IMF downgrades Pakistan’s GDP growth forecast to 3%

KARACHI, JAN 18 (DNA):The International Monetary Fund (IMF), has downgraded Pakistan’s gross domestic product (GDP) growth projections for 2025 to 3% from the previous forecast of 3.2% in October 2024.

In its “World Economic Outlook Update Global Growth: Divergent and Uncertain,” the IMF said that it expects the country’s GDP growth to remain at 4% in 2026.

The IMF’s growth projection is similar to that of the Asian Development Bank (ADB) which last month revised Pakistan’s growth forecast to 3% during the fiscal year 2024-25 as opposed to the previous figure of 2.8% projected in September 2024.

The ADB, in its Asian Development Outlook (ADO) for December 2024, had attributed the revised growth figures to greater macroeconomic stability which it said would support recovery.

The lender also said that a more accommodating monetary policy because of faster-than-expected easing of inflationary pressures should further support economic activity through rebounding private investment and noted that industrial output growth was projected to accelerate with the suspension of import management measures, higher investor confidence, and easier access to foreign exchange.

Meanwhile, the IMF in its latest report has projected a global growth rate to be at 3.3% in 2025 and 2026 — a figure below the historical average of 3.7%.

The Washington-based lender said that the forecast for 2025 was “broadly unchanged on account of an upward revision in the United States offsetting downward revisions in other major economies”.

With regard to global inflation, it said that it was expected to decline to 4.2 % in 2025 and to 3.5% in 2026.

However, noting that although disinflation continued around the world, the IMF said that there were signs that progress was stalling in some countries and that elevated inflation was persistent in a few cases.

“The global median of sequential core inflation has been just slightly above 2% for the past few months”.

Highlighting an increase in economic policy uncertainty, the report said that “expectations of policy shifts under newly elected governments in 2024 have shaped financial market pricing in recent months” and that “bouts of political instability in some Asian and European countries have rattled markets and injected additional uncertainty regarding stalled progress on fiscal and structural policies.”.

Forecasting a 2.6% decline in energy commodity prices in 2025, the IMF said that non-fuel commodity prices were expected to increase by 2.5% due to bad weather affecting large producers.

Global economies

The report said that the GDP growth in the United States is projected to be 2.7% — 0.5% higher than the October forecast — in 2025 which will shrink to 2.1% in 2026.

Meanwhile, in the euro area, it said that “weaker-than-expected momentum at the end of 2024, especially in manufacturing, and heightened political and policy uncertainty explain a downward revision of 0.2% point to 1% in 2025”.

However, the growth is set to increase to 1.4% in 2026 due to stronger domestic demand and a reduction in uncertainty.

In the United Kingdom, 1.6% growth is projected for 2025 followed by 1.5% next year.

China’s GDP growth, as per the IMF’s forecast, is expected to be 4.6% in 2025 and 4.5% in 2026 with the lender’s Chief Economist Pierre-Olivier Gourinchas stressing that the world’s second-largest economy needed to make domestic demand a bigger engine of its growth.

“The Chinese economy needs to pivot to a more domestically-driven engine of growth,” said Gourinchas.

India’s growth is projected to be solid at 6.5% in both 2025 and 2026, as projected in October and in line with potential.