The most recent International Monetary Fund (IMF) analysis has projected that Saudi Arabia’s economic growth will surpass the global average in 2025.
According to the IMF’s World Economic Outlook update, the Kingdom’s output growth is projected to increase by 4.7% in 2019. This growth rate is higher than the global prediction of 3.3%. However, this estimate for Saudi Arabia is lower than an earlier forecast made in April, which anticipated the country would expand at a rate of 6% by 2025.
Additionally, the IMF reduced its 2024 prognosis for the Kingdom; in its most recent report, it went from 2.6% in its previous estimate to 1.7%. The Washington-based organisation maintained its earlier estimate that the global output will grow at a rate of 3.2% in 2024 and 3.3% in 2025, but it also labelled the global economy as being in a “sticky spot”.
The IMF stated that Saudi Arabia’s growth estimate for 2024 has been lowered downward by 0.9% points; the revision reflects mainly the continuation of oil production curbs.
As cyclical causes fade and activity becomes more in line with its potential, the varied impetus in activity at the beginning of the year has helped to somewhat narrow the output dispersion among economies. The July 2024 update said that “inflation in services prices is impeding disinflationary progress and complicates the normalisation of monetary policy.”
The IMF went on, saying, “In the context of rising trade tensions and heightened policy uncertainty, upside risks to inflation have thus intensified, raising the potential of higher-for-even-longer interest rates.”
Careful sequencing of the policy mix is necessary to establish price stability and restore depleted buffers to handle these risks and maintain growth.
What lies ahead for world economy?
Divergent patterns in major economies shaped economic projections for 2024 and beyond. Less consumer spending and unfavourable net trade dynamics caused the United States to experience a more severe slowdown than forecast earlier in the year.
The revised growth estimate for 2024 is 2.6%, which is 0.1% points less than the April estimate. The revised estimate for 2025 is 1.9%. More pressure is about to come from cooling labour markets and tightening budgetary policy. Particularly in the services sector, inflation is still obstinate, and any changes to monetary policy are postponed. As a result, in terms of relaxing measures, it is trailing other mature economies.
The services sector, whose growth is predicted to reach 0.9% in 2024 and climb to 1.5% in 2025, will be crucial to Europe’s recovery. This hopeful prognosis is supported by stronger consumer demand, which is reinforced by improving financing conditions and rising real salaries. Persistent deficits in manufacturing, particularly in Germany, point to a more complex recovery across industries.
Reviving domestic consumption and strong export performance are the main drivers of China’s economy’s resiliency, with a revised growth prediction of 5% for 2024. However, growth is expected to fall to 4.5% in 2025 and beyond as the nation deals with changing demographics and a decline in productivity improvements.
Forecasts indicate that growth in emerging markets and developing economies will reach 4.3% in 2024, primarily due to robust performance in Asia, namely in China and India. Higher than the 6.8% growth estimate from April, the revised growth estimate for India for 2024 is now 7.0%, thanks to increased private consumption and favourable spillover effects from 2023.
In 2024, the UK expects growth of 0.7%, which will increase to 1.5% in 2025. The enduring fiscal restraint and lingering effects of past inflationary pressures on investment and consumer behaviour determine the economic outlook. Due to temporary supply interruptions and muted private investment, Japan’s revised GDP prediction for 2024 is now 0.7%, down from 0.9% in April.
However, strong salary settlements are expected to drive private spending to rebound by the second half of the year.
Global commerce and its impact on regions
According to IMF research, regional conflicts and oil production are significant obstacles to the economic prospects of the Middle East and Central Asia. Prolonged warfare has greatly diminished Sudan’s economic outlook, as well as that of Saudi Arabia.
On the other hand, in different areas, like Brazil, where rehabilitation efforts support economic expectations in the wake of severe flooding and structural reasons like higher hydrocarbon output, there have been upward adjustments.
The IMF continued, “Global trade growth is estimated to recover to approximately 3.25% annually in 2024–2025 and align with global GDP growth again.”
The first quarter of this year’s rise is probably going to level out because manufacturing activity is still quite low. Forecasts indicate that the global trade-to-GDP ratio will be steady despite a noticeable increase in cross-border trade restrictions influencing it between far-off geopolitical blocs.
Monetary policy and inflation
The inflation of service prices is making the normalisation of monetary policy more difficult, which is a challenge to global disinflation efforts. The research emphasised that while goods prices have deflation, higher-than-average inflation in service costs has persisted.
According to the updated prediction, the rate of deflation in advanced economies will decrease in 2024 and 2025. This is a result of increased commodity costs and anticipated more persistent price inflation for services, according to the international body. By the end of 2025, headline inflation is expected to return to the target due to the gradual cooling of the labour market and the anticipated decrease in energy prices.
“We expect price increases to continue at high levels in developing economies and emerging markets, with a slower decline than in developed nations,” IMF stated.
For the average emerging market and developing country, inflation has almost reached pre-pandemic levels, partly because of falling energy costs.
The recent International Monetary Fund analysis provides a comprehensive view of economic projections for various countries and regions. It highlights the challenges and opportunities facing global economies, including the impact of regional conflicts, oil production, trade dynamics, and monetary policy.
The report emphasises the need for careful policy sequencing to ensure price stability, restore buffers to handle risks, and maintain sustainable growth. Additionally, it underlines the importance of understanding divergent patterns in major economies and their implications for future economic growth. Overall, the IMF’s insights serve as valuable guidance for policymakers, businesses, and individuals navigating the complex landscape of the world economy.