- | 11:00 am
IMF urges policy response to darkening global outlook
Global growth may hold steady as inflation recedes, but a shift in policy gears is needed amid weak prospects and rising threats, IMF said
Global economic growth is projected to hold steady as inflation recedes, but amid weakening prospects and rising threats, the world needs a shift in policy gears, the IMF’s chief economist said on Tuesday.
Speaking at the launch of the World Economic Outlook, Pierre-Olivier Gourinchas said the outlook is dominated by downside risks, including escalating regional conflicts, especially in the Middle East, shifts toward trade and industrial policies that could cut economic output, and a sharp fall in migration to advanced economies. All of these could fan inflationary pressure and trigger a sudden tightening of global financial conditions, he said.
According to the IMF’s latest outlook, global growth is projected at 3.2% this year and next, but some developing economies have seen sizable downward growth revisions, often tied to intensifying conflicts or climate shocks.
Policy pivots
Policymakers must act on three fronts, Gourinchas said. The first shift, on monetary policy, is underway already as major central banks cut interest rates and move toward a neutral stance.
The second shift is on fiscal policy. After years of loose fiscal policy in many countries, it’s time to stabilize debt and rebuild much-needed fiscal buffers, Gourinchas said.
And finally, policymakers must pursue growth-enhancing reforms to lift medium-term prospects from the lowest level in decades. “Economic growth must come…from ambitious domestic reforms that boost innovation, human capital, improve competition and resource allocation,” Gourinchas told the briefing. “This is the only way we can address the many challenges we face.”
On inflation, the multilateral lender said the global battle against price rise has largely been won, even if price pressures persist in some countries. After peaking at 9.4% year-on-year in the third quarter of 2022, IMF projected headline inflation declining to 3.5% by the end of next year, slightly below the average during the two decades before the pandemic.
In most countries, inflation is now hovering close to central bank targets, paving the way for monetary easing across major central banks, it said.
In advanced economies, growth in the US is strong, at 2.8% this year, but will revert toward its potential in 2025. For advanced European economies, a modest growth rebound is expected next year, with output approaching potential, it said.
The growth outlook is “very stable” in emerging markets and developing economies, at 4.2% this year and next, with continued robust performance from emerging Asia, it added.
Despite the good news on inflation, downside risks are increasing and now dominate the outlook. An escalation in regional conflicts, especially in the Middle East, could pose serious risks for commodity markets, the IMF projected.
Shifts toward undesirable trade and industrial policies can significantly lower output relative to our baseline forecast. Monetary policy could remain too tight for too long, and global financial conditions could tighten abruptly, it added.
In India, GDP growth may moderate from 8.2% in 2023 to 7% in 2024 and 6.5% in 2025, “because pent-up demand accumulated during the pandemic has been exhausted, as the economy reconnects with its potential,” it said.
Last week, the IMF flagged concern over global public debt, which is expected to reach $100 trillion, or 93% of world GDP, by the end of the year, primarily driven by the US and China.
More Top Stories:
