The IMF said on Tuesday (16 July 2024) in Washington DC that it expects global economic growth to grow by 3.2% in 2024 and 3.3% in 2025, in line with its April 2024 World Economic Outlook (WEO) forecast.
Services inflation is impeding disinflation progress, making monetary policy normalization difficult. Intensifying trade tensions and growing policy uncertainty increase the risks of rising inflation and the likelihood of interest rates rising for a longer period. The policy mix therefore needs to be carefully sequenced to achieve price stability and replenish diminishing buffers.
“The good news is that going forward, as the major inflationary shock recedes, inflation has fallen without a recession. The bad news is that while energy and food price inflation has almost returned to pre-pandemic levels in many countries, overall inflation has not yet returned.” IMF Chief Economist Pierre-Olivier Grunschas made the remarks at a press conference marking the release of the July update of the World Economic Outlook.
Overall, the IMF still sees the global economy growing at a weak 3.2% this year, unchanged from its previous forecast in April and slightly below the 3.3% growth in 2023.
But with many major countries facing elections this year, the IMF has stressed the need for responsible government spending and credible debt reduction.
“Many countries’ finances have weakened and become more fragile than expected before the pandemic. A key priority is to gradually and steadily rebuild buffers while protecting the most vulnerable. Doing so will free up resources to address new spending needs, including for climate change and national and energy security,” said Goulinchas, head of the IMF’s research department.
In addition to concerns about ongoing deficit spending, Gorinchas explained that countries should avoid falling into retaliatory trade protectionism.
“Today, more and more countries are going their own way and imposing unilateral tariffs and industrial policy measures. While our imperfect trading system must be improved, this proliferation of unilateral measures is unlikely to deliver lasting common global prosperity. Rather, it will distort trade and resource allocation, encourage retaliation, weaken growth, and make it harder to coordinate policies to address global challenges such as climate change. Trade instruments have their rightful place in the policy arsenal, but because international trade is not a zero-sum game, they must always be used sparingly within multilateral frameworks and distortions must be corrected. Unfortunately, we are moving increasingly away from these fundamental principles.” Added Gourinchas.
Glinkas suggested the data showed global trade was not shrinking but was being restructured with countries forming new blocs.
“That said, the report does highlight a point: we expect fairly robust global trade growth in 2024-2025. Trade as a whole has not been decoupled from economic activity, but behind the scenes there is a significant reordering of trade flows, and at some point this will start to weigh on economic activity,” Goulinkas said.
To read the full report, World Economic Outlook Update