IMF warns of inflation’s tenacity, weaker global growth in 2024
The fund sees global growth of 2.9% for next year, down 0.1% from its outlook in July
Washington: The International Monetary Fund lifted its global inflation forecast for next year and called for central banks to keep policy tight until there’s a durable easing in price pressures.
The IMF boosted its projection for the pace of consumer price increases across the world to 5.8 per cent for next year in its World Economic Outlook released Tuesday, up from 5.2 per cent seen three months ago. The call for vigilance on inflation comes as it also trimmed the forecast for economic growth in 2024.
In most countries, the IMF, an institution charged with monitoring the health of the global economy, foresees inflation remaining above central bank targets until 2025.
The forecasts are a much-anticipated event at annual IMF-World Bank meetings, which are taking place this week in Marrakech, Morocco - the first time they’ve been held in Africa in 50 years.
Central banks in major economies including the US and European Union have raised interest rates aggressively for more than a year to curb inflation that reached 8.7 per cent globally in 2022, the highest level since the mid 1990s.
The surge was spurred by factors including coronavirus pandemic supply chain disruptions; fiscal stimulus in response to the global lockdown; subsequent strong demand and a tight labor market in the US; and food and energy disruptions from Russia’s attack on Ukraine, which had a particular effect in Europe and the UK.
The fund sees global growth of2.9%
Its forecast for 2023 is unchanged at 3 per cent.
Since April, the fund has been warning that medium-term prospects have weakened. Factors holding back the expansion include the long-term consequences of the pandemic; the attack on Ukraine; the breakdown of the world economy into blocs; and the central bank policy tightening.
“We see a global economy that is limping along, and it’s not quite sprinting yet,” Gourinchas said.
Yet the steadiness in the IMF’s aggregate projection for growth masks some important changes in the individual country forecasts that underpin it. The US, the world’s largest economy, had its projection for this year raised to 2.1 per cent from 1.8 per cent in July and next year’s estimate increased to 1.5 per cent from 1 per cent, based on stronger business investment in the second quarter and resilient consumption growth.
The IMF sees the US unemployment rate rising to a peak of 4 per cent by the last quarter of 2024 - less than the 5.2 per cent projected in April, “consistent with a softer landing than earlier expected for the US economy.”
On the other hand, the growth forecast for China, the world’s second-largest economy, was cut to 5 per cent from a 5.2 per cent estimate for 2023 and to 4.2 per cent from 4.5 per cent in 2024. China’s economy is losing momentum because of declines in real estate investment and housing prices that endanger government revenues from land sales, as well as weak consumer sentiment.
“Restoring confidence, cleaning up that sector is going to require forceful action by the authorities, and we’ve seen some move in that direction, but more is needed,” Gourinchas said. “If that doesn’t happen, then there is a chance that problem could fester and become worse.”
The fund sees trade growth of 0.9 per cent this year, down from 2 per cent expected in July and compared with a 4.9 per cent average in the two decades before the pandemic. That reflects shifts toward domestic services, lagged effects of dollar appreciation, which slows trade owing to the widespread invoicing of products in dollars, and rising trade barriers.