Economy

TOKYO (Reuters) – The International Monetary Fund (IMF) on Tuesday cut this year’s economic growth forecast for Japan, but projected a rebound in 2025 on the view rising real wages will underpin consumption.The IMF’s upbeat projection on consumption is line with the Bank of Japan’s view that continued wage hikes will boost households’ purchasing power, and keep the economy strong enough to weather further interest rate hikes.In its World Economic Outlook (WEO) report for October, the IMF projected Japan’s economic growth to slow to 0.3% this year from 1.7% in 2023 because of supply disruptions in the auto industry and the fading one-off boost from a surge in tourism. The forecast was cut by 0.4 percentage point from the outlook given in July.The economy is likely to expand 1.1% in 2025 “with growth boosted by private consumption as real wage growth strengthens,” the IMF said.The organization based its forecasts on an assumption that the Bank of Japan (BOJ) would maintain a steady monetary policy path. “The policy rate is projected to continue to rise gradually over the medium term toward a neutral setting of about 1.5%,” the IMF said. Japan’s economy expanded by an annualised 2.9% rate in the second quarter as steady wage hikes underpinned consumer spending, though soft demand in China and slowing U.S. growth cloud the outlook for the export-reliant country.The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was making steady progress toward achieving its 2% inflation target.BOJ Governor Kazuo Ueda has signalled the bank’s readiness to raise interest rates further if economic and price developments move in line with its forecasts.In forecasts made in July, the BOJ expects Japan’s economy to expand 0.6% in the current fiscal year ending in March 2025, and accelerate to 1.0% in fiscal 2025. It will revise the quarterly projections at its next policy meeting on Oct. 30-31. More

The analysis was included in the IMF’s latest World Economic Outlook, which was released as policymakers meet at the IMF and World Bank annual meetings this week to discuss efforts to boost global growth, deal with debt distress and finance the green energy transition.”The rising adoption of electric vehicles represents a fundamental transformation of the global automotive industry. It will have far-reaching consequences,” the IMF said.The move toward EVs has accelerated in recent years and is seen as a key way to help countries achieve climate goals.In 2022, transportation accounted for 36% of greenhouse gas emissions in the U.S., 21% in the European Union, and 8% in China, the IMF said.Rising adoption of EVs has been supported by the EU’s goal of reducing emissions from cars by 50% for the 2030-2035 period from 2021 levels, while the U.S. government has provided subsidies for EVs and charging stations. The IMF noted that the global automotive industry stands out for having high wages, strong profits, large export markets and using a high degree of technology. The acceleration toward EVs would remake that landscape, particularly if China maintains its current edge in production and exports against U.S. and European rivals. Under realistic EV market penetration scenarios, Europe’s GDP would be reduced by about 0.3% in the medium term, the IMF said.”In these scenarios, employment declines in the automotive sector, and labor reallocates gradually to less capital-intensive sectors (with lower value added per worker),” the IMF said.Both the U.S. and EU have imposed tariffs on Chinese-made EVs to counter what they say are unfair subsidies from Beijing to Chinese manufacturers.Last month, U.S. President Joe Biden’s administration introduced a 100% duty on Chinese EVs, while earlier this month EU member states narrowly backed import duties on Chinese-made EVs of up to 45%.Chinese EV makers have so far priced their vehicles below their rivals, a crucial advantage given EVs currently remain more expensive than gasoline alternatives and demand has been weakening for EVs globally.The French government said earlier this month it would reduce its support for EV buyers, joining Germany, which ended its subsidy scheme late last year. More

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

The International Monetary Fund on Tuesday raised its 2024 growth outlook for the United Kingdom, saying falls in both inflation and interest rates would boost domestic demand.
The IMF’s brighter outlook comes as the country braces for the first budget under the center-left Labour Party for 14 years.
The IMF also on Tuesday trimmed its growth outlook for the euro zone in 2024 to 0.8% from 0.9%, forecasting stagnation in the bloc’s biggest economy Germany.

General view of the City of London skyline, the capital’s financial district, in October.
Sopa Images | Lightrocket | Getty Images

LONDON — The International Monetary Fund on Tuesday raised its 2024 growth outlook for the United Kingdom, saying declines in interest rates and inflation would boost domestic demand.
The IMF now sees 1.1% growth for the U.K. economy this year, up from a July forecast of 0.7%. The agency also reiterated its forecast for a 1.5% expansion in 2025.

Inflation in the U.K. came in at 1.7% in September, a decline from 11.1% in October 2022. Lower rates of services inflation and wage growth have led economists over the last week to forecast a faster pace of interest rate cuts from the Bank of England, forecasting the central bank will take its key rate from 5.25% at the start of the year to 4.5% by the end of 2024.
Economic growth has been tepid so far this year, coming in at 0.2% in August after flatlining in June and July.

The IMF’s brighter outlook comes as the country braces for the center-left Labour Party to this month deliver its first budget in 14 years. Prime Minister Keir Starmer has warned that the package will contain “tough” decisions in order to fill what he claims is a looming £22 billion ($28.5 billion) financing shortfall — a figure disputed by his predecessors in the Conservative Party — after Labour committed to slash net borrowing.
While Starmer has ruled out increases to some major taxes, including on income and corporations, a broader package of tax hikes is anticipated. Uncertainty over the budget weighed on consumer confidence readings in August, though the S&P Global UK Consumer Sentiment Index released Monday showed households were slightly more optimistic about their finances and more willing to make large purchases.

“It’s welcome that the IMF have upgraded our growth forecast for this year, but I know there is more work to do,” Finance Minister Rachel Reeves, who took office in July, said Tuesday. Labour has previously pledged to secure the highest sustained growth in the G7 group of nations and make higher growth the core focus of its policymaking.
On Tuesday, the IMF also trimmed its 2024 growth outlook for the euro zone to 0.8% from 0.9% previously, forecasting stagnation in the bloc’s biggest economy Germany. Analysts flag a multitude of challenges facing the German economy, including intense competition for the country’s autos and wider manufacturing products, along with higher energy prices and macro uncertainty weighing on its industrial production.
Among other so-called “advanced economies,” the IMF forecasts economic expansion of 2.8% in the U.S., 1.3% in Canada and just 0.3% in Japan, which has suffered from weak demand this year amid high inflation. 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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