October 22, 2024 The International Monetary Fund (IMF) announced on Tuesday that the global battle against inflation has largely been won,...
October 22, 2024
The International Monetary Fund (IMF) announced on Tuesday that the global battle against inflation has largely been won, marking a significant milestone for the world economy. Pierre-Olivier Gourinchas, the IMF's chief economist, shared the optimistic outlook during the release of the latest World Economic Outlook report.
According to the IMF, headline inflation is projected to decline from a peak of 9.4% year-on-year in 2022 to 3.5% by the end of 2025. This anticipated rate falls slightly below the average inflation levels experienced in the two years prior to the COVID-19 pandemic. The reduction brings inflation closer to the targets set by central banks in most countries, creating room for monetary authorities to lower policy interest rates.
Gourinchas emphasized the need for governments to shift focus toward reducing budget deficits. "After years of accommodative fiscal policies, it is now imperative to stabilize debt dynamics and rebuild much-needed fiscal buffers," he stated. The IMF pointed out that existing fiscal plans in major economies like the United States and China are insufficient to achieve debt stabilization.
The report also urges countries to implement growth-enhancing reforms and avoid imposing tariffs on imports, which could hinder economic progress. Despite the positive developments in inflation control, the IMF warns that global growth prospects over the next five years remain subdued, projected at a "lackluster" 3.1%. This outlook is not only due to a weaker economic forecast for China but also deteriorating medium-term prospects in regions such as Latin America and the European Union.
Since the IMF's last meeting in April, there has been little change in the global economic outlook for the next 14 months, with growth hovering around 3%. In the United States, the growth forecast has been revised upward to 2.8% for this year, driven by stronger consumer spending. While growth is expected to slow to 2.2% in 2025, it remains solid compared to other major economies.
The performance of leading economies is expected to align more closely in the coming years. The IMF projects that the U.S. Federal Reserve will reduce its policy interest rate to 2.9% by the third quarter of 2026. Similarly, the European Central Bank is anticipated to lower its rate to 2.5% by June 2025. Contrarily, Japan's policy rate is expected to rise toward 1.5% over the medium term, signaling a shift in its monetary policy stance.
Latest IMF Forecasts for Key Economies:
| Region | 2023 Growth (%) | 2024 Growth (%) | Change from July 2024 Forecast |
|---|---|---|---|
| World | 3.3 | 3.2 | 0.0 |
| United States | 2.9 | 2.8 | +0.2 |
| China | 5.2 | 4.8 | -0.2 |
| European Union | 0.6 | 1.1 | -0.1 |
| Japan | 1.7 | 0.3 | -0.4 |
| United Kingdom | 0.3 | 1.1 | +0.4 |
| Germany | -0.3 | 0.0 | -0.2 |
| India | 8.2 | 7.0 | 0.0 |
| Brazil | 2.9 | 3.0 | +0.9 |
| Russia | 3.6 | 3.6 | +0.4 |
Note: The table includes select countries with notable changes in growth forecasts.
Gourinchas concluded by highlighting the importance of policy actions in shaping future economic outcomes. "The choices made today will determine the trajectory of the global economy for years to come," he remarked.
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