Aurelia Butler

While the IMF significantly raised its 2024 growth forecast for Brazil to 3.0%, up from 2.1% in July, it noted in its updated World Economic Outlook that Mexico’s economy is expected to expand 1.5%, seven-tenths of a percentage point less than previously estimated.The contrasting momentum of the two countries have led to different inflation scenarios, with Brazil, the region’s largest economy, expected to keep tightening monetary policy to curb rising prices, while Mexico moves towards lowering rates. The IMF attributed Brazil’s improved outlook to stronger private consumption and investment in the first half of the year, fueled by a tight labor market, government transfers, and a less-than-expected disruption from floods earlier this year.As for Mexico, the IMF said the revised figure reflects weakening domestic demand.Among the region’s major economies, Argentina is the only one projected to contract this year, with a 3.5% decline, more than double its 1.6% drop in 2023. However, the IMF expects a strong rebound in 2025, with 5.0% growth.Overall, economic activity in Latin America and the Caribbean is expected to remain broadly stable this year compared to the 2.2% growth seen in 2023, with the IMF forecasting an acceleration to 2.5% in 2025. More

WASHINGTON (Reuters) – China’s industrial policy may be tipping the scales in some specific industries, but it is not the root cause of the country’s growing exports and external surpluses, IMF chief economist Pierre-Olivier Gourinchas told Reuters.In an interview at the start of this week’s IMF and World Bank annual meetings, Gourinchas pushed back on some of the U.S.-driven narrative surrounding China’s excess industrial capacity, saying that macro factors including a lack of domestic demand in China and excess consumption in the U.S. are the key drivers of higher Chinese trade surpluses.Gourinchas said the increased exports from China, which are helping to keep the country’s growth from slowing further, according to new IMF forecasts, are “not primarily because of industrial policies in China or elsewhere. It’s mostly driven by macro forces.”The biggest of these is low consumer spending which, amid a property market crisis that has damaged a key source of household wealth, has caused some production to be “naturally channeled towards the export sectors.” Conversely, U.S. trade deficits are rising because of high demand from strong household and government spending, causing an overall increase in demand for imported goods from China.China’s weak demand and strong U.S. demand “is a configuration that is going to give rise to these types of imbalances.”Gourinchas and fellow senior IMF officials recently made similar arguments in a blog post on the Fund’s website. They said that while China’s subsidies do have an impact on trade spillovers on specific sectors, these effects are “modest, suggesting that industrial policies have a limited effect on aggregate external balances.” YELLEN’S WARNINGSThis view differs somewhat from arguments made by U.S. Treasury Secretary Janet Yellen. She has spent much of this year raising alarms about the threats to U.S. manufacturing jobs from Chinese overcapacity, particularly in electric vehicles, batteries, solar cells and semiconductors, all of which were hit with steep U.S. tariff hikes last month.Last week, Yellen told a Council on Foreign Relations event that every province in China is competing to try to invest more in these industries.”So the level of subsidization is utterly enormous. There are many profit-losing firms that are kept in existence,” Yellen said, adding that this was leading to a “gigantic amount of overcapacity.”Gourinchas said there are some sectoral impacts from Chinese subsidies that can distort trade, but that was a matter for the World Trade Organization. He added the IMF was working hard to measure the impact of industrial subsidies in China and other economies with dominant state sectors, but transparency has been difficult. Support measures, he said, are not often line items where one can see exactly what the government is spending.The way to reduce U.S.-China imbalances is to boost domestic demand to soak up the production now being diverted to exports, Gourinchas said. This would require Chinese authorities to resolve problems with the property sector that are dragging down consumer confidence, he added.”Then, you need to convince the Chinese households and firms that they can do more consumption and more investment and less saving,” Gourinchas said. “That requires, for instance, developing social safety nets that will provide for old age, that will provide for healthcare etc.” For the U.S., fiscal tightening would help slow excess demand for imports from China. The Fund has long advocated that Washington raise taxes to put its debt on a downward path. More

