Weakest growth of the G7 countries | Luxembourg word

The International Monetary Fund (IMF) sees bleak prospects for Luxembourg’s number 1 trading partner Germany. On Tuesday in Washington, the IMF forecast economic growth of 0.2 percent for the current year. In January, the IMF had expected an increase of 0.5 percent. However, the Monetary Fund slightly improved its forecast for the global economy as a whole – from 3.1 percent to 3.2 percent. “The global economy remains remarkably resilient, with growth remaining stable and inflation returning to target,” it said.

For the Federal Republic of Germany, the IMF is forecasting the weakest growth of all leading Western G7 industrialized countries this year. For 2025, however, the fund expects the German economy to grow by 1.3 percent again. Italy would be at the bottom of the G7 countries with just 0.7 percent.

Global economic growth historically weak

According to the IMF, it is positive that the high inflation has not triggered an uncontrolled wage-price spiral. Nevertheless, global economic growth is historically weak. This is due to short-term factors such as the higher costs of loans or the ongoing consequences of the war in Ukraine or the pandemic. However, given the high level of public debt in many economies, tax increases and spending cuts could further weaken economic activity.

According to the IMF, the economy in the industrial nation USA is developing significantly better than expected. The growth forecast for this year was revised upwards by 0.6 percentage points to 2.7 percent. In the coming year, the world’s largest economy is only expected to grow by 1.9 percent (January: 1.7). The US and several emerging markets “outperformed”. This is due to high private demand and a good situation on the labor markets.

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The IMF believes that China’s economy will be further affected by the ongoing downturn in the real estate sector. Domestic demand will remain weak for some time unless there are far-reaching reforms. As in January, the IMF expects growth of 4.6 percent this year and 4.1 percent for 2025.

The fund has revised its forecast for Russia upwards: the IMF is predicting growth of 3.2 percent this year (January: 2.6 percent), and next year it will only be 1.8 percent (January: 1.1 percent). percent). This is because “the impact of high investment and robust private consumption, supported by wage growth in a tight labor market, is fading,” said the IMF.

Experts recently pointed out that the Russian economy benefits from a high proportion of military spending, which stimulates production. There were also social transfers that boosted consumption. From the point of view of economists, what could prove to be problematic is that Russia is cut off from the international financial system and has only limited access to technologies.

Inflation is falling

The IMF expects an average inflation rate of 2.0 percent for the industrialized nations next year. “It is somewhat worrying that progress towards achieving inflation targets has stalled somewhat since the beginning of the year,” writes IMF economist Gourinchas. This may be a temporary setback, but there are reasons to remain vigilant.

The IMF warns that increasing geopolitical fragmentation in supply chains could result in both lower growth and higher inflation. According to the fund, if growth in China stalls permanently, this could also weaken trading partners. Another worrying development is the growing gap between many poorer countries and the rest of the world.

For Luxembourg, the IMF expects economic growth of 1.3 percent this year and 2.9 percent next. Finance Minister Gilles Roth will take part in the spring meetings of the IMF and the World Bank (WB) from April 17 to 19, 2024. According to the Ministry of Finance, the discussions primarily revolve around current international challenges such as the geopolitical situation, the global economic outlook – in particular the risk of geoeconomic fragmentation -, international cooperation and climate change.