## ch1 - CHAPTER 1 gLObaL PROSPECTS aND POLICIES

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### Global growth and forecast surprise
- Cumulative growth in 2022–23: 6.7 percent (0.8 percentage point higher than October 2022 WEO forecasts).
- Major contributors to upside surprise:
  - United States and several large emerging market and middle-income economies: stronger-than-expected private consumption.
  - Households in advanced economies: drawing down pandemic-era savings.
  - Larger-than-expected government spending:
    - United States: additional budgetary support estimated at 2 percent of GDP versus October 2022 WEO forecasts.
    - Euro area: additional budgetary support estimated at 0.2 percent of GDP.
    - China: fiscal stance mildly tighter than expected by 0.7 percent of GDP.
- Euro area: smallest upside growth surprise due to weak consumer sentiment and lingering high energy price effects.

### Inflation dynamics, decomposition, and regional differences
- Global headline inflation outcome vs. October 2022 WEO: averaged just 0.1 percentage point more than predicted for 2022 and 2023.
- Lower-income countries: inflation on average higher than expected due to stronger pass-through from international food, fuel, and fertilizer costs and currency depreciation.
- China: inflation fell unexpectedly from sharply lower domestic food prices and pass-through effects.
- Core inflation drivers:
  - Declined as pass-through effects faded and labor market pressures eased.
  - Pass-through fading larger in the euro area and the United Kingdom than in the United States.
  - United States: remaining upward pressure on underlying inflation mainly from labor market tightness and strong macroeconomic conditions.
- IMF staff decomposition methodology: same as Dao and others (2023) and Ball, Leigh, and Mishra (2022); underlying (core) inflation denotes weighted median inflation.
- Near-term inflation expectations: declined toward target levels in both advanced economies and EMDEs; longer-term expectations remained anchored.

### Labor markets, participation, and supply-side expansion
- Labor force and employment:
  - Greater-than-expected rise in labor force amid robust employment growth supported activity and disinflation in advanced economies and several large EMDEs.
  - Labor force expansion in some economies reflected increased inflows of migrants; faster growth in foreign-born than domestic-born labor force since 2021; higher participation rates.
  - Exceptions: China experienced broad-based labor market weakness; lower-income countries faced supply-side challenges limiting job creation.
- Investment and capital:
  - Greater-than-expected additions to physical capital and business investment responded to strong product demand in most regions; euro area was an exception where interest-rate-sensitive business investment—particularly in manufacturing—was subdued.
- Labor market indicators (IMF staff estimates for 2023 output gap):
  - United States: +0.7 percent.
  - Euro area: –0.3 percent.
  - United Kingdom: –0.3 percent.
- Other indicators:
  - Ratio of vacancies to unemployed declined as unemployment rose, suggesting easing.
  - Nominal wage growth generally contained in advanced economies since 2022, especially in the euro area; real wages now close to or slightly below prepandemic levels.
  - Wages at the bottom of the distribution have risen faster than the average since the pandemic, compressing the distribution.

### Supply-chain, trade, and energy developments
- Supply-chain normalization reduced delivery times and transportation costs, though disruptions persisted (Red Sea attacks, Panama Canal climate extremes).
  - Red Sea attacks affected the route through which 11 percent of global trade flows.
  - Global transportation costs rose following Red Sea tensions but remained well below 2021–22 levels and have recently declined.
- Energy:
  - Energy prices fell faster than expected from peak due partly to increased non-OPEC oil production and higher natural gas output, notably in the United States.
  - Rising exports of Russian oil—facilitated by an expanding non-Western-aligned oil tanker fleet and Russia’s maritime insurance—contributed to global energy supply.

### Monetary policy, interest rates, and financial conditions
- Major central banks raised policy rates to restrictive levels to counter inflation, producing:
  - Increased mortgage costs, generally tight credit availability, refinancing difficulties for firms, rising corporate bankruptcies, subdued business and residential investment in several economies, and strong pressure on commercial real estate in some economies.
- Why a sharp global downturn did not materialize:
  - Some central banks raised nominal rates after inflation expectations rose, producing lower real rates that initially supported activity.
  - Bank of Japan: kept policy rates near zero, resulting in steady decline in real interest rates.
  - Central banks in Brazil, Chile, and several EMDEs raised rates relatively quickly, producing earlier increases in real rates.
  - Households in major advanced economies drew on substantial pandemic savings to limit spending impact.
  - Changes in mortgage/housing markets (longer maturities and higher share of fixed-rate mortgages) limited drag on household consumption in several economies.
- Additional monetary developments:
  - With inflation moving toward targets, market expectations of future policy rate declines contributed to lower long-term borrowing rates, rising equity markets, and easing global financial conditions since last October, though funding remains more expensive than before the pandemic.
  - Central banks that raised policy rates earlier (including Brazil and Chile) have already cut them substantially since.

### Elevated debt burdens, fiscal pressure, and fiscal stance
- Debt-to-GDP ratios remain elevated after pandemic-era increases; large budget deficits continue raising debt burdens.
- Interest payments on debt have increased as a share of government revenues, crowding out growth-enhancing investments.
- Low-income countries: interest payments estimated to average 14.3 percent of general government revenues in 2024 (about double the level 15 years ago).
- Fiscal policy stance: expected to tighten in 2024 and beyond (higher taxes and lower government spending in several advanced and EMDEs), weighing on near-term activity.

