Inflation Set to Fall, but Global Risks Mount, IMF Warns

The International Monetary Fund says that the global battle against inflation has largely been won, even if price pressures persist in some countries.

Pierre-Olivier Gourinchas, Economic Counselor and Director of the Research Department of the IMF presenting the World Economic Outlook on Tuesday (22) said the prediction is that headline inflation will fall to 3.5 percent by the end of next year, slightly below the average during the two decades before the pandemic.

This project comes after headline inflation peaked at 9.4 percent year-on-year in the third quarter of 2022.

Pierre-Olivier Gourinchas says that global economy remained unusually resilient throughout the disinflationary process.

Growth is projected to hold steady at 3.2 percent in 2024 and 2025, but some low-income and developing economies have seen sizable downside growth revisions, often tied to intensifying conflicts.

In advanced economies, growth in the United States is strong, at 2.8 percent this year, but will revert toward its potential in 2025.

For advanced European economies, a modest growth rebound is expected next year, with output approaching potential.

The growth outlook is very stable in emerging markets and developing economies, around 4.2 percent this year and next, with continued robust performance from emerging Asia.

"The decline in inflation without a global recession is a major achievement,"said Pierre-Olivier Gourinchas, Economic Counselor and Director of the Research Department of the IMF.

Despite the good news on inflation, downside risks are increasing and now dominate the outlook, he warned noting that an escalation in regional conflicts, especially in the Middle East, could pose serious risks for commodity markets. He noted that shifts toward undesirable trade and industrial policies can significantly lower output relative to the baseline forecast. Monetary policy could remain to tight for too long, and global financial conditions could tighten abruptly.