The forecast of the International Monetary Fund is that GDP has achieved, so far in the second quarter of the year, an increase of 2.5%. This growth has significantly contributed to the intervention to increase consumer and investment expenditure in the developed world, and particularly in the United States and Europe. Now, according to the most recent IMF World Economic Outlook, the world economy is in the early stages of recovering gradually from a slowdown that began in 2019. The organization forecasts that continued but moderate global GDP growth should materialize in the next year.
“We are cautiously optimistic about the near-term prospects for the global economy,” said the IMF’s chief economist, Gita Gopinath. “While we are cautiously optimistic, we are prepared to respond to any likely risks that may lie ahead.” Most of this recovery, however, is driven by a pick-up in consumption and investment demand within developed economies, mainly from the United States and Europe. In the United States, consumer spending was bolstered by a strong labor market and rising wages, and investment was driven by tax cuts and low interest rates. The recovery in Europe has been supported by a renaissance of industrial production and a modicum of momentum in consumer spending.
Europe’s largest economy, Germany, is on a strong bounce, notching the economic growth rate at 0.4% during the second quarter. The IMF also points out a recent pick-up in emerging markets, of which GDP growth in China is now 6.1%. The organization cautions, however, that these economies remain sensitive to shocks from outside, which include trade tensions and rising interest rates. “The recovery is, however, fragile and dependent on multiple factors, including global trade policies and financial conditions,” said Gopinath. “We cannot afford to let down our guard and must be ready to share the risks and consequences that could come at any moment.
” Investors welcomed signs of life in the global economy that is struggling with the impacts of slowing global growth, and the Dow Jones Industrial Average shot up 200 points, while the measuring S&P 500 index also gained about 1%. This recovery is expected to extend through the coming year as well, fuelled by further economic reforms and fiscal stimulus measures by governments across the globe. The IMF predicts that global GDP growth is set to reach 3% this year, up from 2.9% in 2019. However, worries about a sustainable recovery are still on the horizon. The IMF goes further to warn that the recent trade tensions between the biggest economies could actually still derail the recovery. There are also the risks of budding interest rates, which create dangers for financial markets.
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“The recovery is not without its challenges,” said Gopinath. “We must remain vigilant and be prepared to respond to any potential risks that may arise.” But for all that, many economists believe there are reasons to think the world economy is on a path to recovery. The latest World Economic Outlook shows signs of improvement in global GDP growth over the next year, led by continuous economic reforms and fiscal stimulus measures.
“The recovery is fragile, but it is also a sign of resilience,” said Michael Gapen at Bank of America Merrill Lynch. “We expect recovery in global GDP growth to continue moving upwards for the next year, driven by ongoing economic reforms and fiscal stimulus measures.” In sum, the global economy has finally given some positive signals in Q2, with an upsurge in GDP growth to 2.5%. This recovery is due to most parts of domestic consumer spending and, to some extent, increased investment in developed economies due to the United States and Europe. Though there are concerns over the sustainability of the recovery, a large number of economists remain adhered to the view that this trend will continue in the coming year on account of ongoing economic reforms and measures on the fiscal stimulus.
