key Takeaways:
- IMF raises 2024 global inflation forecast to 5.8% from 5.2%.
- Central banks need to maintain tight monetary policies.
- Global growth outlook remains low at 2.9% for 2024.
LUCKNOW (CoinChapter.com) — The International Monetary Fund (IMF) has raised worldwide concerns about high inflation rates. It has urged central banks worldwide to maintain tight monetary policies until a sustained reduction in inflation is observed.
The IMF has revised its global inflation forecast for 2024. It anticipates an inflation rate of 5.8%, more than the previously estimated 5.2% just three months ago. Moreover, the fund predicts that inflation will continue to surpass central bank targets in most countries until 2025.
The report came amid higher global uncertainty, with concerns over the Israel-Hamas war, growing tensions in the Middle East, and its potential impact on oil supplies. Such geopolitical conflicts add another layer of complexity to an already struggling global economy.
Tight Monetary Policies Needed — IMF Chief Economist
Central banks in major economies, such as the US and the European Union, have been raising interest rates over the past year in an effort to combat inflation. The global inflation rate reached 8.7% in 2022, the highest level since the mid-1990s.
“Monetary policy needs to remain tight in most places until inflation is durably coming down towards targets,” said Pierre-Olivier Gourinchas, the Chief Economist of the IMF, during a press briefing, adding:
“We’re not quite there.”
Factors Driving Global Inflation
The IMF forecasted a global growth of 2.9% for 2024, 0.1% down from its previous estimate in July. However, the IMF maintains its 3% growth forecast for 2023. Despite the global growth outlook being low, it is relatively stable. The IMF believes that central banks can control inflation without pushing the world into a recession.
The IMF has consistently warned since April about the weakening medium-term prospects. Several factors are impeding economic expansion, including the negative market impact of the pandemic, the conflict in Ukraine, the fragmentation of the global economy into distinct blocs, and the tightening policies of the central bank.
IMF’s Differing Economic Projections
However, beneath the surface of the IMF’s overall growth projection, significant changes are taking place in individual country forecasts.
The United States has seen an upward revision in its projection for this year, climbing from 1.8% in July to 2.1%.
Additionally, next year’s estimate has risen to 1.5% from 1%. These projections are based on robust business investments in the second quarter and resilient consumption growth. Furthermore, the IMF anticipates that the US unemployment rate will reach a peak of 4% by the final quarter of 2024, which is lower than the 5.2% projected in April.
Conversely, China has seen its growth outlook reduced to 5% from a previously estimated 5.2% for 2023 and further down to 4.2% from the previous 4.5% for 2024. Declining investments in real estate and falling housing prices can cause the falling economy of China.
“Restoring confidence, cleaning up that sector is going to require forceful action by the authorities, and we’ve seen some move in that direction, but more is needed. If that doesn’t happen, then there is a chance that that problem could fester and worsen,” said Gourinchas.
The projected growth rate for the euro area has also been cut. It now stands at 0.7% for 2023, down from the previous estimate of 0.9%. It also decreased to 1.2% for 2024, which was previously estimated to be 1.5%.
Mixed Outlook for Japan and the UK
The IMF has raised the Japan economy growth forecast this year from 1.4% to 2%. Factors behind this positive growth projection include pent-up demand, a surge in tourism, accommodative policies, and a rebound in automotive exports, which supply chain challenges had previously impeded.
Conversely, the UK growth projection in the coming year has been cut to 0.6% from 1%. This is because of the tighter monetary policies implemented to combat inflation and the lingering effects of the terms-of-trade shock resulting from high energy prices.
The IMF has been raising concerns about the fragmentation of the global economy into geopolitical blocs. Conflicts between the US, China, and Russia contribute to this fragmentation, adversely affecting global trade.
