Economy
Mint Primer: IMF thinks the global economy is out of the woods. Is that true?
Summary
- IMF, in its World Economic Outlook released last week, has said that the prospect for global growth has stabilised. It has projected global economy to grow at 3.2% in 2024.
The International Monetary Fund (IMF) in its latest economic review has said that the battle against inflation has “largely been won". Mint looks at what this means for global economic growth, the tailwinds that support growth, and the risks to it.
What has IMF said about global growth?
IMF, in its World Economic Outlook released last week, has said that the prospect for global growth has stabilized. It has projected global economy to grow at 3.2% in 2024. This is slightly lower than the 3.3% growth registered in 2023. While India’s economic growth rate has been retained at 7%, the US sees its 2024 growth estimate rise by 20 basis points to 2.8%. However, China’s growth was slashed by 20 basis points to 4.8%. IMF does not expect China to meet its 5% economic growth target in 2024. But it’s not China alone—Germany and France had growth prospects trimmed marginally.
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What’s the news on the inflation front?
IMF has said that the global battle against inflation has “largely been won". Most economies are expected to be either at their inflation target or within a stone’s throw of it by the end of 2025. Headline inflation rate, which peaked at 9.4% in the third quarter of 2022, is now expected to decline to 3.5% towards the end of 2025. This will be lower than the average inflation of 3.6% during the 2000 and 2019 period. And that’s not all the good news the IMF brings. The reduction in inflation, it said, has been achieved without triggering a recession, making the smooth landing of the global economy a reality.
Is the IMF’s growth outlook rosy all round?
Not really. The IMF projects medium-term global growth, that is five years from now, to be 3.1%. This is mainly on account of weak performances by China, and some Latin American and European countries. That apart, the global economy is being pulled down by persistent structural headwinds such as an aging population and weak productivity.
What are the risks to global growth?
An escalation in conflicts could upend trade and investment. Protectionism is on the rise and could worsen post the US election. A deeper-than-expected slowing in China with its property sector crisis spilling over remains a risk. The labour markets could weaken, and financial market turbulence could return. The world, IMF says, is today dominated by supply disruptions—from climate, health and geopolitics. Any of these eventualities could end the monetary easing and hurt future growth.
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Are there any policy prescriptions?
IMF suggests a triple pivot. Central banks, where inflation is under control, should offer more support to economic activity. Efforts should be made to reduce debt which has ballooned—but without hurting nascent growth. Finally, overdue structural reforms to lift productivity and growth prospects need to be implemented. These include efforts to boost technology and innovation, higher competition, better resource allocation, enhanced economic integration and more productive private investment.
