Global headline inflation is expected to fall from an estimated 6.8 percent in 2023 (annual average) to 5.8 percent in 2024 and 4.4 percent in 2025, the International Monetary Fund(IMF) has said.
The IMF said in its World Economic Outlook Update titled ‘Moderating inflation and .? open path to soft landing’, released January 2024 that the global forecast is unrevised for 2024 compared with October 2023 projections and revised down by 0.2 percentage point for 2025.
“Advanced economies are expected to see faster disinflation, with inflation falling by 2.0 percentage points in 2024 to 2.6 percent, than are emerging market and developing economies, where inflation is projected to decline by just 0.3 percentage point to 8.1 percent,” it said.
It said the forecast is revised down for both 2024 and 2025 for advanced economies while it is revised up for 2024 for emerging markets and developing economies.
IMF stated that this is mainly on account of Argentina where the realignment of relative prices and elimination of legacy price controls, past currency depreciation, and the related pass-through into prices is expected to increase inflation in the near term.
“The drivers of declining inflation differ by country but generally reflect lower core inflation as a result of still-tight monetary policies, a related softening in labor markets, and pass-through effects from earlier and ongoing declines in relative energy prices.
“Overall, about 80 percent of the world’s economies are expected to see lower annual average headline and core inflation in 2024,” it said.
“Among economies with an inflation target, headline inflation is projected to be 0.6 percentage point above target for the median economy by the fourth quarter of 2024, down from an estimated gap of 1.7 percentage points at the end of 2023.
“Most of these economies are expected to reach their targets (or target range midpoints) by 2025. In several major economies, the downward revision to the projected path of inflation, combined with a modest upgrade to economic activity, implies a softer-than-expected landing,” IMF stated.
It said global growth is projected at 3.1 percent in 2024 and 3.2 percent in 2025, with the 2024 forecast 0.2 percentage point higher than that in the October 2023 World Economic Outlook (WEO) on account of greater-than expected resilience in the United States and several large emerging market and developing economies, as well as fiscal support in China.
“The forecast for 2024–25 is, however, below the historical (2000–19) average of 3.8 percent, with elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity, and low underlying productivity growth.
“Inflation is falling faster than expected in most regions, in the midst of unwinding supply-side issues and restrictive monetary policy,” IMF said.
It stated that with disinflation and steady growth, the likelihood of a hard landing has receded, and risks to global growth are broadly balanced. “Faster disinflation could lead to further easing of financial conditions.
“Looser fiscal policy than necessary and than assumed in the projections could imply temporarily higher growth, but at the risk of a more costly adjustment later on,” it said. “Stronger structural reform momentum could bolster productivity with positive cross-border spillovers.”
It said new commodity price spikes from geopolitical shocks which include continued attacks in the Red Sea and supply disruptions or more persistent underlying inflation could prolong tight monetary conditions.
“Deepening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts could also cause growth disappointments,” IMF stated.