The International Monetary Fund (IMF) raised its global growth forecast to 3.1% in 2024 and 3.2% in 2025, by 0.2% from its previous forecast in October 2023.
In its World Economic Outlook report, the Fund attributed the more optimistic growth forecasts to the resilience that exceeded expectations in the United States and many emerging market and developing economies, as well as support from public finances in China.
The report explained that although expectations for the period 2024/25 have improved, they remain below the historical average level of 3.8% for the period 2000/19, in light of the rise in key interest rates set by central banks to combat inflation, and the withdrawal of financial support in the context of rising debt, which has a negative impact on economic activity, lower basic productivity growth.
Regarding inflation, the IMF said that global inflation has begun to decline at a faster pace than expected in most regions, with the severity of problems on the supply side decreasing and monetary policy tightening, as expectations indicate a decline in global overall inflation to 5.8% in 2024 and 4.4% in 2025.
The report pointed out that the chances of a violent decline have declined, as well as the balance of risks to global growth to a large extent in light of the slowdown in the inflation rate and steady growth.
In terms of positive developments, the Fund indicated that a faster-than-expected slowdown in the inflation rate could lead to further facilitation of financial conditions, but it made clear that a fiscal policy that is easier than necessary and expected may entail a temporary rise in growth, but it also entails risks of making a modification later.
On the negative side, the Fund said that the tightening of monetary conditions may be prolonged if commodity prices rise sharply again as a result of geopolitical shocks - including continued attacks in the Red Sea - supply disruptions, or core inflation persists for a longer period, deepening distress in China's real estate sector, or dramatic tax increases and expenditure cuts in any other country, could also lead to sub-par growth.
The challenge facing policymakers in the near term is to successfully manage the eventual decline in inflation to the target level, calibrate monetary policy in the face of the underlying inflation dynamic, and adjust to take a less stringent stance when wage and price pressures clearly begin to disappear.
The expectations of IMF experts indicate that key interest rates will remain at the same current levels for the Federal Reserve, the European Central Bank, and the Bank of England until the second half of 2024, before they gradually decline as inflation gets closer to the target levels.