IMF warns of elections risk for inflation
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The news: The IMF warned the global fight against inflation is slowing in a year marked by significant electoral activity, potentially delaying interest rate cuts and maintaining strong US dollar pressure on developing economies.
The numbers: In its World Economic Outlook update, the fund said the global economy is expected to grow modestly over the next two years, with cooling activity in the US, stabilisation in Europe and stronger consumption and exports in China.
It maintained its 2024 global GDP growth forecast at 3.2% and slightly raised its 2025 forecast to 3.3% from the 3.2% growth expected in April.
The IMF’s growth expectations for the US in 2024 were slightly lowered to 2.6% due to slower consumption, while China’s growth forecast of 5% reflected a first quarter rebound.
The context: The IMF said the momentum on global disinflation is slowing, and cautioned that significant swings in economic policy as a result of elections this year added uncertainty to its baseline expectations.
“These potential shifts entail fiscal profligacy risks that will worsen debt dynamics, adversely affecting long-term yields and ratcheting up protectionism,” the fund said. “Trade tariffs, alongside a scaling up of industrial policies worldwide, can generate damaging cross‐border spillovers, as well as trigger retaliation, resulting in a costly race to the bottom.”
The warning comes as a UBS analysis this week found that US tariffs of 60% on Chinese products - in line with policies espoused by US presidential candidate and former President Donald Trump - would more than halve China’s annual growth rate.
The source: IFM World Economic Outlook update
