The IMF’s latest World Economic Outlook report projected global growth at 3.2% in 2024 and 3.3% in 2025, in line with April predictions.
The group nonetheless noted that varied momentum in activity at the turn of the year has somewhat narrowed the output divergence, meaning differences in growth rates between economies are now smaller.
In terms of the disinflation process, the report noted that risks which drive prices higher have increased, «raising the prospect of higher-for-even-longer interest rates».
One such risk is escalating trade tensions, which can increase the cost of imported goods along the supply chain.
Petya Koeva Brooks, Deputy Director in the Research Department of the International Monetary Fund, discussed this trend further in an interview with Euronews.
«The other interesting phenomenon that we see is that there is growing evidence of fragmentation in trade. What we find is that the trade within politically close blocs has held up well and has compensated for the fact that trade between blocs has actually decreased.»
These warnings come despite the fact that trade proved robust at the start of the year, spurred by strong exports from Asia — particularly in the technology sector.
On tariffs recently imposed on Chinese goods by the US and the EU, Koeva Brooks was critical.
«Such actions typically have a negative impact on the country that imposes them as well as on others …some may very well be for good reasons, but we call on countries to resolve these grievances in a multilaterally compatible fashion rather than, through these unilateral actions.»
Shoots of economic recovery
The IMF said shoots of economic recovery materialised in Europe, led by an improvement in services activity. In China, resurgent domestic consumption propelled the positive upside in the first quarter, aided by what looked to be a temporary surge in exports belatedly reconnecting with last year’s rise in global demand.
«These developments have narrowed the output divergences somewhat across economies, as cyclical factors wane and activity becomes better aligned with its potential,» the IMF report noted.
Global disinflation slowing
Meanwhile, the IMF report said momentum on global disinflation is slowing, signaling bumps along the path.
«This reflects different sectoral dynamics: the persistence of higher-than-average inflation in services prices, tempered to some extent by stronger disinflation in the prices of goods. Nominal wage growth remains brisk, above price inflation in some countries, partly reflecting the outcome of wage negotiations earlier this year and short-term inflation expectations that remain above target.
«The uptick in sequential inflation in the United States during the first quarter has delayed policy normalisation. This has put other advanced economies, such as the euro area and Canada, where underlying inflation is cooling more in line with expectations, ahead of the United States in the easing cycle,» it said.
The report also highlighted that a number of central banks in emerging market economies remain cautious in regard to cutting rates owing to external risks triggered by changes in interest rate differentials and associated depreciation of those economies’ currencies against the dollar.
Direction of interest rates
The global outlook report stated how IMF staff projections are based on upward revisions to commodity prices, including a rise in nonfuel prices by 5 percent in 2024. Energy commodity prices are expected to fall by about 4.6 percent in 2024, less than projected in the April WEO, reflecting elevated oil prices from deep cuts by OPEC+ (the Organization of the Petroleum Exporting Countries, including Russia and other non-OPEC oil exporters) and reduced, but still present, price pressure from the Middle East conflict.
«Monetary policy rates of major central banks are still expected to decline in the second half of 2024, with divergence in the pace of normalisation reflecting varied inflation circumstances. Growth is expected to remain stable. At 3.2 percent in 2024 and 3.3 percent in 2025, the forecast for global economic growth is broadly unchanged from that in April,» the IMF report also stated.
Stronger activity in China
The IMF also concluded that the forecast for growth in emerging market and developing economies is revised upward with a projected increase powered by stronger activity in Asia, particularly China and India.
The IMF also noted the potential for significant swings in economic policy as a result of elections this year, with negative spillovers to the rest of the world increasing uncertainty.
«These potential shifts entail fiscal profligacy risks that will worsen debt dynamics, adversely affecting long-term yields and ratcheting up protectionism. Trade tariffs, alongside a scaling up of industrial policies worldwide, can generate damaging cross‐border spillovers, as well as trigger retaliation, resulting in a costly race to the bottom. By contrast, policies that promote multilateralism and a faster implementation of macrostructural reforms could boost supply gains, productivity, and growth, with positive spillovers worldwide,» the IMF report said.
