Onome Amuge
The International Monetary Fund (IMF) recently projected that global economic growth is set to continue at a stable pace of 3.2 per cent in 2024 and 2025, despite remaining below the historical (2000-2019) average annual growth rate of 3.8 percent.
The steady but moderate pace of global growth is expected to be shaped by restrictive monetary policies and the withdrawal of fiscal support, as central banks around the world aim to curb inflation.
Pierre-Olivier Gourinchas, IMF chief economist,lifted the curtain on a world economy that, despite the odds, is showing remarkable resilience in the face of adversity. In a press briefing held in Washington, DC on Tuesday April 16, Gourinchas revealed that global economic activity is weathering the storm with more fortitude than initially anticipated.
“Despite significant central bank hikes aimed at restoring price stability, the global economy grew steadily, supported by favorable supply developments. Global growth, estimated at 3.2% in 2023, is projected to continue at the same pace in both 2024 and 2025. Meanwhile, global headline inflation is expected to fall from an annual average of 6.8% in 2023 to 5.9% in 2024 and to 4.5% in 2025,” Gourinchas stated.
According to the IMF, risks to the global economic landscape have diminished since October 2023, leading to a broadly balanced distribution of possible outcomes around the baseline projection for global growth, from a clear downside tilt in the April 2023 WEO and the October 2023 WEO.
Gourinchas, in his assessment of the global economy, painted a picture of a future as precarious as it is promising. The chief economist noted that while the outlook remains balanced, the near-term risks are weighed more heavily on the downside. Among these risks, Gourinchas highlighted the potential resurgence of geopolitical tensions and the possibility of price spikes, which could lead to an increase in interest rate expectations and a corresponding drop in asset prices.
The IMF chief economist offered a sobering reminder that the path to economic recovery may not be a straight line, but a winding road that can lead to unexpected twists and turns. On the downside, he cautioned that high-interest rates could act as a powerful brake on economic activity, potentially leading to greater slowdown than anticipated. At the same time,he added that fiscal policy could become more expansionary in the run-up to elections, which could prove costly down the road
With inflationary pressures abating more swiftly than expected in many countries, risks to the inflation outlook are now also broadly balanced.
“The priority is to ensure that inflation converges to our target levels smoothly. Calibrating the timing of policy adjustments to individual countries’ circumstances. At the same time, heightened attention must now be paid to rebuilding fiscal buffers to guard against future shocks, make room for priority investments, and to ensure debt sustainability,” he suggested.
With inflation and debt reduction as key objectives, Gourinchas urged policymakers to focus on supply-enhancing reforms that could spur growth and help alleviate economic pressures. He suggested that governments must take concrete steps to increase productivity and competitiveness, thus positioning their economies for sustainable long-term growth. He also advocated for international cooperation, urging nations to work together on global challenges such as climate change and geo-economic fragmentation.