### Baseline assumptions: commodity prices, monetary policy, fiscal policy
- Commodity price projections for 2024:
  - Fuel commodities: fall by, on average, 9.7 percent.
  - Oil prices: fall by about 2.5 percent.
  - Coal prices: decline by 25.1 percent.
  - Natural gas prices: decline by 32.6 percent.
  - Base metals prices: fall by 1.8 percent.
  - Food commodity prices: decline by 2.2 percent.
  - Forecasts for food prices revised slightly downward versus January 2024, driven by expectations of abundant global supplies for wheat and maize.
- Monetary policy projections (by Q4 2024):
  - Federal Reserve: decline from about 5.4 percent to 4.6 percent.
  - Bank of England: decline from about 5.3 percent to 4.8 percent.
  - European Central Bank: decline from about 4.0 percent to 3.3 percent.
  - Japan: policy rates projected to rise gradually.
- Fiscal policy projections:
  - Advanced economies: expected fiscal tightening in 2024 and to a lesser extent in 2025–26.
  - Structural fiscal-balance-to-GDP ratio changes in 2024:
    - United States: rise by 1.9 percentage points.
    - Euro area: rise by 0.8 percentage point.
  - Emerging market and developing economies: projected fiscal stance broadly neutral in 2024, with a tightening of about 0.2 percentage point projected for 2025.

### Global outlook and key projections
- Global growth:
  - 2023: 3.2 percent.
  - 2024: 3.2 percent.
  - 2025: 3.2 percent.
- Global headline and core inflation: projected to decline steadily.
- World trade volume (goods and services):
  - 2023: 0.3 percent.
  - 2024: 3.0 percent.
  - 2025: 3.3 percent.
- Growth by country group:
  - Advanced Economies: 2023 = 1.6; 2024 = 1.7; 2025 = 1.8.
  - Emerging Market and Developing Economies: 2023 = 4.3; 2024 = 4.2; 2025 = 4.2.
- Selected economies (2023 / 2024 / 2025):
  - United States: 2.5 / 2.7 / 1.9.
  - Euro Area: 0.4 / 0.8 / 1.5.
  - China: 5.2 / 4.6 / 4.1.
  - India: 7.8 / 6.8 / 6.5.
  - Brazil: 2.9 / 2.2 / 2.1.
  - Mexico: 3.2 / 2.4 / 1.4.
  - Russia: 3.6 / 3.2 / 1.8.
  - Saudi Arabia: –0.8 / 2.6 / 6.0.
  - Sub-Saharan Africa: 3.4 / 3.8 / 4.0.
  - Nigeria: 2.9 / 3.3 / 3.0.
  - South Africa: 0.6 / 0.9 / 1.2.
- Low-Income Developing Countries:
  - 2023: 4.0.
  - 2024: 4.7.
  - 2025: 5.2.

### Inflation and prices (selected projections and oil price)
- World Consumer Prices:
  - 2023: 6.8.
  - 2024: 5.9.
  - 2025: 4.5.
- Advanced Economies (consumer prices):
  - 2023: 4.6.
  - 2024: 2.6.
  - 2025: 2.0.
- Emerging Market and Developing Economies (consumer prices):
  - 2023: 8.3.
  - 2024: 8.3.
  - 2025: 6.2.
- Oil (simple average of UK Brent, Dubai Fateh, and West Texas Intermediate):
  - 2023 change: –16.4 percent.
  - 2024 change: –2.5 percent.
  - 2025 change: –6.3 percent.
  - Average price of oil in US dollars a barrel: $80.59 in 2023; assumed price $78.61 in 2024 and $73.68 in 2025.

### Regional and sectoral notes
- Advanced economies: slight rise in growth driven by euro area recovery and stronger US projection; forecast remains below 2000–19 annual average of 3.8 percent.
- United States: 2024 upward revision of 0.6 percentage point since January 2024 WEO Update.
- Euro area: recovery expected as energy-price shock effects subside; Germany revised downward by 0.3 percentage point for both 2024 and 2025.
- Emerging and developing Asia:
  - Regional: 5.6 (2023) → 5.2 (2024) → 4.9 (2025).
  - China: 5.2 → 4.6 → 4.1.
  - India: 7.8 → 6.8 → 6.5.
- Emerging and developing Europe:
  - Regional: 3.2 (2023) → 3.1 (2024) → 2.8 (2025).
  - Russia: 3.6 → 3.2 → 1.8.
  - Türkiye: 3.1 (2024) → 3.2 (2025).
- Latin America and the Caribbean:
  - Regional: 2.3 (2023) → 2.0 (2024) → 2.5 (2025).
  - Brazil: 2.9 → 2.2 → 2.1.
  - Mexico: 3.2 → 2.4 → 1.4.

### Medium-term outlook and structural drivers
- Global growth in 2029: 3.1 percent (unchanged since October 2023 WEO).
- Decline in medium-term prospects versus pre-pandemic and pre-global financial crisis forecasts:
  - Pre-pandemic (January 2020 WEO Update) medium-term projection: 3.6 percent.
  - Pre-global financial crisis (April 2008 WEO) medium-term projection: 4.9 percent.
  - Historical (2000–19) annual average actual global growth: 3.8 percent.
- Prospective growth in GDP per person: down from 3.9 percent (pre-global financial crisis medium-term forecast) to 2.1 percent in latest projections.
- Structural drivers cited: lower total factor productivity, declining labor force participation amid population aging, weaker business investment, resource misallocation frictions, dimmer China and other large EMDE prospects, geoeconomic fragmentation.

### Risks to the outlook (broadly balanced)
- Downside risks include:
  - Commodity price spikes from regional conflicts (Gaza–Israel, Red Sea attacks, war in Ukraine), complicating disinflation and harming lower-income countries.
  - Persistent inflation and financial stress from slower-than-expected decline in core inflation leading to higher interest rate expectations and tighter financial conditions.
  - China’s recovery faltering absent comprehensive property-sector restructuring, with policy responses potentially mitigating costs.
  - Disruptive fiscal adjustment and debt distress: share of low-income countries in or at high risk of debt distress in 2024 is 54 percent; share of emerging markets in or at high risk is 16 percent.
  - Erosion of trust in government undermining reform momentum.
  - Intensifying geoeconomic fragmentation reducing flows, innovation, and causing output losses and commodity price volatility.
- Upside risks include:
  - Short-term fiscal boosts in election contexts boosting near-term global activity but risking inflation and later adjustment.
  - Faster-than-expected supply-side improvements allowing earlier monetary easing.

