October 22nd 2024.
The International Monetary Fund (IMF) announced on Tuesday that the global war on inflation has been largely victorious, and with surprisingly minimal impact on economic growth. In their most recent evaluation of the global economy, the IMF projected that inflation worldwide will gradually decrease from 6.7% last year to 5.8% this year, and further to 4.3% in 2025. This downward trend is expected to be even more significant in wealthier countries, where inflation is forecasted to drop from 4.6% last year to 2.6% this year, and eventually reach the target range of 2% for most major central banks by 2025.
The decline in inflation comes after years of sharp price increases in the aftermath of the pandemic. This led to major central banks, such as the Federal Reserve and the European Central Bank, raising interest rates in an attempt to control inflation. However, as inflation began to cool down, these banks were able to lower interest rates again. Pierre-Olivier Gourinchas, the IMF's chief economist, stated that the battle against inflation is nearing its end, as most countries are now hovering close to their central bank's target inflation rates.
The surge in inflation was a result of the world economy rebounding unexpectedly quickly from the COVID-19 recession. This led to a surge in customer orders, putting a strain on factories, freight yards, ports, and businesses, resulting in shortages, delays, and ultimately, higher prices. However, as supply chain issues were resolved and borrowing rates were raised by major central banks, inflation began to dramatically decrease from the record-high levels seen in mid-2022.
Despite the higher borrowing costs, the economy has continued to grow, with the United States leading the way. This is largely due to strong consumer spending, driven by increased wages after adjusting for inflation. The IMF noted that the decline in inflation without a global recession is a significant accomplishment. The IMF, an organization that works towards promoting economic growth, financial stability, and reducing global poverty, also updated their economic projections for various countries.
The IMF predicts that the Australian economy will only grow by 1.2% this year, a decrease from 2% in 2023, before rebounding to 2.1% growth in 2025. In terms of inflation, Australia is expected to maintain a steady rate of 3.3% for both years. The IMF also upgraded their growth forecast for the United States this year, while decreasing their projections for Europe and China. The overall global growth rate is expected to remain at a lacklustre 3.2% for 2024 and 2025.
The IMF also warned that as interest rates continue to decrease, the need to address massive government deficits may slow down economic growth. They also expressed concern about geopolitical tension, particularly between the United States and China, which could impact world trade efficiency. However, global trade volume is expected to increase by 3.1% this year and 3.4% in 2025, a significant improvement from the 0.8% increase seen in 2023.
Gourinchas also mentioned potential factors that could weaken economic growth, such as reduced immigration and ongoing armed conflicts. The IMF predicts that India's economy will grow by 7% this year and 6.5% in 2025, a decrease from 8.2% growth in 2020. Japan's economy is also expected to experience slow growth, with only 0.3% expected this year and 1.1% in 2025. Finally, the United Kingdom is projected to see a growth rate of 1.1% this year, an improvement from 0.3% in 2023, thanks to falling interest rates that are expected to boost consumer spending.
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