A recent report by the International Monetary Fund (IMF) has highlighted a slow global economic recovery, driven by factors such as the ongoing pandemic, the Russia-Ukraine conflict, the cost-of-living crisis, decades-high inflation, geopolitical tensions between Israel and Hamas, and China's real estate crisis. On Tuesday, the IMF's economic counselor, Pierre-Olivier Gourinchas, noted that despite unprecedented tightening of global monetary conditions to combat inflation and market disruptions, the global economy continues to grow, albeit slowly.
The IMF has projected a decrease in global growth from 3.5% in 2022 to 3% this year. Furthermore, it has downgraded the growth projection for 2024 to 2.9%. The organization anticipates that global headline inflation will decelerate, with core inflation (excluding food and energy prices) expected to decline more gradually to 4.5% by 2024.
The report also indicated a more severe economic slowdown in advanced economies. However, the US economy displayed resilience through strong consumption and investment. In contrast, the euro area's activity was revised downward. Meanwhile, emerging market economies have demonstrated surprising resilience, except for China due to its ongoing real estate crisis.
The IMF predicts a 3% global economic expansion this year, with robust US growth offsetting downgrades in China and Europe due to China’s property sector crisis. Amidst war and pandemic disruptions, the IMF sees potential for a "soft landing," particularly in the US, which has the strongest recovery among major economies.
However, it warns of slow and uneven recoveries globally with risks tilted to the downside. The eurozone's growth is expected to be 0.7% this year and 1.2% next year, while US growth forecasts have been upgraded.
In terms of inflation forecasts, the IMF has raised global inflation forecasts to 6.9% this year and 5.8% next year due to high oil and natural gas prices, potential escalation of the war in Ukraine, and a fresh bout of broader price rises. These factors lead bond investors to expect longer periods of high interest rates from central banks, potentially causing a self-fulfilling prophecy of high inflation, challenging the 'soft landing' targets of central banks.
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