### Artificial intelligence and productivity
- IMF staff analysis (Cazzaniga and others 2024) finds medium-term potential for higher worker productivity and incomes alongside risks of job displacement and greater inequality.
- Exposure by country group:
  - Advanced economies: AI could affect about 60 percent of workers; about half of those exposed achieving higher productivity and incomes and half seeing lower demand and wages.
  - Emerging market economies: AI could affect about 40 percent of jobs.
  - Low-income countries: AI could affect about 26 percent of jobs.
- Policy priorities: regulatory frameworks, foundational infrastructure, digital skills training, retraining displaced workers, industrial policies only where clear externalities exist and consistent with WTO rules.

### Global risk assessment probabilities
- Probability global growth in 2024 < 2.0 percent: about 10 percent (down from 15 percent October 2023).
- Probability global growth in 2025 < 2.0 percent: about 10 percent.
- Probability of a contraction in global per capita real GDP in 2024: below 5 percent.
- Probability global growth exceeds 3.8 percent in 2024: slightly above 20 percent.
- Probability core inflation in 2024 higher than in 2023 (instead of declining to 4.9 percent): assessed at less than 10 percent.

### Delivering a smooth landing (monetary policy guidance)
- Central bank near-term priority: ensure inflation declines smoothly—neither ease prematurely nor delay excessively.
- Where core inflation persists above target: higher real interest rates may be necessary.
- Where expectations and underlying gauges decline toward target: delaying nominal policy rate cuts risks effective tightening.
- Guidance by country circumstances:
  - Deep foreign exchange markets and low foreign currency debt: adjust policy rate and allow exchange rate flexibility.
  - Shallow foreign exchange markets and large foreign currency debt: consider FX intervention or capital flow management while keeping monetary and fiscal policy appropriate.
- Financial sector implications: divergent policies may spur capital flows and US dollar strength; strengthen supervision (including Basel III) and recalibrate macroprudential tools as needed.
- Use IMF Integrated Policy Framework; deploy liquidity support promptly while mitigating moral hazard.

### Fiscal policy: rebuilding room, debt sustainability, and restructuring
- Renewed focus on medium-term fiscal consolidation to rebuild buffer space and curb public debt rise.
- Size of fiscal adjustment needed is large in numerous cases.
- Policy guidance:
  - Calibrate pace: gradual and sustained where possible; front-loaded where market access is lost or debt crises loom.
  - Protect targeted support for vulnerable groups and priority investments.
  - Build credibility with well-specified plans, realistic assumptions, and binding legislation/fiscal frameworks.
  - Phase out untargeted measures as energy prices return to prepandemic levels.
  - Ensure any new tax cuts or spending increases are funded.
- Debt distress and restructuring:
  - Orderly restructuring may be necessary for countries in debt distress.
  - Progress noted: G20 Common Framework delivering; Global Sovereign Debt Roundtable fostering understanding; more creditor coordination needed.

### Structural reforms and climate policy
- Structural reforms that relax binding constraints (raise labor participation, reduce misallocation, improve talent allocation) can boost productivity and medium-term growth.
- Reforms in EMDEs (governance, business regulation, external sector policies) could spark higher investment and growth.
- Narrowing gender gaps in labor participation amplifies reform returns.
- Climate mitigation and energy transition:
  - Instruments: carbon pricing, public infrastructure investment in clean energy, sectoral policies, regulations, reductions in fossil-fuel subsidies.
  - Carbon border-adjustment mechanisms and incentive programs need WTO-consistent design.
  - Risks: scaling back fossil-fuel investments without matching clean energy supply increases could raise energy security risks.
  - Adaptation: investments in adaptation infrastructure, climate-risk monitoring, safety nets, insurance.
  - Mobilizing climate finance for low-income countries requires coordinated international effort and technology flows.

### Sovereign ratings and institutional quality
- IMF analysis indicates sovereign ratings respond to debt-to-GDP forecasts and perceived institutional quality.
- Higher perceived institutional quality associated with higher probability of a high credit rating (top 10 percent of S&P Global sovereign ratings in the sample).
- Sample: 52 EMDEs during 2002–22; controls include per capita income and unemployment rate.

### Fragmentation, trade, and Box findings
- Stylized bloc analysis (post-invasion Q2 2022–Q3 2023 vs. Q1 2017–Q1 2022):
  - Total goods trade slowed by about 2.4 percentage points more between countries not in the same bloc than among those in the same bloc.
  - Trade in strategic sectors slowed by about 4 percentage points more among countries not in the same bloc.
  - China’s share of US goods imports fell by almost 8 percentage points (from 22 percent in 2017 to 14 percent in 2023).
  - Supply chains lengthening; results robust to alternative bloc definitions and not driven exclusively by US–China pairs.

