While the International Monetary Fund (IMF) was releasing data on global economic projections this Tuesday, someone in the Kremlin would surely be celebrating.
Because Russia aims for 2.6% growth this year, which exceeds that of most countries that have imposed sanctions on it for the war in Ukraine. The IMF highlights that the volume of oil exports is sustained (evidently, despite the Western embargo), in addition to being able to count on an activity supported by public spending on defense.
The economic data for 2024 are eloquent: Russia will grow almost three times more than the Europeans, who have implemented up to 16,000 sanctions against the Russians, since the eurozone will rebound by a modest 0.9%. “All in all, the performance of the Russian economy is lower than it used to be before the war,” the Fund's economists point out. But it is still a small victory, even if it is countable.
If the war in Ukraine seems to have taken a greater toll on Europe than on the Russians, the other war, the one in the Middle East, has unforeseeable consequences. The organization expects Israel's gross domestic product to grow 1.6% this year, compared to 3% in its October report, before the conflict began.
Nor can it be ruled out that there is contagion to other countries. In the event of an extension of a military conflict in the region, global inflation could rise 70 basis points in 2024. Oil prices would rise up to 15% more. But underlying inflation could also rise by up to 30 basis points, due to disruptions in maritime transport and rising costs. The Fund's estimates foresee, in this case, an increase in freight rates of 150%. As a consequence, interest rates could be up to 40 basis points higher in 2025 than initially expected. This would affect the purchasing power of consumers and cause a loss of global GDP of 0.4%.
Furthermore, Europe's weakness is not only with respect to Russia, but the economic gap with the United States increases. Because the American locomotive pulls harder than expected, with domestic consumption and the labor market as its pillars. The IMF has improved US growth by six tenths, to 2.7%. A pace that almost doubles that of most G-7 economies.
“The exceptional recent American performance is certainly impressive and an important driver of global growth,” the report maintains. As already announced on Friday, Spain stands out with 1.9% and 2.1%, for this year and the next. Among the large industrialized economies, only the US and Canada will grow more than Spain between now and 2025.
Many countries will have elections this year and this element, for the Fund, is a factor of instability. For two reasons. First, due to the rise of populism, as several surveys point out. “In the context of the upcoming elections, many countries are preparing to adopt measures to raise barriers to the international flow of workers, which could exacerbate the labor crisis, labor shortages and inflationary pressures. Likewise, tariff increases could trigger retaliation, increase costs and harm business profitability and consumer well-being,” the IMF writes. Furthermore, closer to electoral events – they remember – governments tend to be more generous and increase public spending. “These fiscal expansions could also increase inflation and this would translate into higher interest rates, which would increase the difficulty of reducing debt.”
By the way, global growth this year and next will be, according to the IMF, at 3.3%, a stable pace but lower than the average of the last 20 years.
