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Feb 1, 2024

Risks to global growth broadly balanced: WEO

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FA News Desk
Image credit IMF
Image credit IMF

The International Monetary Fund (IMF) has projected global growth to stay at 3.1 percent in 2024 and rise to 3.2 percent in 2025 with the 2024 forecast 0.2 percentage point higher.

The World Economic Outlook (WEO) has picturized central bank rates to fight inflation and a withdrawal of fiscal support amid high debt burdens on economic activity.

Global headline inflation is expected to fall to 5.8 percent in 2024 and 4.4 percent in 2025, with the 2025 forecast having been revised down, indicated in WEO by the IMF.

The forecast for 2024–25 is, however, below the historical (2000–19) average of 3.8 percent, with elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity, and low underlying productivity growth, said IMF.

Inflation is falling faster than expected in most regions, in the midst of unwinding supply-side issues and restrictive monetary policy.

With disinflation and steady growth, the likelihood of a hard landing has receded, and risks to global growth are broadly balanced.

On the upside, faster disinflation could lead to further easing of financial conditions. Stronger structural reform momentum could bolster productivity with positive cross-border spillovers.

Deepening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts could also cause growth disappointments.

Policymakers’ near-term challenge is to successfully manage the final descent of inflation to target, calibrating monetary policy in response to underlying inflation dynamics adjusting to a less restrictive stance. At the same time, in many cases, with inflation declining and economies better able to absorb effects of fiscal tightening, a renewed focus on fiscal consolidation to rebuild budgetary capacity to deal with future shocks, raise revenue for new spending priorities, and curb the rise of public debt is needed.

Targeted and carefully sequenced structural reforms would reinforce productivity growth and debt sustainability and accelerate convergence toward higher income levels, said in an overview report of IMF.

More efficient multilateral coordination is needed for, among other things, debt resolution, to avoid debt distress and create space for necessary investments, as well as to mitigate the effects of climate change, IMF added.