IMF: Global economy continues to recover from pandemic & Russia-Ukraine war

The latest World Economic Outlook released by the International Monetary Fund (IMF) paints a picture of a global economy that is slowly recovering from the impacts of the pandemic and the ongoing Russia-Ukraine war. The IMF's Chief Economist, Pierre-Olivier Gourinchas, provided insights during an interview with CNBC Africa, highlighting the resilience shown by the global economy amidst a challenging environment. However, the growth remains slow and uneven, with projections indicating a slowdown from 3.5 percent last year to 3 percent this year, and a further dip to 2.9 percent in 2024. This downward trajectory signals a 0.1 percentage point downgrade for 2024, reflecting a pace well below historical averages. The key theme of the discussion revolved around the divergences observed within different economies, both in terms of growth and inflation, and the uncertainties that lie ahead. Key Points: 1. Divergent Growth Patterns: The IMF report highlights significant divergences in growth trends among various economies. While advanced economies like the United States are showing resilience in consumption and investment, others like the euro area are facing challenges due to tighter monetary policies and energy crises. On the other hand, emerging markets like China are encountering headwinds, while countries such as Brazil, India, and Russia are witnessing positive revisions. This divergence underscores the uneven nature of the global economic recovery, reflecting both internal and external factors influencing growth trajectories. 2. Inflation Concerns and Policy Challenges: The discussion also touched upon the inflation outlook, noting some encouraging signs of deceleration in headline inflation. However, core inflation, which excludes food and energy prices, is projected to decline at a slower pace. Most countries are not expected to reach their inflation targets until 2025, indicating a prolonged period of inflationary pressures. This necessitates a careful balancing act for policymakers to navigate through the complexities of managing inflation while ensuring sustainable economic growth. 3. Risks and Policy Recommendations: Gourinchas highlighted several downside risks that could impact the global economy in the near future. These include deepening real estate crises in China, potential volatility in commodity prices due to climate and geopolitical shocks, uncomfortably high inflation levels, eroded fiscal buffers in many countries, and easing financial conditions that could lead to abrupt repricing of risks. To address these challenges, the IMF calls for coordinated efforts on both fiscal and monetary policy fronts, emphasizing the need to rebuild fiscal buffers, avoid premature easing of monetary policy, and focus on structural reforms to stimulate long-term growth. Quote: "While some of the extreme risks have moderated since April, the balance remains tilted to the downside. First, the real estate crisis is deepening in China. Restoring confidence requires prompt action to restructure property developers, preserve financial stability and address strained local public finances. The policy challenge is complex, but if well executed, it will enable China's economy to pivot away from a real estate credit-driven model of growth." The interview with the IMF's Chief Economist sheds light on the intricate dynamics shaping the global economy and underscores the importance of coordinated policy responses to navigate through uncertainties and foster sustainable growth in the post-pandemic era.