The grim specter of an impending global recession has receded, according to economists at the International Monetary Fund (IMF), who now see improved prospects for both inflation and growth compared to recent months.
This shift in outlook is significant as it suggests that the world has weathered the storm of the great inflation shock more effectively than initially feared. While price pressures have eased, the imposition of high interest rates did not stifle global economic activity as severely as anticipated.
As a result, central banks are now contemplating the possibility of reducing interest rates, which could further alleviate any lingering strains on the global economy.
In its latest World Economic Outlook released on Tuesday, the IMF projects that the global economy is poised to grow by 3.1% this year, with a similar rate of growth expected in 2025. This forecast represents a slight upgrade of 0.2 percentage points from the previous estimate in October, driven by the resilience of the U.S. economy and increased activity in developing and emerging markets.
The IMF also highlights the anticipated government support in China, which is expected to provide stability to the country’s economy.
IMF chief economist Pierre-Olivier Gourinchas emphasized that the global economy is far from a recessionary scenario. While acknowledging ongoing risks, such as geopolitical tensions in the Middle East, Gourinchas expressed confidence that the risk of a global recession is minimal at this juncture.
However, central banks now face a delicate balancing act in deciding when to lower interest rates. Gourinchas cautioned against premature easing that could undermine credibility and reignite inflationary pressures. Yet, he also warned against waiting too long, as signs of strain are emerging in interest rate-sensitive sectors like construction.
Despite the improved growth outlook, the IMF notes that current projections still fall short of the average global growth rate of 3.8% observed over the past two decades. This decade presents unique economic challenges, including high interest rates to combat inflation, the withdrawal of fiscal support amid high debt levels, and low underlying productivity growth.
