The global economy begins the final descent toward a soft landing, with inflation declining steadily and growth holding up, announced the IMF’s Chief Economist, Pierre Olivier-Gourinchas in a press briefing today, January 30, in Johannesburg. But the pace of expansion remains slow, and turbulence may lie ahead.
“The global economy has been surprisingly resilient, with growth now projected at 3.1% in 2024 and 3.2% in 2025. For 2024, the slight upgrade from our October projections is largely due to resilience in the United States and several large emerging markets and developing economies, coupled with more fiscal support in China. However, this forecast remains well below the 2000-2019 average growth of 3.8%. Inflation is falling faster than anticipated in most regions, thanks to the easing of supply side pressures and restrictive monetary policy. The global headline inflation rate is expected to decrease to 5.8% in 2024 and 4.4% in 2025, with the forecast for 2025 revised down. The likelihood of a hard economic landing as decreased due to faster disinflation and steady growth," said Gourinchas.
With disinflation and steady growth, the likelihood of a hard landing has receded, and risks to global growth are broadly balanced.
“Risks to global growth are now broadly balanced. On the upside, faster disinflation could ease financial conditions. Looser fiscal policy than expected could imply a temporarily higher growth, though at the risk of a more costly adjustment later on, stronger reform momentum could boost productivity growth with positive spillovers. However, downside risks remain, including potential new commodity price spikes from geopolitical shocks. Persistent underlying inflation, continued weaknesses in China's property sector, or a disruptive turn to tax hikes and spending cuts," he added.
The latest World Economic Outlook report recommends that beyond fiscal consolidation, the focus should return to medium-term growth. Gourinchas explained that a faster pace is needed to address the world’s many structural challenges: the climate transition, sustainable development, and raising living standards.
“The near-term challenge for policymakers is to successfully manage the final descent of inflation to target, calibrating monetary policy in response to underlying inflation dynamics. There is also a growing need, now that inflation is declining and economies are better able to absorb effects of fiscal tightening for a renewed focus on fiscal consolidation, to manage debt and build resilience for future shocks. Targeted and sequence structural reforms would boost productivity, help with reducing debt, and improve income prospects. Multilateral coordination is essential for debt resolution and mitigating the effects of climate change," he concluded.