Global economy: resilient but with risks, according to the IMF

The International Monetary Fund (IMF) praised the performance of the world economy, which has managed to reduce inflation below pre-pandemic averages without falling into a global recession. However, he warned that risks to the global economy are increasing and that long-term growth prospects are bleak.

During the annual meetings of the IMF and World Bank in Washington, D.C., global policymakers projected that global inflation will fall to 3.5% by the end of the year. This figure is below the 20-year average prior to the pandemic and is considerably lower than the 9.4% achieved in the third quarter of 2022. The IMF also expects the global economy to grow by 3.2% this year and the next, according to chief economist Pierre Oliver Gourinchas, who described an “unusually resilient” economy as inflation recedes.

However, Gourinchas highlighted that risks are increasing due to regional conflicts that threaten raw materials markets and changes in trade and industrial policies that could reduce growth projections.

Inflation and rising risks

The IMF stressed the importance of maintaining vigilance on inflation, especially in services, where price pressure remains almost double pre-pandemic levels. Climate, health, and geopolitical tensions remain critical factors that could impact economic stability.

The IMF also highlighted rising trade tensions, pointing to China's dependence on exports including electric vehicles and batteries, which has sparked reactions from other countries seeking to protect their own manufacturers. In addition, the IMF warned about uncertainty in US policies, especially in the face of proposals such as imposing tariffs of 10% on all products and up to 60% on Chinese goods. These actions, according to economists, could seriously affect the global economy.

Long-term prospects

Although the IMF continues to project 3.2% growth for this year and next, its longer-term forecasts are more pessimistic. Over the next five years, global economic growth is expected to be just 3.1%, the lowest in decades. Weaker economic prospects for China, Latin America and the European Union contribute to this gloomy outlook.

The IMF urged governments to take advantage of current improvements in the economic environment to make policy adjustments that address vulnerabilities. In terms of monetary policy, central banks have already begun to reduce interest rates, but the IMF also called on governments to adjust their fiscal policies to stabilize debts and rebuild fiscal buffers.

The IMF also called for reforms to improve productivity and growth, while addressing long-term structural problems such as population aging, the energy transition, and growing income inequality within and between countries.