The US economy continues to thrive, while the Eurozone's economy stagnates. This picture emerges from the International Monetary Fund's (IMF) latest economic assessments.
This is in line with the mid-term adjustment of estimates for the global economy given by the IMF in October during the fund's annual meeting in Marrakesh, Morocco. This time the update was delivered in Johannesburg, South Africa. In an update of its estimates, the IMF revised its forecast for the US upwards. U.S. gross domestic product is expected to grow 2.1 percent this year, while 1.5 percent is expected in October. The eurozone economy, by contrast, projects annual growth of just 0.9 percent in 2024 — 0.3 percentage points below the October IMF forecast.
Next year, the IMF expects, the economies of both the US and the Eurozone will show growth of 1.7 percent.
The extent to which the European economy is reeling was evident on Tuesday from data from the European Union's statistics agency, Eurostat. In the fourth quarter of 2023, euro area GDP did not increase compared to the previous quarter. Germany, Europe's largest economy, is doing the worst. The German economy will shrink by 0.3 percent on an annual basis in 2023. The IMF predicts GDP growth in Germany of 0.5 percent for 2024 (that forecast was barely 1 percent in October).
Dutch statistics are weak
The Dutch economy also shows weak figures. It grew barely last year, at 0.2 percent a year, according to IMF data. This year, the Fund expects GDP growth to increase by 0.7 percent – 0.4 percentage points lower than the Fund expected in October.
The US economy is currently growing faster than the European economy for several reasons. The US government is stimulating the economy on a large scale, including an aggressive industrial policy. European industry on the other hand has been affected by rising energy prices. The US population is also growing rapidly, fueling economic growth.
The global economy will grow by 3.1 percent this year. This is slightly higher than the rate forecast by the IMF in October (2.9 percent), but lower than the general growth rate of 3.8 percent for the years 2000-2019 (the year before the corona pandemic).
This is due to China's growth slowdown. According to IMF forecasts, China's economic growth will reach 4.6 percent this year. That's slightly better than previously expected (4.2 percent), but well below the 6 percent growth rates that were typical before the pandemic. The country is struggling with a crisis in the real estate sector and weak consumer confidence.
The Russian economy is heating up
On Tuesday the IMF revised upward for Russia. The country's economy is growing by 2.6 percent this year — significantly higher than the 1.1 percent the IMF had expected in October. This is after Russia's GDP has already grown significantly by 3 percent in 2023. Only in 2022, the year Russia invaded Ukraine, did the Russian economy show a limited contraction (1.2 percent on an annual basis).
Many economists, both in Russia and certainly in the West, have faced significant economic damage in Russia due to Western sanctions against the country. Instead something else happened. Russia proved adept at avoiding sanctions on imports of technology and exports of oil. Meanwhile, President Putin's government increased government spending, particularly on the military and arms production.
Arms production, mobilization of Russian troops and emigration have resulted in huge labor shortages. This shortage means that workers in Russia can make higher wage demands. So wages have grown significantly, and so has the purchasing power of many Russians. This has increased consumption. Recently, the Russian Central Bank warned of “overheating” of the economy.
Can the European economy still keep up with the US economy?
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