The International Monetary Fund (IMF) has slightly lowered its global economic growth forecast for this year, citing the persistent impact of the war involving Iran.
In its World Economic Outlook (WEO) update released on July 8 (local time), the IMF projected global economic growth for this year at 3.0%, a 0.1 percentage point (p) decrease from its April forecast.
This follows a series of downward adjustments, from 3.3% in January to 3.1% in April.
However, the IMF raised its growth forecast for next year to 3.4%, an increase of 0.2% from the April projection.
Titled "Global Economy in Crosscurrents of War and Technology," the latest WEO report explained that "this slight slowdown in growth is the result of the impact of the Middle East war being partially offset by demand-driven momentum in the global technology cycle, accelerated by the development and adoption of artificial intelligence (AI)."
The IMF noted, however, that "the impact varies significantly depending on each country's exposure to the war and its position within the technology value supply chain."
It further explained, "Energy exporters outside the conflict zone benefit from favorable terms of trade, while countries linked to the tech-driven upturn experience stronger economic activity, even if they are energy importers. Conversely, economic activity weakens for energy importers with limited participation in tech value chains, a group that includes many low-income countries."
The report suggests that global economic activity and outlooks are being influenced by two opposing factors: negative supply chain shocks caused by the war and positive technology shocks from AI advancements, creating asymmetric impacts across different nations.
The IMF also pointed out that "risks to the outlook are more balanced than in April but remain tilted to the downside," adding that "the possibility of a resurgence in the Middle East conflict is increasing, which could lead to prolonged volatility in commodity prices, further threats to supply chains, rising inflation, and burdens on financial conditions."
This WEO was prepared based on the assumption that the resumption of transit through the Strait of Hormuz would begin in mid-July and that conditions would largely return to pre-war levels by March of next year.
While warning that "a reignition of geopolitical tensions in the Middle East would hit growth and exacerbate inflationary pressures," the IMF also stated that "if the reopening of the Strait of Hormuz proceeds more smoothly than expected and commodity prices are lower than in the baseline scenario, growth could be higher and inflation lower."
It added, "Short-term economic activity could also perform better than expected if AI-related capital investment remains exceptionally strong or if financial conditions ease further, continuing to offset headwinds from geopolitical tensions, trade fragmentation, and weak policy buffers. However, hyped expectations for AI and overheated financial markets could simultaneously sow the seeds of macroeconomic instability."
Regarding country-specific outlooks in this WEO, the U.S. is expected to grow by 2.3% this year, consistent with the April forecast.
The growth forecast for next year was slightly raised to 2.2%, up from 2.1% in April.
The Eurozone is projected to grow by 0.9% this year and 1.2% next year.
The forecast for this year is 0.2%p lower than the 1.1% projected in April, which the IMF attributed to the reflection of significant negative impacts in the first quarter.
The IMF projected Japan's growth at 0.6% this year and 0.7% next year.
For South Korea, the IMF forecast growth of 2.6% this year and 2.5% next year.
These figures are significantly higher than the April projections of 1.9% for this year and 2.1% for next year.
The IMF explained that this result was "driven by strong external demand for semiconductors that outweighs the negative impact of the (Middle East) war."
Emerging and developing economies are expected to slow to 3.8% this year before recovering to 4.5% next year.
While the growth forecast for this year was lowered by 0.1%p from April, the forecast for next year was raised by 0.3%p from 4.2%.
The IMF projected China's growth for this year at 4.6%, a slight increase from the 4.4% forecast in April.
In the Middle East and Central Asia, growth is expected to drop sharply to 0.7% this year before rebounding to 6.5% next year.
In particular, the IMF projected that Iraq, Kuwait, and Qatar, which were hit hardest by energy production and transportation disruptions, would see their economies contract sharply this year before recording double-digit growth next year.
The global inflation forecast for this year is 4.7%, up 0.3%p from the 4.4% projected in April, with a moderation to 3.9% expected next year.
As policy priorities, the IMF recommended restoring price stability through clear communication, central bank independence, and strong financial supervision, while rebuilding fiscal buffers and using fiscal tools cautiously through temporary and targeted support that maintains price signals.
The IMF also advised the need for structural reforms to promote energy security, AI readiness, and domestic rebalancing, as well as strengthened international cooperation to alleviate the burden of persistent tensions.
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