### Scenario quantifications and impacts (selected)
- Healing from the pandemic scenario:
  - Median G20 country: TFP increases by about 2 percent over 2024–26; labor force participation increases by 0.7 percentage point.
  - Impact: global GDP increases cumulatively by 1.3 percent by 2027 relative to current projections; inflation effect close to zero.
- Fiscal scenario (no fiscal tightening in 2024–25):
  - Fiscal impulse (advanced economies): 2024 = 0.9; 2025 = 0.8; 2026 = –2.0; 2027 = –1.5 (year-over-year change in structural primary deficit in percent of potential GDP).
  - Consequences: global borrowing costs increase starting in 2025; term and sovereign premiums peak at 100 basis points by 2026 in advanced economies with debt >100 percent of GDP; EMDEs peak at 150 basis points by 2026.
  - Impact: global output initially increases, peaking at 0.5 percent in 2025; global inflation about 30 basis points higher on average during 2024–25; US policy rates increase by 100 basis points relative to baseline by 2026.
- Deflation in China scenario:
  - China core inflation declines by 1 percentage point in 2024 and by 2 percentage points in 2025 and 2026; negative core inflation outturns in 2025–26.
  - China export price inflation decreases by 2 percentage points in 2024 and by 4 percentage points in 2025 and 2026.
  - Impact: China-driven global GDP fall smaller than October downside; global GDP falls cumulatively by 0.5 percent by 2025 relative to current projections; inflation in advanced economies and EMs excl. China about 20 basis points lower on average during 2024–26.
- Geopolitical risk (Middle East escalation):
  - Oil prices 15 percent higher; average container prices rise by 150 percent in 2024–25.
  - Impact: global headline inflation up close to 70 basis points in 2024; hit to purchasing power and tighter monetary policy lower global activity by as much as 0.4 percent by 2025.
- Divergence and global financial conditions:
  - US domestic demand +1.5 percent in 2024 relative to projections; Japan –0.5 percent; euro area –1 percent.
  - US policy rates 70 basis points higher in 2024; sovereign premiums in EMDEs excl. China +150 basis points in 2024–25; corporate premiums +75 basis points.
  - Impact: global output falls by 0.4 percent in 2025; global headline inflation falls about 25 basis points below baseline.

### Global activity reversal (2026–27) and additional scenario outcomes
- Advanced-economy growth falls by about 1 percent relative to current projections in both 2026 and 2027.
- Global inflation about 60 basis points lower during 2026–27.
- Monetary policy turns accommodative; US policy rates 75 basis points lower than baseline by 2027.
- China deflation scenario (additional notes):
  - Policy rates outside China lower; US rates 40 basis points lower than baseline by 2025.
- Geopolitical scenario (additional notes):
  - Core inflation increases by about 20–30 basis points in 2024–25 from second-round effects.
  - Monetary policy tightens with rates about 30 to 40 basis points higher in 2025.
- Global divergence scenario (additional notes):
  - Dollar appreciates in 2024 by 2 percent against advanced-economy currencies and by 5 percent against emerging-market currencies (nominal terms).
  - Global output falls by 0.4 percent in 2025; headline inflation about 25 basis points below baseline.

### Commodity Special Feature — market developments and elasticities (summary)
- Recent commodity price movements (Aug 2023–Feb 2024):
  - Oil: decreased by 4.2 percent between Aug 2023 and Feb 2024; monthly average $80.70; futures suggest $78.60 in 2024 and $67.50 in 2029.
  - Natural gas: TTF fell 24.4 percent to $8.10 per MMBtu in Feb 2024; Asian LNG declined 24.9 percent; Henry Hub decreased 32.3 percent; futures: TTF $9.45 in 2024 and $8.73 in 2029; Henry Hub $2.66 in 2024 and $3.63 in 2029; US export capacity expected to rise from 11.4 bcf/d to 21.1 bcf/d until 2027.
  - Metals: IMF base metals price index +4.7 percent Aug 2023–Feb 2024; iron ore +14.9 percent; uranium +75.3 percent; gold +5.5 percent.
  - Agriculture and food: IMF food and beverages price index +6.0 percent; cereals –7.2 percent; vegetable oils –10.9 percent; cocoa +64.2 percent; coffee +18.2 percent; rubber +39.8 percent; seafood +25.9 percent.
- Commodity market concentration: many markets highly concentrated (elevated Herfindahl-Hirschman indices); example palm oil production HHI = 0.4.
- Elasticities: commodities mostly inelastic with heterogeneity:
  - Supply elasticities: cereals supply elasticity about 0.6; metals (copper, zinc) supply elasticity close to zero; energy between mineral and agricultural.
  - Demand elasticities: crude oil and coal < 0.2; rice close to zero; tea, cotton, wheat > 0.4; copper and zinc near zero; lead and tin between 0.2 and 0.3.
  - Perennial crops have smaller short-term supply elasticities with peaks 2–3 years after shock.
  - Supply and demand more responsive over time for many metals and energy commodities.
- Policy implications:
  - Low elasticities imply larger price reactions to shocks, increasing price volatility and complicating fiscal and monetary responses—especially for low-income and commodity-exporting countries.
  - Recommendations include building fiscal buffers, replacing untargeted subsidies with targeted transfers to increase elasticities, and using international trade to smooth shocks.

_Italic: Source: CHAPTER 1 gLObaL PROSPECTS aND POLICIES (April 2024), World Economic Outlook — IMF staff calculations and analysis._

### 6.7 percent. That is 0.8 percentage point higher

### ch1 - 6.7 percent. That is 0.8 percentage point higher

### Global growth and forecast surprise
- Cumulative growth in 2022–23 was 6.7 percent. That is 0.8 percentage point higher than the forecasts made at the time of the October 2022 World Economic Outlook (WEO).
- The United States and several large emerging market and middle-income economies exhibited the greatest overperformance, with aggregate demand supported by stronger-than-expected private consumption amid still-tight––though easing––labor markets.
- Households in advanced economies supported spending by drawing down accumulated pandemic-era savings.
- Larger-than-expected government spending further supported aggregate demand across most regions.
  - Additional budgetary support, compared with October 2022 WEO forecasts, was estimated at 2 percent of GDP in the United States and 0.2 percent of GDP in the euro area.
  - In China, the fiscal stance was mildly tighter than expected, by 0.7 percent of GDP.
- The euro area displayed the smallest upside growth surprise, reflecting weak consumer sentiment and lingering effects of high energy prices.

### Inflation dynamics and regional differences
- Global headline inflation declined broadly in line with expectations, averaging just 0.1 percentage point more than predicted in the October 2022 WEO for 2022 and 2023.
- In lower-income countries, inflation was on average higher than expected, driven by stronger pass-through from international food, fuel, and fertilizer costs and from currency depreciation; price pressures in some lower-income countries were significant and contributed to slower growth (negative supply shock).
- In China, inflation fell unexpectedly, reflecting sharply lower domestic food prices and pass-through effects on underlying (core) inflation.
- Core inflation declined as pass-through effects from past shocks faded and labor market pressures eased.
  - Pass-through fading played a larger role in reducing core inflation in the euro area and the United Kingdom than in the United States.
  - In the United States, remaining upward pressure on underlying inflation was mainly from labor market tightness and strong macroeconomic conditions.

