IMF sees steady global growth
Warns of slowing disinflation momentum
The IMF has warned that momentum in the fight against inflation is slowing, which could further delay an easing of interest rates and keep up strong dollar pressure on developing economies.
David Lawder - The global economy is set for modest growth over the next two years amid cooling activity in the US, a bottoming-out in Europe and stronger consumption and exports for China, but risks to the path abound, the International Monetary Fund has said.The IMF warned in an update to its World Economic Outlook that momentum in the fight against inflation is slowing, which could further delay an easing of interest rates and keep up strong dollar pressure on developing economies.
The IMF kept its 2024 global real gross domestic product growth forecast unchanged from April at 3.2% and raised its 2025 forecast by 0.1 percentage point to 3.3%.
The forecasts fail to shift growth from the lackluster levels that IMF managing director Kristalina Georgieva has warned would lead to "the tepid twenties."
Major economies
But the revised outlook reflected some shifting sands among major economies, with the 2024 US growth forecast reduced by 0.1 percentage point to 2.6%, reflecting slower-than-expected first-quarter consumption.
The Fund's 2025 USgrowth forecast was unchanged at 1.9%, a slowdown driven by a cooling labour market and moderating spending in response to tight monetary policy.
"Growth in major advanced economies is becoming more aligned as output gaps are closing," IMF chief economist Pierre-Olivier Gourinchas said in a blog post accompanying the report, adding that the US was showing increasing signs of cooling, while Europe was poised to pick up.
Inflation
The IMF warned of near-term upside risks to inflation as services prices remain elevated amid wage growth in the labour-intensive sector and said renewed trade and geopolitical tensions could stoke price pressures by increasing the cost of imported goods along the supply chain.
"The risk of elevated inflation has raised the prospects of higher-for-even-longer interest rates, which in turn increases external, fiscal and financial risks," the IMF said in the report.
Gourinchas said that despite a fall in US consumer prices last month, the Federal Reserve can afford to wait a bit longer to begin cutting rates to avoid any inflationary surprises.
The IMF also warned of potential swings in economic policy as a result of many elections this year that could have negative spillovers to the rest of the world.
"These potential shifts entail fiscal profligacy risks that will worsen debt dynamics, adversely affecting long-term yields and ratcheting up protectionism," the Fund said. - Reuters