Europe, and Germany in particular, will be part of a “resilient” global economy with “stable but not spectacular” growth, according to the International Monetary Fund's latest forecasts released at the IMF launch today, Tuesday. It is said to represent a weakness. It will hold its annual meeting in Washington this week with its sister organization, the World Bank. As predicted by the IMF on the 80th anniversary of Bretton Woods in 1944, the euro area is expected to grow by just 0.8% in 2024, compared with 2.8% for the United States and 4.5% for China.
Only Spain stands out amid Europe's stagnation, with GDP expected to grow by 2.9% this year, one percentage point more than the IMF predicted six months ago. Meanwhile, Germany is struggling to recover, although economic activity indicators have returned to 2020 levels, and it is unlikely to avoid a second straight recession. After Germany's GDP fell by 0.3% in 2023, the IMF expects growth to fall to zero this year. “Sustained weakness in the manufacturing sector is weighing on countries like Germany and Italy,” the IMF warns.
building under construction
In addition to the damage suffered from global supply chain disruptions during and after the pandemic, Germany is “facing pressure from fiscal consolidation and a sharp decline in real estate prices.” It's a mirror image of Spain, where booming real estate and tourism sectors have cushioned the global manufacturing crisis. The IMF has added full points to Spain's growth forecast since its last meeting in Washington in April. Spain is already an example of a so-called “Goldilocks economy”: neither too hot nor too cold, with inflation expected to fall from 2.8% to 1.9% this year and a current account surplus of 3%. This makes it a good financial shield. Turbulence. But no country in the tightly integrated eurozone is an island, and Spain's economic slowdown is expected to reduce growth by almost 1 percentage point in 2025.
inflation
Nominal wage increases in the US and Europe 'do not necessarily create a risk of wage-price spirals'
In general, the policies adopted to mitigate the impact of the 2020 pandemic and curb inflation in its aftermath have proven highly effective, the IMF said. “The global fight against inflation has been won,” Pierre-Olivier Grinchat, the foundation's chief economist, said at the release of the report. A soft landing was achieved in most developed countries after global inflation peaked at 6.7% in 2021. Furthermore, unlike previous anti-inflation adjustments, this time “the decline in inflation has not hurt employment.”
The IMF distances itself from central bank hawks on the sustainability of price stability. Rising nominal wages, such as those seen in the United States and Europe, “do not necessarily create the risk of a price-wage spiral.” This is an important comment given the concerns on the part of the ECB Governing Council that the benchmark interest rate is expected to fall from the current 3.25% to 2.25%, precisely due to concerns about wage spirals. .
Despite the IMF's relative complacency after the first outbreak of inflation in developed countries since the 1970s, the political problem is that millions of Americans do not see inflation in the same light as Grincha. . IMF Managing Director Kristalina Georgieva acknowledged this on Monday in a speech at the so-called Bretton Woods conference. “The suffering will continue because prices are rising and rising prices are angering many people around the world,” she said. “We face an unforgiving combination of low growth and high debt,” she added. She was referring to the millions of citizens in developing countries who have not achieved the same price reductions as in the United States and Europe. But even in developed countries, the message that the inflation crisis has been successfully managed is difficult to resonate. This may be due in part to the inflexibility of profits booked by large European companies, as highlighted by the IMF. “European companies should be able to absorb the costs, given the significant increase in profits in recent years,” the IMF warns.
