying predictions of a recession, there are lingering concerns that price pressures have not been sufficiently contained and that new trade barriers will be erected amid anxiety over a recent surge of cheap Chinese exports.

“Somewhat worryingly, progress toward inflation targets has somewhat stalled since the beginning of the year,” Pierre-Olivier Gourinchas, the I.M.F.’s chief economist, wrote in an essay that accompanied the report. “Oil prices have been rising recently in part due to geopolitical tensions and services inflation remains stubbornly high.”

He added: “Further trade restrictions on Chinese exports could also push up goods inflation.”

The gathering is taking place at a time of growing ten sion between the United States and China over a surge of Chinese green energy products, such as electric vehicles, lithium batteries and solar panels, that are flooding global markets. Treasury Secretary Janet L. Yellen returned last week from a trip to China, where she told her counterparts that Beijing’s industrial policy was harming American workers. She warned that the United States could pursue trade restrictions to protect investments in America’s solar and electric vehicle industries.

The United States and China agreed to hold additional talks on “balanced growth.” On Tuesday afternoon, Ms. Yellen convened a meeting of the U.S.-China Financial Working Group and the Economic Working Group at the Treasury Department.

During her visit to China, Ms. Yellen suggested that tariffs on Chinese exports of green energy products were “on the table.” The Biden administration is weighing changes to tariffs that the Trump administration imposed on more than $300 billion worth of Chinese goods. The European Union has been pursuing its own trade restrictions on China, and fears over China’s growing dominance over clean energy production could lead to a new wave of protectionism globally.

On Tuesday, Ms. Yellen pointed out that the United States economy was defying expectations of weakness from a year ago, describing the labor market as “remarkably healthy” and noting that inflation had come down significantly from its peak.

I.M.F. officials have been wary about “fragmentation” in recent years, as economies gravitate to trading blocs with aligned political interests. The report on Tuesday warned that further restrictions on trade and investment could fuel more inflation and weigh on economies.

“Tariff increases could trigger retaliatory responses, raise costs, and harm both business profitability and consumer well-being,” the report said.

Ms. Yellen said on Tuesday that the I.M.F. is not sufficiently focused on the problem of Chinese overcapacity, arguing that China’s subsidies of its green energy sectors were creating an uneven playing field.

“With these subsidies, the amount of capacity exceeds global demand, and what it’s likely to be even over the next decade,” Ms. Yellen said. “When the markets weaken, prices fall and it’s our firms who go out of business, and those that are our allied countries. Chinese firms continue to receive support so that they remain.”

Officials from the Group of 7 nations and the Group of 20 will hold separate discussions on the sidelines of the meetings, which officially begin on Wednesday, on a variety of pressing issues including the fallout from the war in Gaza and Russia’s war in Ukraine.

Biden administration officials, including Ms. Yellen, are expected to meet senior Ukrainian officials as they try to build international support to provide more aid to Ukraine. The Treasury secretary will also continue to make the case for using Russia’s frozen central bank assets as a lifeline for Ukraine’s economy.

The meetings are taking place at a fragile time for the global economy, which has been battered in recent years by a pandemic and war. The world’s top financial officials will be discussing ways to maintain economic stability during a year when elections around the world could herald dramatic policy changes.

The I.M.F. report broadly described its growth outlook for the global economy as “stable but slow,” with much of the resilience powered by the strength of the United States, where growth is expected to increase from 2.5 percent in 2023 to 2.7 percent in 2024.

Output in the euro area remains sluggish, with growth increasing from 0.4 percent in 2023 to 0.8 percent this year.

China’s economy is expected to grow at a rate of 4.6 percent in 2024, down from 5.2 percent in 2023. But on Tuesday, China’s statistics agency reported stronger-than-expected growth in the first quarter, with the economy expanding at a 6.6 percent annual rate, as the country turned to manufacturing and exports to counter a downturn in the property market.

Efforts by central banks to contain price increases by raising interest rates have begun to tame inflation. The I.M.F. predicts that global headline inflation will decline from an annual average rate of 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent next year. But the slowdown is not happening at the same rate in every country and some places are further along in taming price increases than others. The I.M.F. said that a scenario where interest rates need to remain higher for a longer period of time could put added stress on housing markets and the financial sector,

The fight against inflation in the United States has begun to stall. While prices are rising more slowly than they had been, they are still higher than the 2 percent that the Federal Reserve targets. In March, the Consumer Price Index climbed by 3.8 percent on an annual basis after stripping out food and fuel prices, raising doubts among economists about whether the Fed will start cutting interest rates this year.

The most prominent threat to the inflation outlook is the possibility that regional conflicts could cause food and energy prices to spike. The I.M.F. said that an escalation of the conflict in Gaza, additional attacks on ships in the Red Sea and additional volatility associated with Russia’s war in Ukraine all represent wild cards that could disrupt supply chains and derail the world economy’s progress.

“Such geopolitical shocks could complicate the ongoing disinflation process and delay central bank policy easing, with negative effects on global economic growth,” the I.M.F. said.