Global fight against high inflation “almost won”

On October 23, 2024By Yukito

WASHINGTON (AP) — The global war on inflation has largely been won — and at surprisingly little cost to economic growth, the International Monetary Fund announced Tuesday.

In its latest assessment of the world economy, the IMF predicted that global inflation will fall from 6.7% last year to 5.8% this year and to 4.3% in 2025. It estimates that inflation will fall even faster in the world’s rich countries , from 4.6% last year to 2.6% this year and 2% – the target range for most major central banks – in 2025.

Slowing inflation, after years of crushing price increases in the wake of the pandemic, prompted the Federal Reserve and European Central Bank to cut interest rates this year after aggressively raising them to try to tame inflation.

“The fight against inflation is almost won,” Pierre-Olivier Gourinchas, the IMF’s chief economist, told reporters on Tuesday. “In most countries, inflation is hovering around central bank targets.”

Inflation accelerated as the global economy recovered at an unexpected pace from the Covid-19 recession, leaving factories, cargo yards, ports and businesses overwhelmed with customer orders, resulting in shortages, delays and higher prices. High interest rates enforced by major central banks, combined with an end to supply chain congestion, have dramatically reduced inflation from a four-decade high reached in mid-2022.

To the surprise of forecasters, the economy – particularly the largest in the United States – continued to grow and employers continued to hire despite higher borrowing costs.

“Falling inflation without a global recession is a great achievement,” Gourinchas wrote in a blog post accompanying the IMF’s latest report on the world economy.

The IMF, a lending organization covering 190 countries, works to promote economic growth and financial stability and reduce global poverty. On Tuesday, in addition to outlining a softer inflation outlook, the Council raised its economic expectations for the United States this year, while lowering growth estimates in Europe and China. The IMF left its global growth forecast unchanged at 3.2% for 2024.

The IMF expects the U.S. economy to grow 2.8% this year, down slightly from 2.9% in 2023 but an improvement from the 2.6% it forecast for 2024 in July . Economic growth in the United States is driven by strong consumer spending, fueled by significant increases in inflation-adjusted wages.

However, next year the IMF expects US economic growth to slow to 2.2%. With the formation of a new presidential administration and Congress, the IMF predicts that the domestic labor market will lose some momentum in 2025 as the government seeks to reduce massive budget deficits by slowing spending, raising taxes, or a combination of both.

The IMF expects China’s economic growth to slow from 5.2% last year to 4.8% this year and 4.5% in 2025. The world’s No. 2 economy has been hobbled by a slump in the housing market and weak consumer confidence – the problems were only partially offset by strong exports.

The 20 European countries that share the euro’s common currency are expected to grow by 0.8% this year, double the 0.4% in 2023, but a slight decline compared to 0.9%, which the IMF forecast three months ago for 2024. The German economy, hit by a slump in industry and real estate, is not expected to grow at all this year.

Now, with interest rates falling, which is likely to help the world’s economies, the IMF has warned that the need to reduce huge budget deficits is likely to hamper growth. The overall global economy is expected to grow by 3.2% in both 2024 and 2025, down from 3.3% last year. That’s not an impressive standard: From 2000 to 2019, before the pandemic halted economic activity, global growth averaged 3.8% annually.

The IMF also remains concerned that geopolitical tensions, including the antagonism between the United States and China, may reduce the efficiency of global trade. The problem is that more and more countries will increasingly do business with their allies rather than looking for the cheapest or best-made foreign goods. Still, world trade measured by volume is expected to grow 3.1% this year and 3.4% in 2025, an improvement from the anemic 0.8% growth in 2023.

Gourinchas also suggested that economic growth could prove weaker than expected if countries take steps to curb immigration, which has helped alleviate labor shortages in the United States and other advanced economies. He also said that armed conflicts such as those in Ukraine and the Middle East could also threaten economic prospects.

India’s economy is expected to grow at 7% this year and 6.5% in 2025. While the pace will remain strong, it will be down from 8.2% last year, reflecting a slowdown in consumer spending following the post-boom. pandemic.

The IMF expects Japan’s economy, hit by production problems in the auto industry and a slowdown in tourism, to grow by a modest 0.3% this year before accelerating to 1.1% in 2025.

The UK is forecast to grow by 1.1% this year, down from a dismal 0.3% in 2023, with falling interest rates spurring greater consumer spending.