### Labor markets, participation, and supply-side expansion
- A greater-than-expected rise in the labor force amid robust employment growth supported activity and disinflation in advanced economies and several large emerging market and middle-income economies.
  - The labor force expansion reflected, in some economies, increased inflows of migrants, with faster growth in the foreign-born than in the domestic-born labor force since 2021, as well as higher labor force participation rates.
- Exceptions: China experienced broad-based labor market weakness; lower-income countries faced supply-side challenges that held back job creation.
- Greater-than-expected additions to the stock of physical capital and business investment responded to strong product demand in most regions; exceptions included the euro area, where interest-rate-sensitive business investment—particularly in manufacturing—was subdued.
- Labor market indicators:
  - IMF staff estimates of the gap between actual and potential output levels in 2023: United States +0.7 percent; euro area –0.3 percent; United Kingdom –0.3 percent.
  - The ratio of vacancies to the number of unemployed people declined amid a rise in unemployment rates, suggesting easing across several economies.
  - Nominal wage growth has generally remained contained in advanced economies since 2022, especially in the euro area; real wages are now close to or slightly below prepandemic levels in these economies.
  - Wages at the bottom of the wage distribution have risen faster than the average since the start of the pandemic, compressing the distribution.

### Supply-chain, trade, and energy developments
- Resolution of pandemic-era supply-chain problems allowed delivery times to decline and transportation costs to decrease, though disruptions persisted from attacks on commercial shipping in the Red Sea and climate extremes in the Panama Canal.
  - Attacks on commercial shipping in the Red Sea affected the route through which 11 percent of global trade flows.
  - Global transportation costs increased following Red Sea tensions (rerouting from the Suez Canal to the Cape of Good Hope) but remained well below 2021–22 levels and have recently declined.
- The price of energy fell faster than expected from its peak, in part due to increased non-OPEC oil production and increased natural gas output, most notably in the United States.
- Rising exports of Russian oil—facilitated by an expanding non-Western-aligned oil tanker fleet and Russia’s setting up its own maritime insurance—contributed to global energy supply.

### Monetary policy, interest rates, and financial conditions
- Major central banks raised policy interest rates to levels estimated as restrictive to counter rising inflation.
  - Resulting effects: increased mortgage costs, generally tight credit availability, refinancing difficulties for firms, rising corporate bankruptcies, and subdued business and residential investment in several economies; commercial real estate, including office markets, faced strong pressure in some economies.
- Despite tightening, a sharp global economic downturn did not materialize because:
  - Some central banks raised nominal rates after inflation expectations started to rise, producing lower real rates that initially supported activity.
  - The Bank of Japan kept policy rates near zero, resulting in a steady decline in real interest rates.
  - Central banks in Brazil, Chile, and several other EMDEs raised rates relatively quickly, producing earlier increases in real interest rates.
  - Households in major advanced economies drew on substantial pandemic savings to limit the impact of higher borrowing costs on spending.
  - Changes in mortgage and housing markets over the prepandemic decade (greater average maturity and share of fixed-rate mortgages) limited the drag of recent policy rate rises on household consumption in several economies.
- Additional monetary developments:
  - With inflation moving toward targets, market expectations of future policy rate declines have generally contributed to a decline in long-term borrowing rates, rising equity markets, and easing global financial conditions since last October, though funding remains more expensive than before the pandemic.
  - Central banks that raised policy rates earlier, including those in Brazil and Chile, have already cut them substantially since.

### Decomposition and drivers of inflation movements
- Decomposition of recent inflation movements highlights multiple contributors:
  - Headline inflation shocks (notably energy) and pass-through effects from past relative price movements have been important drivers.
  - Near-term inflation expectations declined toward target levels in both advanced economies and emerging market and developing economies, while longer-term inflation expectations remained anchored.
  - Labor market tightness contributed more to disinflation dynamics in some economies (notably the United States) than in others.
- Methodology note: IMF staff decomposition uses the same methodology as Dao and others (2023) and Ball, Leigh, and Mishra (2022); underlying (core) inflation denotes weighted median inflation.

*Source: IMF staff calculations and analysis from the chapter (World Economic Outlook—April 2024).*

### CHAPTER 1 gLObaL PROSPECTS aND POLICIES

### CHAPTER 1 gLObaL PROSPECTS aND POLICIES

### Elevated debt burdens and fiscal pressure
- Debt-to-GDP ratios remain elevated after sharp pandemic-era increases; large budget deficits continue to raise debt burdens.
- Interest payments on debt have increased as a share of government revenues, crowding out growth-enhancing investments.
- In low-income countries, interest payments are estimated to average 14.3 percent of general government revenues in 2024, about double the level 15 years ago.
- Fiscal policy stance is expected to tighten in 2024 and beyond—with higher taxes and lower government spending in several advanced and emerging market and developing economies—expected to weigh on near-term economic activity.

