The International Monetary Fund (IMF) announced on Tuesday that the global fight against inflation is nearing victory, signaling a pivotal moment for the global economy. Pierre-Olivier Gourinchas, the IMF's chief economist, presented this optimistic perspective during the release of the latest World Economic Outlook report.
According to the IMF, headline inflation is forecast to decline from its peak of 9.4% year-on-year in 2022 to 3.5% by the end of 2025. This projected rate aligns closely with pre-pandemic averages, providing central banks with an opportunity to lower policy interest rates.
Shift to Fiscal Stability
Gourinchas emphasized the need for governments to focus on fiscal discipline after years of accommodative policies. “It is now imperative to stabilize debt dynamics and rebuild fiscal buffers,” he stated. The IMF warned that current fiscal strategies in major economies like the United States and China may fall short of achieving debt stabilization.
Additionally, the report urges nations to adopt growth-enhancing reforms while avoiding protectionist tariffs that could impede progress.
Moderate Growth Outlook
Despite progress in controlling inflation, the IMF predicts global economic growth to remain subdued over the next five years, averaging a "lackluster" 3.1%. Contributing factors include a weaker growth forecast for China and challenges in regions like Latin America and the European Union.
Since April, the global economic outlook for the next 14 months remains largely unchanged, with growth stabilizing around 3%. The United States is expected to experience stronger growth, revised upward to 2.8% for 2024 due to robust consumer spending. However, a slowdown to 2.2% is anticipated in 2025.
Key Forecasts and Economic Trends
The IMF projects a convergence in the performance of major economies in the coming years. Notable monetary policy adjustments include:
- The U.S. Federal Reserve reducing its policy interest rate to 2.9% by Q3 2026.
- The European Central Bank lowering its rate to 2.5% by mid-2025.
- Japan’s policy rate rising toward 1.5% in the medium term, indicating a significant shift in its monetary policy approach.
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 |
Policy Actions for Future Stability
Gourinchas concluded the report by emphasizing the importance of policy choices in shaping the trajectory of the global economy. “The choices made today will determine the trajectory of the global economy for years to come,” he said, reinforcing the need for fiscal prudence and reform-driven growth.
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