The global battle against inflation has largely been won even if price pressures persist in some countries, the International Monetary Fund (IMF) declared in its latest half-year report while warning that downside risks, including an escalation in regional conflicts, dominate the economic outlook.
After peaking at 9.4 per cent in late 2022, headline inflation rates are now projected to reach 3.5 per cent by the end of 2025, below the average level of 3.6 per cent between 2000 and 2019, the Washington-based fund said.
It also noted that “despite a sharp and synchronised tightening of monetary policy around the world, the global economy has remained unusually resilient throughout the disinflationary process, avoiding a global recession”.
“The decline in inflation without a global recession is a big achievement,” the IMF’s chief economist Pierre-Olivier Gourinchas said.
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In its report, the fund maintained a projection for global growth of 3.2 per cent this year while marginally lowering its forecast to 3.2 per cent next year.
Despite the relatively upbeat assessment, the fund warned that downside risks were rising and now dominate the outlook. Chief among these was an escalation in regional conflicts in the Middle East and Europe which could trigger further commodity price shocks.
Without mentioning the possibility of a second Donald Trump presidency in the US, the IMF also cautions about the possible “intensification of protectionist policies that could weigh down on medium‑term growth”.
Mr Trump has made no secret of the fact that he plans to build a wall or “a ring” of tariffs around the US economy if elected. Among his proposed measures is a 10 per cent universal duty on all US imports, though he has hinted the figure could be higher.
The IMF’s report was released as global finance chiefs gather in Washington for the IMF and World Bank annual meetings during one of the most geopolitically and economically uncertain periods for the world in decades. In addition to the war in Ukraine and an escalating conflict in the Middle East, half of the world’s population has elected or will elect new governments in 2024, including the US, the IMF noted.
The other potential pitfalls, highlighted in the IMF’s report, include the possible of interest rates remaining higher for longer; a possible resurgence of financial market volatility with adverse effects on sovereign debt markets; and a deeper-than-expected growth slowdown in China.
While the decline in interest rates provides some fiscal relief by lowering funding costs, this will not be sufficient to balance the difference between fiscal revenues and public expenditures net of debt service in many countries.
“For some countries, like the US and China, debt dynamics are not stabilised under current fiscal plans,” it warned.
In a separate assessment contained in its latest Global Financial Stability Report, the IMF said near-term financial stability risks have remained contained, monetary policy easing could fuel asset price bubbles and markets might be underestimating risks posed by military conflicts and impending elections.
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