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Rainmaking in the world economy

19 April 2024

Commentary
Edmund O'Sullivan
Former editor of MEED

The biennial IMF World Economic Outlook released on 16 April forecasts that global growth will hold steady at just over 3% in 2024.

That is despite Russia’s war on Ukraine and the risk that Israel’s war on Gaza will trigger a regional conflict and jeopardise oil exports from the region.

This is an unexpected prospect – rather like a meteorologist forecasting that the UAE will get the equivalent of a year’s rainfall in a single day, as it did in mid-April.

A soft landing for the world economy despite the risks is by that standard less surprising. But these things don’t just happen.

Just as the UAE’s greatest flooding incident since records began was exacerbated by creeping climate change, according to experts, global growth is believed to be robust because of determined action to keep prices down, cut inflation and boost the supply of goods and labour.

The challenge to the rosy outlook, however, is not hard to find. Several key stress factors are in the US.

The biggest threat to the IMF’s forecast is from events in the Middle East

American fiscal policy under President Joe Biden has been extremely loose. The US budget deficit to 2030 is forecast to average 6% of GDP. Its debt-to-GDP ratio – now above 100% – will rise for the foreseeable future.

Even the IMF, always reluctant to criticise its biggest shareholder, says this looks unsustainable. 

More than 3 million migrants arrived in the US last year and the proportion of foreign-born residents in America is approaching an historic high. A more contentious issue is that more than 2 million undocumented migrants also entered the US in 2023 and the figure is rising.

Donald Trump is making migration an issue in his campaign to regain the White House. This is fuelling concern among US voters that could precipitate restrictions on immigration.

The biggest threat to the IMF’s forecast is from events in the Middle East. On the night of 13 April, Iran launched drones and missiles on Israel in retaliation for its attack on Tehran’s Damascus consulate two weeks earlier.

Oil prices spiked ahead of Iran’s attack and eased back on expectations that there would be no wider regional conflagration. But higher levels of risk are being built in to forecasts of oil prices, which are around a quarter higher than they were in January. Even without an escalation, oil is heading towards $100 a barrel this summer.

This doesn’t have to happen, however. With concerted international diplomatic efforts on stage and behind the scenes, the world has the capacity to block the path to a new Middle East war and all it entails. 

But does it have the will? 

Main image: Flooding in Dubai remains three days after the severe storm on 16 April  

Connect with Edmund O’Sullivan on Twitter

More from Edmund O’Sullivan:

> New shock treatment for Egypt’s economy
> Syria’s long march in from the cold
> Lebanon’s pain captured in a call from Beirut
> Troubled end to 2023 bodes ill for stability
> The Holy Land and delusions it inspires
> Region to mark golden jubilee of 1973 war
> Gulf funds help reshape football
> When a war crime is denied
> Embracing the new Washington consensus
> Trump, Turkiye and the trouble ahead

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Edmund O’Sullivan

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