### Baseline assumptions: commodity prices, monetary policy, fiscal policy
- Commodity price projections:
  - Prices of fuel commodities are projected to fall in 2024 by, on average, 9.7 percent.
  - Oil prices are projected to fall by about 2.5 percent in 2024.
  - Coal prices are expected to decline by 25.1 percent in 2024.
  - Natural gas prices are expected to decline by 32.6 percent in 2024.
  - Base metals prices expected to fall by 1.8 percent in 2024.
  - Food commodity prices are predicted to decline by 2.2 percent in 2024.
  - Forecasts for food prices have been revised slightly downward versus January 2024, driven by expectations of abundant global supplies for wheat and maize.
- Monetary policy projections:
  - Policy rates of central banks in major advanced economies are generally expected to start declining in the second half of 2024 as inflation continues to decline toward targets.
  - By the fourth quarter of 2024, policy-rate projections among major central banks are:
    - Federal Reserve: decline from about 5.4 percent to 4.6 percent.
    - Bank of England: decline from about 5.3 percent to 4.8 percent.
    - European Central Bank: decline from about 4.0 percent to 3.3 percent.
  - For Japan, policy rates are projected to rise gradually reflecting growing confidence that inflation will sustainably converge to target.
- Fiscal policy projections:
  - Governments in advanced economies are expected to tighten fiscal policy in 2024 and, to a lesser extent, in 2025–26.
  - Structural fiscal-balance-to-GDP ratio changes in 2024 for major advanced economies:
    - United States: rise by 1.9 percentage points.
    - Euro area: rise by 0.8 percentage point.
  - Emerging market and developing economies: projected fiscal stance broadly neutral in 2024, with a tightening of about 0.2 percentage point projected for 2025.

### Global outlook: steady growth and disinflation
- Global headline summary:
  - Global growth estimated at 3.2 percent in 2023 and projected to be 3.2 percent in 2024 and 3.2 percent in 2025.
  - Global headline and core inflation projected to decline steadily.
  - Outlook for global growth is higher than in the October 2023 WEO but little changed since the January 2024 WEO Update.
  - Medium-term prospects for world output and trade growth remain the lowest in decades; pace of convergence toward higher living standards is slowing for middle- and lower-income countries.
- World trade volume (goods and services) projections:
  - 2023: 0.3 percent
  - 2024: 3.0 percent
  - 2025: 3.3 percent

### Growth outlook by country group and major economies (percent)
- World Output:
  - 2023: 3.2
  - 2024: 3.2
  - 2025: 3.2
- Advanced Economies:
  - 2023: 1.6
  - 2024: 1.7
  - 2025: 1.8
- Emerging Market and Developing Economies:
  - 2023: 4.3
  - 2024: 4.2
  - 2025: 4.2
- Selected economies (2023 / 2024 / 2025):
  - United States: 2.5 / 2.7 / 1.9
  - Euro Area: 0.4 / 0.8 / 1.5
  - China: 5.2 / 4.6 / 4.1
  - India: 7.8 / 6.8 / 6.5
  - Brazil: 2.9 / 2.2 / 2.1
  - Mexico: 3.2 / 2.4 / 1.4
  - Russia: 3.6 / 3.2 / 1.8
  - Saudi Arabia: –0.8 / 2.6 / 6.0
  - Sub-Saharan Africa: 3.4 / 3.8 / 4.0
  - Nigeria: 2.9 / 3.3 / 3.0
  - South Africa: 0.6 / 0.9 / 1.2
- Low-Income Developing Countries:
  - 2023: 4.0
  - 2024: 4.7
  - 2025: 5.2

### Regional and sectoral notes on growth dynamics
- Advanced economies: slight rise in growth driven by euro area recovery and stronger US projection; forecast remains below 2000–19 annual average of 3.8 percent.
- United States: 2024 upward revision of 0.6 percentage point since January 2024 WEO Update, reflecting statistical carryover from strong Q4 2023.
- Euro area: recovery expected as effects of energy-price shock subside; Germany revised downward by 0.3 percentage point for both 2024 and 2025 amid weak consumer sentiment.
- Other advanced economies:
  - United Kingdom: 0.1 (2023) → 0.5 (2024) → 1.5 (2025).
  - Japan: 1.9 (2023) → 0.9 (2024) → 1.0 (2025).
- Emerging and developing Asia:
  - Regional projection: 5.6 (2023) → 5.2 (2024) → 4.9 (2025).
  - China: 5.2 → 4.6 → 4.1, with slowdown as postpandemic and fiscal stimulus effects ease and property-sector weakness persists.
  - India: 7.8 → 6.8 → 6.5, supported by domestic demand and rising working-age population.
- Emerging and developing Europe:
  - Regional projection: 3.2 (2023) → 3.1 (2024) → 2.8 (2025).
  - Russia: 3.6 → 3.2 → 1.8, reflecting fading investment and consumption momentum.
  - Türkiye: 3.1 (2024) → 3.2 (2025), with strengthening in second half of 2024 as monetary tightening ends.
- Latin America and the Caribbean:
  - Regional: 2.3 (2023) → 2.0 (2024) → 2.5 (2025).
  - Brazil: 2.9 → 2.2 → 2.1, weighed by fiscal consolidation and lagged tight monetary effects.
  - Mexico: 3.2 → 2.4 → 1.4, with a 2024 fiscal expansion followed by expected fiscal tightening in 2025.

### Inflation and prices (selected projections)
- World Consumer Prices:
  - 2023: 6.8
  - 2024: 5.9
  - 2025: 4.5
- Advanced Economies (consumer prices):
  - 2023: 4.6
  - 2024: 2.6
  - 2025: 2.0
- Emerging Market and Developing Economies (consumer prices):
  - 2023: 8.3
  - 2024: 8.3
  - 2025: 6.2
- Oil (simple average of UK Brent, Dubai Fateh, and West Texas Intermediate):
  - 2023 change: –16.4 percent
  - 2024 change: –2.5 percent
  - 2025 change: –6.3 percent
  - Average price of oil in US dollars a barrel was $80.59 in 2023; assumed price based on futures markets is $78.61 in 2024 and $73.68 in 2025.

