IMF cuts Irish growth forecast for this year

The International Monetary Fund has revised downwards its projection for economic growth in Ireland this year.

The organisation is now predicting that the Irish economy as measured by Gross Domestic Product (GDP) will expand by just 1.5% in 2024.

That is down from a forecast of GDP growth of 3.3% which it published in October.

However, the IMF expects growth will pick up further in 2025, with GDP projected to expand by 2.5%.

The fund also expects that inflation in Ireland will fall more than previously expected this year, averaging out at 2.4% across 2024 before settling back to 2% next year.

Employment will also remain robust, the IMF thinks, with unemployment forecast to remain low at 4.4% this year and only rising marginally to 4.5% in 2025.

The figures are contained in the IMF's latest World Economic Outlook, which was published as the Spring Meeting of the organisation and the World Bank gets underway in Washington DC.

The outlook estimates that the global economy will grow by 3.2% this year, the same rate as 2023 and an increase of 0.3 percentage points on what it predicted in October.

"Nevertheless, the projection for global growth in 2024 and 2025 is below the historical (2000–19) annual average of 3.8%, reflecting restrictive monetary policies and withdrawal of fiscal support, as well as low underlying productivity growth," the report says.

"Advanced economies are expected to see growth rise slightly, with the increase mainly reflecting a recovery in the euro area from low growth in 2023, whereas emerging market and developing economies are expected to experience stable growth through 2024 and 2025, with regional differences," it added.

The IMF also predicts that the same steady pace of expansion will continue into 2025.

The 2024 forecast was revised upward by 0.1 percentage point from the previous World Economic Outlook's estimate in January, largely due to a significant upward revision in the US outlook.

"We find that the global economy remains quite resilient," Pierre-Olivier Gourinchas, the IMF's chief economist, said, adding that many countries have defied gloomy predictions of recession as central banks raised interest rates to fight inflation.

Many countries also are showing less "scarring" from the Covid-19 pandemic and cost-of-living crises, returning to pre-pandemic levels of output more quickly than previously predicted, the IMF said in its report.

Inflation is falling, but progress in bringing it back to central bank targets has slowed in recent months, Gourinchas said, noting that recent US data shows robust demand.

"The general trajectory still remains one where we expect inflation to come down over the year and put the Federal Reserve in a position where it will be able to start easing the policy rates," he told Reuters.

"Maybe not as quickly as what the markets had expected," he added.

The IMF forecast 2024 US growth of 2.7% compared to the 2.1% projected in January, on stronger than expected employment and consumer spending at the end of 2023 and into 2024.

It expects the delayed effect of tighter monetary and fiscal policy to slow US growth to 1.9% in 2025, though that also was an upward revision from the 1.7% estimate in January.

But the latest IMF forecasts showed stark divergences with other countries, including in the euro zone, where the 2024 growth forecast was revised downward to 0.8% from 0.9% in January, mainly due to weak consumer sentiment in Germany and France.

Britain's 2024 growth forecast also was revised down by 0.1 percentage point to 0.5% as the country struggles with high interest rates and stubbornly high inflation.

China property woes

The IMF left unchanged its forecast for China's 2024 growth to fall to 4.6% from 5.2% in 2023, with a further drop to 4.1% for 2025.

But it warned that the lack of a comprehensive restructuring package for the country's troubled property sector could prolong a downturn in domestic demand and worsen China's outlook.

Such a situation could also intensify deflationary pressures in China's economy, leading to a surge in cheap exports of manufactured goods that could stoke trade retaliation by other countries - a scenario that US Treasury Secretary Janet Yellen warned about during a trip to China earlier this month.

The IMF recommended that China accelerate the exit of non-viable developers and promote the completion of unfinished housing projects, while supporting vulnerable households to help restore consumer demand.

But the global lender noted bright spots in some other big emerging market countries, raising its growth forecast for Brazil's economy in 2024 by half a percentage point to 2.2% and increasing the forecast for India's economic growth by 0.3 percentage point to 6.8%.

It noted that Group of 20 large emerging market countries are now playing a bigger role in the global trading system and have the capability to shoulder more of the growth burden in the future.

But the IMF said low-income developing countries continue to struggle with post-pandemic adjustments and greater levels of economic "scarring" than middle-income emerging markets.

As a group, these low-income developing countries saw their 2024 growth forecast cut to 4.7% from an estimate of 4.9% in January.

Russian resilience

In one of the biggest surprises, Russia's 2024 growth forecast was increased to 3.2% from the 2.6% projected in January.

The report attributed the increase partly to continued strong oil export revenues amid higher global oil prices despite a price-cap mechanism imposed by Western countries, as well as strong government spending and investment related to war production, along with higher consumer spending in a tight labour market.

The IMF also upgraded Russia's 2025 growth forecast to 1.8% from 1.1% in January.

Ukraine's growth, which is highly dependent on economic aid from the West, is forecast to slow to 3.2% in 2024 and accelerate to 6.5% in 2025.

While initial price spikes for grains, oil and other commodities have faded since Russia's 2022 invasion of Ukraine, a widening of the conflict could cause them to intensify.

Similarly, in the Middle East conflict, the trade disruptions and higher costs for ships avoiding Red Sea attacks have been on a "moderate scale," Gourinchas said, but added that the IMF is concerned about "potential escalation".

Meanwhile, Minister for Public Expenditure, National Development Plan Delivery and Reform Paschal Donohoe and Finance Minister Michael McGrath are travelling today to the US to attend the Spring Meetings of the International Monetary Fund (IMF) and the World Bank Group.

They are also being accompanied by the Central Bank Governor Gabriel Makhlouf.

As President of the Eurogroup, Mr Donohoe will also participate in the G7 Finance Ministers and Central Bank Governors' meeting as well as in a range of IMF and World Bank meetings.

Additional reporting from Reuters