WASHINGTON (Reuters) – The International Monetary Fund on Tuesday raised its 2024 economic growth forecasts for the U.S., Brazil and Britain but cut them for China, Japan and the euro zone, adding that risks abound from armed conflicts, potential new trade wars and the hangover from tight monetary policy.The IMF’s latest World Economic Outlook said the shifts will leave 2024 global GDP growth unchanged from the 3.2% projected in July, setting a lackluster tone for growth as world finance leaders gather in Washington this week for the IMF and World Bank annual meetings.Global growth is projected to be 3.2% in 2025, one-tenth of a percentage point lower than forecast in July, while medium-term growth is expected to fade to a “mediocre” 3.1% in five years, well below its pre-pandemic trend, the report showed. Nonetheless, the IMF’s chief economist, Pierre-Olivier Gourinchas, said the U.S., India and Brazil were showing resilience and a “soft landing” in which inflation cools without massive job losses had been achieved. “It looks like the global battle against inflation has largely been won, even if price pressures persist in some countries,” Gourinchas said in a blog post. But he told Reuters in an interview that there is a risk that monetary policy could “mechanically” become too tight without interest rate cuts in some countries as inflation subsides, weighing on growth and jobs.”Right now, our assessment for monetary policy in most places, it’s about where we want it to be, but if inflation keeps coming down now, central banks have to start paying attention to what’s happening on the activity side.CONSUMER STRENGTH The IMF revised its 2024 U.S. growth forecast upward by two-tenths of a percentage point to 2.8% due largely to stronger-than-expected consumption fueled by rising wages and asset prices. The global lender also upgraded its 2025 U.S. growth outlook by three-tenths of a percentage point to 2.2%, slightly delaying a return to trend growth.Brazil got a sharp upgrade of nine-tenths of a percentage point, raising its projected growth rate this year to 3.0%, also on the back of stronger private consumption and investment. Mexico’s growth, however, was marked down by seven-tenths of a percentage point to 1.5% because of the effects of tighter monetary policy.The IMF cut China’s 2024 growth rate by two-tenths of a percentage point to 4.8%, with a boost from net exports partly offsetting continued weakness in the property sector and low consumer confidence. The IMF’s 2025 China growth forecast was unchanged at 4.5%, but the outlook does not include any impact from Beijing’s recently announced fiscal stimulus plans, which are still largely undefined.Germany will see zero growth this year, a markdown of two-tenths of a percentage point, as its manufacturing sector continues to struggle, the IMF projected. The reduction helped to drag down the forecast for overall euro zone growth slightly to 0.8% for 2024 and 1.2% for 2025 despite a half-percentage-point upgrade that pushed Spain’s projected growth to 2.9%.Britain’s long-suffering growth outlook got a boost of four-tenths of a percentage point to 1.1% for 2024 as falling inflation and lower interest rates are expected to stoke consumer demand. The growth forecast for Japan was lowered by four-tenths of a percentage point to 0.3% due to the lingering effects of supply disruptions. India continues to be a bright spot, with the strongest projected growth among major economies at 7.0% in 2024 and 6.5% in 2025, unchanged from the July outlook.TRADE RISKSIn counting risks to the outlook, the IMF flagged the potential for major tariff increases and retaliatory measures, but it did not single out U.S. Republican presidential candidate Donald Trump’s vow to impose tariffs of 10% on global imports to the U.S., and 60% on goods from China.Instead, it contains a proxy adverse scenario that includes 10% two-way tariffs among the U.S., euro zone and China plus 10% U.S. tariffs on the rest of the world, reduced migration to the U.S. and Europe, and financial market turmoil that tightens financial conditions. Were this to occur, the IMF said it would reduce the overall global GDP output level by 0.8% in 2025 and 1.3% in 2026.Other risks outlined in the report included the potential for a spike in prices of oil and other commodities should conflicts in the Middle East and Ukraine widen. The IMF cautioned countries against pursuing industrial policies to protect domestic industries and workers, saying that they often fail to deliver sustained improvements in living standards.”Economic growth must come instead from ambitious domestic reforms that boost technology and innovation, improve competition and resource allocation, further economic integration and stimulate productive private investment,” Gourinchas said in his blog post. More