*Source: CHAPTER 1 gLObaL PROSPECTS aND POLICIES (April 2024), IMF World Economic Outlook — April 2024.*

### CHAPTER 1 gLObaL PROSPECTS aND POLICIES

### CHAPTER 1 gLObaL PROSPECTS aND POLICIES

### Regional Growth Projections
- Middle East and Central Asia: growth projected to rise from an estimated 2.0 percent in 2023 to 2.8 percent in 2024 and 4.2 percent in 2025, with a downward revision of 0.1 percentage point for 2024 from the January 2024 projections (revision reflects a downward adjustment in the 2024 growth forecast for Iran and a number of smaller economies).
- Sub-Saharan Africa: growth projected to rise from an estimated 3.4 percent in 2023 to 3.8 percent in 2024 and 4.0 percent in 2025; the forecast for 2024 is unchanged from the January 2024 WEO Update (downward revision to Angola owing to a contraction in the oil sector is broadly offset by an upward revision to Nigeria).

### Inflation Outlook: Declining at Different Speeds
- Global headline inflation:
  - Annual average of 6.8 percent in 2023.
  - Expected to fall to 5.9 percent in 2024 and 4.5 percent in 2025 (Table 1.1).
- Advanced economies:
  - More front-loaded decline; inflation falling by 2.0 percentage points in 2024.
  - Expected to average 2.0 percent in 2025 (near prepandemic 2017–19 average).
- Emerging market and developing economies (EMDEs):
  - Return to pre-pandemic average near 5.0 percent expected about a year later than advanced economies.
  - Great differentiation across regions in 2025: emerging and developing Asia at 2.4 percent; emerging and developing Europe at 18.8 percent (reflecting elevated inflation in Türkiye).
- Revisions and drivers:
  - Global inflation forecast revised upward by 0.1 percentage point in 2024 from January 2024 projections (unchanged projections for advanced economies offset by an upside revision of 0.2 percentage point in EMDEs, mainly due to increases in Iran and a few low-income countries).
  - Core inflation expected to fall by 1.2 percentage points in 2024 after contracting by 0.2 percentage point in 2023.
  - Drivers of declining core inflation include still-tight monetary policies, softening labor markets, and fading pass-through effects from earlier declines in relative prices (notably energy).
- Inflation relative to targets:
  - Among economies with an inflation target, headline inflation projected to be 0.5 percentage point above target (or midpoint) for the median economy by 2024:Q3.
  - For advanced economies the median gap is expected to be 0.3 percentage point by 2024:Q3.
  - Most economies expected to reach within a quarter of a percentage point of their targets by 2025:Q2.

### World Trade Outlook
- World trade growth projected at 3.0 percent in 2024 and 3.3 percent in 2025 (revisions of a 0.3 percentage point decrease for 2024 and 2025 compared with January 2024 projections).
- Trade growth expected to remain below historical (2000–19) annual average growth rate of 4.9 percent over the medium term, at 3.2 percent in 2029.
- Projected ratio of total world trade to GDP (in current dollars) averages 57 percent over the next five years.
- Notable structural change: growth in trade flows between geopolitical blocs has declined significantly since February 2022 compared with growth of trade within blocs; reallocation occurring amid about 3,200 new trade restrictions in 2022 and about 3,000 in 2023 (up from about 1,100 in 2019).

### Global Current Account Balances and International Investment Positions
- Global current account balances (sums of absolute surpluses and deficits) expected to continue narrowing in 2024, as in 2023, after a significant increase in 2022.
- Drivers of 2022 increase: elevated commodity prices, uneven recovery from the pandemic, and rapid tightening of US monetary policy.
- Creditor and debtor stock positions estimated to have increased in 2023, with valuation losses in debtor economies and gains in creditor economies more than offsetting narrowing current account balances; these positions expected to stabilize over the medium term.
- Note: In some economies, gross external liabilities remain large from a historical perspective and pose risks of external stress.

### Medium-Term Growth Outlook: Low by Historical Standards
- Latest forecast for global growth in 2029: 3.1 percent (unchanged since October 2023 WEO).
- This medium-term forecast is lower than:
  - Medium-term projection of 3.6 percent made before the pandemic (January 2020 WEO Update).
  - 4.9 percent medium-term projection made before the global financial crisis (April 2008 WEO).
  - Historical (2000–19) annual average actual global growth of 3.8 percent.
- Decline driven largely by lower prospective growth in GDP per person:
  - Prospective growth in GDP per person is down from a medium-term forecast of 3.9 percent before the global financial crisis to 2.1 percent in the latest projections.
- Distributional effects:
  - Contraction in per person growth prospects especially pronounced for EMDEs, implying slower convergence in living standards.
  - Among advanced economies, decline in medium-term prospects driven by countries other than the United States.
- Key structural drivers identified (Chapter 3 and Chapter 4):
  - Lower growth in total factor productivity.
  - Declining labor force participation amid population aging.
  - Weaker business investment.
  - Structural frictions preventing resources reallocating to more productive firms.
  - Dimmer prospects for growth in China and other large EMDEs and ongoing geoeconomic fragmentation.

