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The US is on track to grow at double the rate of any other G7 country this year, according to IMF forecasts, as the strength of the world’s biggest economy rocks global markets.

Strong household spending and investment will help propel US growth to 2.7 per cent this year according to the fund’s latest World Economic Outlook.

The figure is higher than the 2.5 per cent estimated for 2023 and represents a 0.6 percentage point upgrade on the previous forecast.

The projections highlight the US economy’s role as the driver of global growth, as investors across the world scale back their expectations for Federal Reserve interest rate cuts.

The IMF said the next best performer in the G7 this year would be Canada, with growth of 1.2 per cent.

It added that Germany’s expansion would be the weakest among the G7 at 0.2 per cent. Japan is forecast to experience growth of 0.9 per cent, while the UK is set to expand by just 0.5 per cent after flatlining in 2023.

Global stock markets sank and Asian currencies were hit by a rising dollar on Tuesday, following a Wall Street sell-off prompted by strong US retail sales figures suggesting the Fed may cut rates this year by less than previously thought.

Pierre-Olivier Gourinchas, IMF chief economist, told the Financial Times that, while the “baseline” was still three quarter-point cuts this year, the Fed could be thrown off course by the surging US economy.

“If the inflation pressures persist beyond what we have right now, in the US in particular, then we would expect that they would have later cuts and maybe fewer cuts,” he said.

Gourinchas added that Fed rate cuts could be delayed from this summer to the fourth quarter — potentially after November’s presidential election — if inflation overshot IMF expectations.

At present, investors expect the Fed to cut rates by September and possibly more than once by the end of the year.

The recent bumper US growth has helped the global economy avoid a long-feared hard landing following interest rate rises.

But strong demand has also pushed up price pressures, in contrast with the UK and eurozone.

The IMF said US inflation would continue to recede but lifted its forecast for this year to 2.9 per cent, above the 2.4 per cent predicted for the eurozone and 2.5 per cent in the UK.

Gourinchas said the European Central Bank and the Bank of England could cut rates sooner because they did not face such a “strong demand-driven component of inflation”. 

Laying out its projections as central bank governors and finance ministers attend joint IMF/World Bank spring meetings in Washington, the fund found that global economic activity had proven “surprisingly resilient” even after central banks boosted rates to bear down on inflation.

But it also warned of risks to the global recovery, notably the possibility of fresh increases in commodity prices resulting from the conflict in the Middle East. 

The broader picture is still one of tepid expansion by historical standards, with world growth projected to remain at 3.2 per cent this year and next, in line with 2023’s estimate. 

The IMF said the long-term consequences of the coronavirus pandemic, Russia’s full-scale invasion of Ukraine, weak productivity growth and increasing “geoeconomic fragmentation” were hampering expansion.  

The cause of disinflation in advanced economies was being aided by a stronger than forecast rise in employment, in part because of inflows of migrants, the IMF said. There had been faster growth in foreign-born rather than domestic workforces since 2021 in economies including Canada, the eurozone, the UK and the US, it found.

Among other leading economies, the IMF predicted China’s growth would slow this year to 4.6 per cent from 5.2 per cent in 2023, while forecasts for India, one of the world’s fastest-growing economies, have been upgraded to 6.8 per cent for this year.

Russia received one of the biggest upgrades, with growth now projected to be 3.2 per cent this year, 0.6 percentage points higher than previously expected, followed by growth of 1.8 per cent in 2025. The IMF’s doubling of its forecast for Russian growth in its January outlook fed concerns among G7 countries that sanctions were failing to damage Vladimir Putin’s war economy. 

Gourinchas said Russian expansion was being partly driven by strong oil export revenues, coupled with firm private investment.

“Domestic demand is very strong,” he said. “The sanctions are still degrading and having an impact gradually on the Russian economy, but the economy itself is quite resilient.”

President Biden greets China’s President President Xi Jinping Nov. 15, 2023, in California. China has agreed to curtail shipments of the chemicals used to make fentanyl, the drug at the heart of the U.S. overdose epidemic.

Doug Mills/AP

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Doug Mills/AP

President Biden greets China’s President President Xi Jinping Nov. 15, 2023, in California. China has agreed to curtail shipments of the chemicals used to make fentanyl, the drug at the heart of the U.S. overdose epidemic.

Doug Mills/AP

Investigators for a U.S. House committee released a report on Tuesday detailing what they describe as new evidence the Chinese government is continuing to “directly” subsidize “the manufacturing and export of illicit fentanyl.”

According to the report, Chinese officials encourage production of precursor chemicals by giving “monetary grants and awards to companies openly trafficking illicit fentanyl materials.”

Specifically, researchers found companies making fentanyl precursors and analogues could apply for state tax rebates and other financial benefits after exporting the product.

Street fentanyl has driven a devastating surge in fatal overdoses, killing tens of thousands of people in the U.S every year.

The Biden administration and drug policy experts say China is the primary source of precursor chemicals used by Mexican drug gangs to manufacture the powerful street opioid.

Last November, U.S. officials said their counterparts in China promised to crack down on the illicit fentanyl industry.

“We’re taking action to significantly reduce the flow of precursor chemicals and pill presses from China to the Western hemisphere,” President Joe Biden said, following a summit with Chinese President Xi Jinping in California.

“It’s going to save lives and I appreciate President Xi’s commitment on this issue.”

But five months after that announcement, a report produced by a bipartisan team with the U.S. House Select Committee on the Chinese Communist Party, found the tax rebates and other incentives appear to still be in place.

China’s role in fentanyl production previously documented

Many of the findings were known previously among drug policy experts. They appear to confirm reports that the Chinese government bureaucracy is aiding the production and export of fentanyl-related substances.

