Although there are shadows, this time the light prevails. “The clouds are beginning to part,” says Pierre-Olivier Gourinchas, director of the research department of the International Monetary Fund (IMF), with an unusual poetic tone.
His comment underscores the improving economic outlook in the new report that the IMF presented this Tuesday. This document highlights that the moderation of inflation and firm growth paves the way for a soft landing after a succession of crises and a very restrictive monetary policy to combat inflation, which has less affected the labor market and activity. economical. Strong public and private spending sustained this activity, despite strict monetary conditions.
Global growth will be 3.1% in 2024 and 3.2% in 2025, which represents an increase for this year of two tenths compared to last October's forecast. But the Fund, in its usual tendency to contain joy just in case, reminds that “the pace of expansion remains low” and that turbulence is on the horizon. For this reason, the forecasts for the 2024-25 binomial are lower than the historical average of 3.8% (2000-2019).
In this context, the projection lowers Spain's growth by 2024 by two tenths in relation to the forecast three months ago. According to this new prediction, after it also lost three tenths in October, the Spanish economy will remain at 1.5% this year and will remain at 2.1% next year.
Despite this setback, Spain continues to be the most expanding economy in Europe, ahead of Germany, France, Italy and the United Kingdom. The euro zone remains at 0.9% in 2024 and 1.7% in 2025.
Furthermore, its decline is lower than expected for the euro zone, which falls three tenths compared to the previous report, mainly due to the effects derived from the 2023 results, which are worse than expected.
In general, greater growth does not occur due to the high interest rates of monetary policy to attack inflation, the withdrawal of fiscal support in an environment of high debt that slows down economic activity, and the low growth of underlying productivity.
In the short term, the authorities face the challenge of successfully managing the final decline in inflation to the set goal, calibrating monetary policy in response to the dynamics of underlying inflation and, where pressures on prices and wages are clearly dissipating , adjusting it to a less restrictive orientation.
The document emphasizes that stock markets seem overly optimistic about early interest rate cuts. The IMF predicts that the major central banks will maintain current rate levels until the second half of 2024.
The consequence is that inflation declines faster than expected in most regions, while supply-side problems dissipate and a restrictive monetary policy is implemented. Global general inflation was three tenths lower than expected in the October report. The general level of inflation worldwide, excluding Argentina, is now expected to decline to 5.8% in 2024 and 4.4% in 2025. This represents a downward revision of the forecast for 2025.
According to the IMF, renewed attention is now needed on fiscal consolidation to restore budgetary capacity to address future shocks, raise revenue for new spending priorities, and curb the rise in public debt. This vision indicates that the application of focused and orderly structural reforms would reinforce productivity growth and debt sustainability, in addition to accelerating convergence towards higher income levels.
The improved outlook compared to October is due to greater-than-expected resilience in the United States, with growth in the last quarter of 2023 well above expectations, and in several emerging market economies, as well as fiscal stimulus. in China.
Given faster-than-anticipated disinflation and steady growth, the likelihood of a hard landing has receded, the report highlights. “The risks to global growth are broadly balanced,” he says.
A faster disinflation could lead to a further easing of financial conditions, he notes on the positive side. A more lax fiscal policy than necessary and assumed in the projections could lead to a temporary increase in growth, at the risk of a more costly subsequent adjustment. He argues that greater dynamism of structural reforms could boost productivity and lead to beneficial cross-border spillovers.
On the other hand, further increases in commodity prices due to geopolitical conflicts, such as repeated attacks in the Red Sea, and supply disruptions, or greater persistence of underlying inflation, could prolong monetary conditions. restrictive.
Projections put global trade growth at 3.3% in 2024 and 3.6% in 2025, below the historical average growth rate of 4.9%.
A deepening problem in the real estate sector in China or the destabilization caused elsewhere by tax hikes and spending cuts also have the potential to derail growth.
Important divergences remain. The IMF expects a slowdown in growth in the United States, where tight monetary policy is still weighing on the economy, and in China, where weakening consumption and investment continue to weigh on activity. In the euro zone, meanwhile, activity is expected to recover slightly after a difficult 2023.
In his commentary, Gourinchas reflects that the fiscal consolidation measures that governments have announced may be delayed as many countries face growing calls to increase public spending in what is the largest global election year in history. “This could boost economic activity, but also stimulate inflation and increase the prospect of subsequent disruptions,” he warns.
It further warns that, looking ahead, rapid improvement in artificial intelligence (AI) could boost investment and stimulate rapid productivity growth, but “poses significant challenges for workers.”
