APA – Dakar (Senegal) Global growth is set to slow from 3.5 percent in 2022 to 3 percent this year and 2.9 percent next year, according to the latest predictions from the International Monetary Fund.
The global economic situation is turning permanently gloomy. According to the International Monetary Fund (IMF), a return to the situation prior to the Covid-19 pandemic seems increasingly out of reach, particularly in emerging and developing countries.
The latest projections from the Bretton Woods institution indicate that global growth will slow from 3.5 percent in 2022 to 3 percent this year and 2.9 percent next year. This represents a downward revision of 0.1 percentage points for 2024 compared to our July projections, points out Pierre-Olivier Gourinchas, Economic Adviser at the IMF, in a document received by APA.
According to the IMF, this situation can be explained by three forces at play at global level. Firstly, in the services sector, the recovery is almost complete. This suggests that services inflation will fall in 2024, and that labour markets and economic activity will soften.
Secondly, the Fund points out that part of the reason for the slowdown is the tightening of monetary policy needed to reduce inflation, which is starting to have an impact, although the transmission is uneven across countries.
The tightening of credit conditions is weighing on property markets, investment and activity, particularly in countries where the proportion of variable-rate mortgages is high, or where households are less willing or able to draw on their savings.
Thirdly, the IMF continues, inflation and activity are being affected by last year’s shock to commodity prices. Countries that rely heavily on energy imports from Russia have experienced a sharper rise in energy prices and a more pronounced slowdown.
“Our recent research shows that the impact of higher energy prices has driven up non-energy and food inflation more in the Eurozone than in the US, where the underlying inflationary pressures are more related to labour shortages,” Gourinchas explains.
Despite signs of weakening, labour markets remain buoyant in advanced countries, with historically low unemployment rates helping to support activity. The IMF says it sees little sign of a “wage-price spiral,” and real wages remain below pre-Covid-19 levels. Moreover, it adds, many countries have seen a sharp and timely compression of the wage scale, partly because flexible working hours and teleworking are more attractive to higher earners, reducing wage pressures in this group.
Headline inflation, meanwhile, continues to slow, from 9.2 percent in 2022 to 5.9 percent this year and 4.8 percent in 2024 (year-on-year). Inflation excluding energy and food should also fall, but more gradually than headline inflation, to 4.5 percent in 2024.
The projections are therefore increasingly based on a “soft landing” scenario, with inflation falling without any major downturn in activity, particularly in the United States, where unemployment is set to rise very slightly from 3.6 percent to 3.9 percent between now and 2025, according to the IMF.
Measures to be taken
In its reference scenario, the International Monetary Fund maintains that inflation continues to fall while central banks maintain a restrictive policy. With many countries approaching the peak of their tightening cycle, only a small amount of further tightening is required, it advises. However, he warns that any premature easing would undo the progress made over the past 18 months.
Once the disinflation process is firmly under way and short-term inflation expectations are falling, a downward revision of the key rate will make it possible to keep the monetary policy stance, i.e. real interest rates, unchanged until inflation approaches its target level.
The IMF believes that fiscal policy should support the monetary strategy and facilitate the disinflation process. More generally, fiscal policy everywhere should aim to restore the fiscal space that has been severely eroded by the pandemic and the energy crisis, for example by removing energy subsidies, it urges.
As growth slows, interest rates rise and fiscal space shrinks, structural reforms become essential, according to the IMF. According to the IMF, long-term growth can be enhanced by carefully sequencing structural reforms, particularly those focusing on governance, business regulation and the external sector.
According to the IMF, these “first generation” reforms help to unleash growth and make subsequent reforms, whether in the area of credit markets or ecological transition, much more effective. Multilateral cooperation can help all countries to achieve better growth results.
Firstly, he suggests, countries should avoid applying measures that run counter to the rules of the World Trade Organisation (WTO) and distort international trade.
Secondly, they must preserve the flow of essential minerals needed for the climate transition, as well as agricultural commodities. Such “ecological corridors” would help to reduce instability and accelerate the transition to a green economy.
Finally, the IMF concludes, all countries should strive to limit the geo-economic fragmentation that prevents progress towards common goals, and work to restore confidence in rules-based multilateral frameworks that enhance transparency and predictability, and promote shared global prosperity. A strong global financial safety net, with an adequately resourced IMF at its centre, is essential.
ARD/te/fss/abj/APA