The IMF sees global growth “limping not sprinting” ahead this year, Pierre-Olivier Gourinchas, head of the Fund’s Research Department said at the launch of the World Economic Outlook (WEO) Tuesday (October 10) in Marrakech, Morocco.
“The global economy is limping along, not sprinting. Under our baseline forecasts, growth will slow from 3.5% last year to 3% this year and 2.9% next year, a 0.1 percentage point downgrade for 2024. This remains well below historical averages,” said the IMF’s Chief Economist.
Central bank tightening seems to be bearing fruit, but the world is entering a period of divergence on monetary policy the report found. The US economy is especially a bright spot, Gourinchas said.
“The news on inflation is encouraging, but we're not quite there yet. Headline inflation continues to to decelerate. Core inflation, excluding food and energy prices, is also projected to decline, but more gradually. However, all in all, most countries are not expected to return to inflation target until 2025. Taken together, our projections are increasingly consistent with a soft-landing scenario, bringing inflation down without a major downturn in activity. This is especially true in the U.S., where the unemployment rate is now expected to increase only mildly between now and 2025. Labor markets in advanced economies, while still tight, are softening without signs of a wage price spiral further,” Gourinchas said the forecast found.
Sri Lanka particularly has done a good job of taming inflation in partnership with the IMF’s help, bringing it down from 70% a year ago to just 2% now, said Deputy head of Research Department Daniel Leigh.
“The people of Sri Lanka have shown remarkable resilience in the face of enormous challenges. Sri Lanka has made commendable progress in implementing difficult but much needed reforms, and these reforms are already bearing fruit as the economy is showing tentative signs of stabilization,” Leigh said.
But news over the weekend of the Hamas attack on Israeli civilians has sparked fears of a wider instability in the Middle East. The chief immediate worry for global growth is a potential spike in energy costs Gourinchas said, explaining that IMF research suggests that if there is something like a 10% increase in oil prices, this would weigh down on global output by about 0.15% in the following year and would increase global inflation by about 0.4 percentage point.
“We see spikes in in energy prices and oil prices. We've seen that in previous crises and previous conflicts. And of course, this reflects the potential risk that there could be disruption either in production or transport of oil in the region,” explained French economist Gourinchas.
A copy of the full report is available at IMF.org/WEO.
