Global economy is picking up steam but poorest countries are falling behind: IMF

WASHINGTON—The world economy is outpacing expectations this year, but the prospects for longer-term growth are less rosy.

Global economic output is likely to expand 3.2% in 2024, the International Monetary Fund said Tuesday, up from an October forecast for 2.9% growth.

The improved outlook owes mainly to the continued strength of the U.S. economy, which has defied expectations of a slowdown even as the Federal Reserve holds interest rates at their highest level in more than two decades. China, Russia, India and Brazil—the largest developing economies—are also seen growing somewhat faster than the IMF predicted six months ago.

“The global economy remains quite resilient,” Pierre-Olivier Gourinchas, the IMF’s chief economist, told reporters.

Weak outlook for the medium term

Beyond the next few years, however, the panorama is less favorable. By 2030, the IMF predicts, the world economy is likely to be growing 2.8% per year—a full percentage point less than its average from 2000 to 2019.

That is largely because of slower growth in the labor supply, a function of demographics and aging populations in much of the world. In the past, legions of young workers and women entering the job market for the first time provided a powerful tailwind to the world economy. 

But by the end of this decade, the IMF sees the global labor supply increasing just 0.3% a year, less than a third of its average in the 10 years before the pandemic.

Further weighing on the economy’s longer-term prospects is a projected slowdown in capital formation, as elevated debt levels crimp governments’ capacity to invest, the IMF said. 

Geopolitical strife and fragmentation of the global economy into like-minded trading blocs—where political distance matters more than geographic distance—also threaten progress.

Poor countries falling behind

The slowdown could have grim implications for “convergence” between richer and poorer countries. This was a heartening feature of the world economy during most of the past two decades, when lower-income nations generally increased their living standards faster than mature economies like the U.S. and European Union.

But since the pandemic, this trend has stalled. The poorest countries are grappling with sharply higher prices for food, fertilizers and other key goods. They also had less capacity to respond to the pandemic with fiscal stimulus, delaying their economies’ recovery.

Relative to prepandemic trends, economic growth is projected to slow more in emerging and low-income economies than in advanced ones. The result is slower progress on metrics such as life expectancy, inequality and consumption, the IMF said.

“We need to think of ways of closing those gaps,” Gourinchas said. “If we do that, there will be…less need for migration.”

U.S. outperforms

Though the IMF projects less economic scarring from the pandemic than it did six months ago, the latest outlook still estimates about $3.3 trillion in global economic output has been lost since 2020.

The main exception is the U.S., whose economy has already steamed past its prepandemic trend line. The IMF expects U.S. gross domestic product to expand 2.7% in 2024, up from an October forecast of 1.5% growth.

Behind the U.S.’s outperformance, the IMF said, is a boost to the labor supply from immigration, as well as robust government spending.

Artificial intelligence

One possible avenue toward a brighter economic future is through greater adoption of artificial intelligence, the IMF said.

But it’s unclear how much of a boost AI could provide. AI could increase productivity growth by as much as 0.8 percentage point per year over a decade, the IMF estimates—or by as little as 0.1 percentage point.

There is also the risk that AI replaces humans in certain jobs, or fundamentally changes their nature. Outcomes in this respect are likely to vary from country to country.

In advanced economies like the U.S., the IMF estimates that 60% of jobs are susceptible to changes as a result of AI, compared with 40% of jobs in emerging-market economies and 26% in low-income countries.

But if poorer countries experience less disruption from AI, they also stand to reap fewer benefits, the IMF warns.