In a 2019 book, Fentanyl, Inc., journalist Ben Westhoff wrote about “a series of tax breaks, subsidies and other grants” that benefit Chinese companies who produce fentanyl analogues.

An NPR investigation in 2020 found a web of Chinese companies whose employees were openly marketing fentanyl precursors and selling them to clients in Mexico and the United States.

However, despite U.S. diplomatic efforts to stem the production of precursors, China has done very little to enforce international and domestic laws banning fentanyl production.

According to the House report released Tuesday, Chinese officials appear to have taken steps to conceal financial incentives linked to fentanyl, but failed to end them.

One of the investigators told reporters it was clear companies were contributing directly to the overdose crisis by leveraging benefits available through China’s complex bureaucracy.

“The fact that these [precursor chemicals] are subsidized solely for export is what allows them to go through so cheaply,” said the staffer, who spoke on background in order to outline details of the report ahead of a committee hearing today.

Investigators say they found evidence that many of the subsidized companies are marketing their products directly to illicit buyers in Mexico, using crypto-currencies to help conceal transactions.

“Rather than investigating drug traffickers, [Chinese] security services have not cooperated with U.S. law enforcement, and have even notified targets of U.S. investigations when they received requests for assistance,” said the report.

NPR requested comment from the White House late Monday, but received no reply before press time.

The House report points to a number of possible motives for the Chinese government allegedly aiding the production of illicit fentanyl.

“The fentanyl crisis has helped [Chinese Communist Party-linked] organized criminal groups become the world’s premier money launderers, enriched the [Chinese] chemical industry, and has had a devastating impact on Americans,” investigators concluded.

Tuesday’s committee hearing will include testimony about China’s role in illicit fentanyl trafficking from former U.S. Attorney General William Barr, Ray Donovan, a former Drug Enforcement Administration Official, and David Luckey, a drug policy expert with the RAND Corporation.

With more than 110,000 drug overdose deaths every year in the U.S., fentanyl has become a major flashpoint in the 2024 presidential campaign. Staff-members involved in producing this latest report described the investigation as a bi-partisan effort.

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Microsoft has agreed to invest $1.5bn in Abu Dhabi artificial intelligence group G42, its latest big bet on the technology that underscores deepening collaboration between the US and United Arab Emirates.

The agreement gives Microsoft a minority stake in G42, and its vice-chair and president Brad Smith will have a seat on its board. It comes after G42 severed its links to Chinese hardware suppliers, which had been the subject of scrutiny by US lawmakers.

The investment will strengthen Abu Dhabi’s position as an AI hub, and is a sign of the oil-rich emirate’s ambitions in the technology. It also shows how the Gulf, long seen by many in Silicon Valley as an easy source of funding, is increasingly regarded as a credible technology partner.

“Given the importance of the technology and given how important it is to the two countries and two governments, we’ve taken this first step in close collaboration with the governments of both the UAE and the United States,” Smith said. “We will take the next step and following steps in close collaboration with them as well.” 

Asked if the Microsoft deal was a prize for cutting ties with China, Peng Xiao, G42’s chief executive, said: “I would focus on our decision to form this partnership with Microsoft to really develop our capabilities on a global scale. Less focus on what we choose not to do.”

As part of the deal, G42 would use Microsoft’s cloud computing platform Azure “as the backbone for the development and deployment of AI services we provide to all of our customers”, said Xiao.

Smith said the companies planned to partner at a later stage on building out data centres in other countries. They will also support a $1bn fund for AI developers.

“Microsoft’s large investment is not something we do without a lot of thought,” Smith added. “And this decision reflects confidence by our company in the UAE as a country, in G42 as a company, and in Peng as its CEO.”

Chaired by the UAE’s powerful national security adviser Sheikh Tahnoon bin Zayed al-Nahyan, who oversees a sprawling business empire, G42 is central to Abu Dhabi’s AI ambitions and is backed by Abu Dhabi sovereign investor Mubadala.

G42’s companies range from data centres to healthcare, and it has produced an Arabic large language model called Jais.

AI leaders have been increasingly drawn to Abu Dhabi by its grand plans and deep pockets. It recently launched an investment company dedicated to AI deals, called MGX.

Sam Altman, OpenAI’s chief executive, has visited several times, including this month, and has held discussions with UAE investors including Sheikh Tahnoon for a scheme to boost chip production, likely to cost billions of dollars.

Seattle-headquartered Microsoft is OpenAI’s main partner, having invested $13bn in the start-up, much of it in the form of credits for Microsoft’s cloud.

Microsoft is positioning itself at the centre of an AI boom following the launch of OpenAI’s ChatGPT chatbot in November 2022. It says it sees the G42 investment as a launch pad to other regions. “By coming together, I think we can accelerate very substantially the arrival of AI services in the Global South,” said Smith.

Satya Nadella, Microsoft’s chief executive, regards AI dominance as critical to getting ahead of rivals, and a way to eat into arch-rival Google’s dominance in search.

Nadella has sought to corner the market by investing heavily. Last month, Microsoft struck a $650mn deal to hire the founders and dozens of researchers and engineers at AI start-up Inflection.

Microsoft has been the biggest spender during an investment frenzy over the past 18 months. According to private markets data provider PitchBook, investment into generative AI roughly quadrupled between 2022 and 2023.

The bulk of the $27bn raised by AI start-ups last year came from Big Tech companies. As well as Microsoft’s $10bn investment in OpenAI, Amazon and Google agreed multibillion-dollar deals with Anthropic, another San Francisco-headquartered AI company.