Much of the world has successfully reduced inflation and achieved an economic soft landing, avoiding recession, as per the International Monetary Fund. The IMF’s World Economic Outlook released on Tuesday predicts that global headline inflation will decrease to 3.5% annually by the end of 2025, down from an average of 5.8% in 2024. Inflation had peaked at a year-over-year rate of 9.4% in the third quarter of 2022. The projected rate for the end of 2025 is slightly lower than the average annual price increase in the two decades before the Covid-19 pandemic.
The IMF report declared that the global battle against inflation is nearly won and emphasized the need for a “policy triple pivot” involving adjustments to interest rates, government spending, and reforms to enhance productivity. Despite progress on inflation, the IMF’s chief economist, Pierre-Olivier Gourinchas, warned of increasing downside risks overshadowing the outlook due to the pace of global economic growth.
The IMF maintained its global growth forecast at 3.2% for 2024 and 2025, describing it as stable yet unsatisfactory. While the United States is expected to experience accelerated growth, other advanced economies, particularly major European nations, and some emerging markets face reduced growth prospects due to escalating global conflicts and associated risks to commodity prices.
The IMF stressed the importance of responsive monetary policy in reducing inflation, normalizing labor market conditions, and unwinding supply shocks to prevent a global recession. The report highlighted the need for central banks to remain vigilant in controlling inflation, especially in countries where services inflation remains high and wages are catching up with the cost of living.
Low-income countries, heavily impacted by fluctuations in food and energy prices, are particularly vulnerable to spikes in commodity prices that could lead to higher inflation. These countries are also under pressure from sovereign debt repayments, potentially limiting funding for public programs. The IMF also identified heightened financial volatility as a threat to global growth, citing market sell-offs and concerns over monetary policy stance.
The IMF warned of challenges to global financial markets in the ongoing fight against inflation, including market turbulence and contagion risks. Geopolitical tensions, a potential Chinese property market contraction, high interest rates, and rising protectionism in global trade pose additional threats to global prosperity. Looking ahead, the IMF forecasts a modest global growth rate of 3.1% annually by the end of the 2020s, influenced by factors such as China’s economic outlook, structural headwinds, and demographic shifts.