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KAZAN, Russia (Reuters) -India’s Narendra Modi told Russian President Vladimir Putin on the eve of the BRICS summit that he wanted peace in Ukraine and that New Delhi was ready to help achieve a truce to end Europe’s deadliest conflict since World War Two.Putin, who ordered tens of thousands of troops into Ukraine in February 2022, wants the BRICS summit to showcase the rising clout of the non-Western world after the United States and its European and Asian allies tried to isolate Russia over the war.Russia is expecting 22 leaders, including Chinese President Xi Jinping who arrived on Tuesday, to attend the summit meeting of the BRICS, which accounts for 45% of the world’s population and 35% of the global economy.Putin, who is cast by the West as a war criminal, thanked Prime Minister Modi for accepting the invitation to visit Kazan, a city on the banks of the Volga, and said Russia and India shared a “privileged strategic partnership”.Modi thanked Putin for his “strong friendship”, praised growing cooperation and the evolution of BRICS but also said that India felt the conflict in Ukraine should be ended peacefully.”We have been in constant touch on the subject of the ongoing conflict between Russia and Ukraine,” Modi said. “We believe that problems should be resolved only through peaceful means.” “We fully support the early restoration of peace and stability. All our efforts give priority to humanity. India is ready to provide all possible support in the times to come,” he said, adding that he would discuss the issues with Putin.The BRICS summit takes place as global finance chiefs gather in Washington amid war in the Middle East as well as Ukraine, a flagging Chinese economy and worries that the U.S. presidential election could ignite new trade battles.With BRICS expanding – and a waiting list of potential members – there is anxiety among some about whether expansion will make the group unwieldy. China and India, the top purchasers of Russian oil, have difficult relations, while there is little love lost between Arab nations and Iran.SECURITY INTERESTSWhen asked by BRICS reporters about the prospects for peace, Putin said that Moscow would not trade away the four regions of eastern Ukraine that it says are now part of Russia and that Moscow wants its long-term security interests taken into account in Europe. Two Russian sources said that, while there was increasing talk in Moscow of a possible ceasefire agreement, there was nothing concrete yet – and that the world was awaiting the result of the Nov. 5 presidential election in the United States.Russia, which is advancing, controls about one fifth of Ukraine, including Crimea which it seized and unilaterally annexed in 2014, about 80% of the Donbas – a coal-and-steel zone comprising the Donetsk and Luhansk regions – and over 70% of the Zaporizhzhia and Kherson regions. Putin said the West had now realised that Russia would be victorious, but that he was open to talks based on draft ceasefire agreements reached in Istanbul in April 2022. On the eve of the BRICS summit, Putin met with United Arab Emirates President Sheikh Mohammed bin Zayed Al Nahyan for informal talks that went on until midnight at his Novo-Ogaryovo residence outside Moscow. BRICS Putin has praised both Sheikh Mohammed and Saudi Crown Prince Mohammed bin Salman, who will not attend the summit in Kazan, for their mediation efforts over Ukraine. “We are ready to make any efforts to resolve crises and in the interests of peace, in the interests of both sides,” Sheikh Mohammed told Putin.Brazilian President Luiz Inacio Lula da Silva cancelled his trip following medical advice to temporarily avoid long-haul flights after a head injury at home.The acronym BRIC was coined in 2001 by then-Goldman Sachs chief economist Jim O’Neill in a research paper that underlined the massive growth potential of Brazil, Russia, India and China this century.Russia, India and China began to meet more formally, eventually adding Brazil, then South Africa, Egypt, Ethiopia, Iran and the United Arab Emirates. Saudi Arabia has yet to formally join.BRICS’ share of global GDP is forecast to rise to 37% by the end of this decade while the share accounted for by the Group of Seven major Western economies will decline to about 28% from 30% this year, according to International Monetary Fund data. Russia is seeking to convince BRICS countries to build an alternative platform for international payments that would be immune to Western sanctions.  More