Global Growth, Inflation Recedes Says IMF’s WEO Report

On 22^nd October 2024, the IMF released the World Economic Outlook (WEO) Report. In its report, it stated, “Global growth is expected to remain stable yet underwhelming.”  IMF observed that there are notable revisions taken place since April 2024, with a forecast of upward revision for the United States offsetting downgrades for other economies, especially, the largest European Economies.

Similarly, the IMF also stated that emerging markets and developing economies are facing downward revisions to the outlook for the Middle East, Central Asia and Sub-Saharan Africa due to disruptions in production and shipping commodities, civil unrest and extreme weather events. Offset by upward revisions to the forecast for emerging Asia due to surging demand for electronics and semiconductors, driven by significant investments in Artificial intelligence. This supports growth, a trend supported by considerable public investment in India and China. According to the IMF Report, Global Growth should reach 3.1% in Five years from now (i.e. 2029). This is a mediocre performance compared with the pre-pandemic average.

Global Growth

The global economy remained unusually resilient throughout the disinflationary process. Growth forecasts to hold steady at 3.2% in 2024 and 2025, but some low-income and developing economies have seen sizable downside growth revisions, often tied to intensifying conflicts.

In the Advanced economy, the United States has the strongest growth, at 2.8% this year, the IMF forecasts that it will return to its potential in 2025. In 2025 (i.e. Next year), IMF forecasts that Advanced European economies may see a slight recovery in growth with output coming close to potential.

With emerging Asia continuing to show strong performance, the growth outlook for emerging markets and developing countries is extremely stable, at about 4.2% this year and next year.

Inflation Recedes

Services price Inflation remains elevated in many regions, despite there is continuation of global disinflation. Chapter 2 of the Report discusses the importance understanding of sectoral dynamics and calibrating monetary policy accordingly.

A significant achievement is a decline in inflation without a global recession. IMF report’s Chapter 2 argues that the spike in inflation and subsequent decline in inflation are the result of a distinctive combination of shocks, including widespread supply disruptions, intense demand pressures following the pandemic, and sharp increases in commodity prices brought on by the war in Ukraine.

The Phillips curve, which shows the relationship between activity and inflation, steepened and shifted upward due to these shocks. Normalization in labour markets allowed inflation to decline sharply without causing a significant slowdown in activity as supply disruptions subsided and strict monetary policy began to limit demand.

It is evident, that much of disinflation is attributed to the unwinding of the shocks themselves along with the improvement of labour supply, mostly linked to increased immigration. Monetary Policies’ crucial role in anchoring inflation expectations helped avoid wage-price spirals and a repeat of the catastrophic inflation experience of the 1970s.

Even while inflation is improving, the outlook is now dominated by growing downside risks. Commodity markets could be seriously at risk by an increase in regional wars, particularly in the Middle East. Changes to unfavourable industrial and trade policies can drastically reduce output in comparison to the IMF’s baseline prediction. Global financial conditions could suddenly tighten if monetary policy is kept too tight for too long.

Chapter 2 discusses about three major policy pivots – Monetary Policy, Fiscal Policy and Structural Reforms.

Support for Structural Reforms

Support for the most vulnerable should be maintained while carrying out Structural reforms are required to lift medium-term growth prospects. Approaches to enhance the social acceptability of these reforms are essential preconditions for successful implementation – Chapter 3 discusses this.

As the globe struggles with low growth, demographic upheavals, and issues related to the green and technology transitions, structural reforms are need of the hour. However, due to growing public opposition, reform initiatives have slowed down recently. Chapter 3 delves into the assessment of social acceptance regarding structural reforms, exploring the various factors that shape public opinion and the effectiveness of different strategies in garnering support. It concludes that rather than by economic self-interest the resistance comes because of perceptions, false information, and a lack of trust.

The chapter shows how informational tactics that dispel myths about how policies operate and increase awareness of the need for reform can increase support. Strong institutional structures that promote trust and two-way communication between stakeholders and the public are essential for supporting effective tactics. Increasing toolkits for policymaking to incorporate citizens’ opinions can lead to great social acceptance and successful implementation of reforms.

The lesson of building trust holds great importance, particularly as we reflect on ways to enhance international cooperation and reinforce our collaborative efforts in addressing common challenges, especially in this year marking the 80^th anniversary of the Bretton Woods institutions.

My Perception/ Conclusion

The IMF WEO report clearly states about the Global Conditions and outlook for the next year. The Global Growth rate to remain 3.2% in 2025. However, there are numerous threats from the policy front. Ensuring sustainable debt dynamics and rebuilding of buffers is most important which all economy should follow – stresses the IMF in their chapters.  

IMF only talked about ongoing wars in Ukraine and not about the ongoing war between Israel & Iran as well as how this is going to affect the global economy? Inflation is still a concern all over the world. Structural reforms is the only key to handle it more smoothly – as policy measures can only hold inflation as well as inflation expectation to certain extent. To adopt structural reforms it is essential for public to accept it. The present report clearly gives solution and insight on the measures for social acceptability to structural reforms.

Compared to July WEO Report, this report gives more solution oriented than risk oriented report. Overall, the present WEO report gives better understanding about policies stance of global economy (as a whole) and importance of structural reforms with social acceptability.

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