### Risks to the Outlook: Broadly Balanced
- Overall risk distribution: risks have diminished since October 2023, now broadly balanced around the baseline for global growth; inflation risks also broadly balanced.
- Prominent downside risks:
  - New commodity price spikes amid regional conflicts (Gaza–Israel, Red Sea attacks, war in Ukraine) could cause spikes in food, energy, and transportation costs, complicate disinflation, delay central bank easing, and harm global growth—particularly affecting lower-income countries where food and energy share of household expenditure is large.
  - Persistent inflation and financial stress: slower-than-expected decline in core inflation (from persistent labor market tightness or supply-chain tensions) could raise interest rate expectations, lower asset prices, increase defaults (commercial real estate, firms), tighten global financial conditions, and strengthen the US dollar.
  - China’s recovery faltering: without a comprehensive restructuring package for the troubled property sector, a larger drop in real estate investment could trigger intensified disinflationary pressures, weaker domestic demand, and negative spillovers to trading partners; policy responses (accelerating exit of nonviable developers, promoting completion of housing projects, resolving local government debt risks, monetary easing, expansionary fiscal measures) could mitigate costs.
  - Disruptive fiscal adjustment and debt distress: excessively sharp consolidation could slow growth and reduce reform momentum; countries without credible medium-term plans could face adverse market reactions or debt distress; share of low-income countries in or at high risk of debt distress in 2024 is 54 percent; share of emerging markets in or at high risk is 16 percent.
  - Distrust of government eroding reform momentum: confidence in government, legislative bodies, and political parties is below 50 percent by some measures; low confidence can sap support for structural reforms and increase risk of social unrest.
  - Geoeconomic fragmentation intensifying: separation into blocs could accelerate, generating more trade and cross-border restrictions and hampering international cooperation; intensified fragmentation could reduce portfolio and FDI flows, slow innovation and technology adoption, constrain commodity flows, and cause large output losses and commodity price volatility.
- Notable upside risks:
  - Short-term fiscal boost in the context of elections (“Great Election Year” 2024): postponing fiscal adjustment or adopting expansionary measures (tax cuts, increased transfers, infrastructure investment) could boost activity and raise global growth in the near term—though such measures could add to inflationary pressures and debt challenges, possibly prompting later disruptive adjustment.
  - Further supply-side surprises allowing faster monetary policy easing: faster fading of pass-through effects, easing of global supply constraints, or faster-than-expected easing in labor market tightness (for example, in the United States) could bring forward policy easing, lower borrowing costs, raise consumer confidence, and reinforce global growth.

_Italic: Source: CHAPTER 1 gLObaL PROSPECTS aND POLICIES (April 2024), World Economic Outlook — IMF staff calculations and analysis._

### CHAPTER 1 gLObaL PROSPECTS aND POLICIES

### CHAPTER 1 gLObaL PROSPECTS aND POLICIES

### Artificial intelligence and productivity
- Recent advances in artificial intelligence, notably large language models and generative pretrained transformers, represent a leap in cognitive task performance.
- IMF staff analysis (Cazzaniga and others 2024) finds medium-term potential for higher worker productivity and incomes, alongside risks of job displacement and greater inequality.
- Exposure by country group:
  - Advanced economies: artificial intelligence could affect about 60 percent of workers, with about half of those exposed achieving higher productivity and higher incomes and half seeing lower demand for their labor and lower wages.
  - Emerging market economies: artificial intelligence could affect about 40 percent of jobs.
  - Low-income countries: artificial intelligence could affect about 26 percent of jobs.
- Near-term rollout could boost investment as firms integrate tools and refine production processes; timing and overall impact remain highly uncertain.
- Policy and implementation priorities:
  - Develop adequate regulatory frameworks.
  - Invest in foundational infrastructure and digital skills training.
  - Provide complementary measures to support and retrain displaced workers.
  - Pursue industrial policies only where clear externalities or market failures exist, avoiding protectionist provisions and ensuring consistency with WTO rules.

### Global risk assessment and outlook probabilities
- Estimated probabilities:
  - Probability that global growth in 2024 will fall below 2.0 percent: about 10 percent (down from an estimated 15 percent at the October 2023 WEO).
  - Probability that global growth in 2025 will fall below 2.0 percent: about 10 percent.
  - Probability that a contraction in global per capita real GDP occurs in 2024: below 5 percent.
  - Probability of global growth’s exceeding the 3.8 percent historical average during 2000–19 for 2024: slightly above 20 percent.
  - Probability that core inflation in 2024 will be higher than in 2023 (instead of declining to 4.9 percent in 2024 from 6.2 percent in 2023): assessed at less than 10 percent.
- These probabilities indicate a reduced risk of a hard landing and a relatively weak baseline outlook for global growth.

### Delivering a smooth landing (monetary policy guidance)
- Near-term central bank priority: ensure inflation comes down smoothly—neither ease prematurely nor delay so long that tightening would be required later.
- Where core inflation persists above target-consistent levels: higher real interest rates may be necessary.
- Where inflation expectations and underlying gauges clearly decline toward target: delays in nominal policy rate cuts risk an effective tightening via rising real policy rates and long transmission lags.
- Guidance by country circumstances:
  - For countries with deep foreign exchange markets and low foreign currency debt: adjust policy rate and allow exchange rate flexibility.
  - For countries with shallow foreign exchange markets and large foreign currency debt: consider foreign exchange intervention or capital flow management measures while keeping monetary and fiscal policy at appropriate settings.
- Financial sector implications:
  - Divergent central bank policies may spur capital flows and US dollar strength.
  - Still-high borrowing costs and potential housing market shifts imply the need for strengthened supervision (including Basel III implementation) and possible macroprudential recalibration.
- Use IMF Integrated Policy Framework to tailor responses; deploy liquidity support promptly where market strains emerge while mitigating moral hazard.

### Rebuilding budgetary room and debt sustainability (fiscal policy)
- Renewed focus on medium-term fiscal consolidation is appropriate to rebuild budgetary room for future shocks and to curb the rise of public debt.
- The size of fiscal adjustment needed is large in numerous cases (see April 2024 Fiscal Monitor referenced in source).
- Figure comparisons (2023–29) show:
  - Projected adjustment in the general government primary fiscal balance between 2023 and 2029 versus the increase needed to stabilize the general government debt-to-GDP ratio in 2029.
  - Additional adjustment needed to reduce debt to its 2019 level in 2029.
  - Adjustments computed using the effective rate (average interest rate on total current debt stock); marginal interest rate uses the real interest rate based on the currently prevailing rate at the 10-year bond maturity (as of March 31, 2024).
- Policy guidance on pacing and credibility:
  - Calibrate pace: fiscal adjustment should be gradual and sustained where possible to avoid near-term negative effects on activity; front-loaded adjustment may be necessary to avert debt crises or where market access is lost.
  - Protect targeted support for the most vulnerable and priority investments to mitigate near-term activity losses.
  - Build credibility with well-specified plans, realistic assumptions about short-term growth effects, interest rates, and budgetary yields, and by backing plans with binding legislation and fiscal frameworks.
  - With energy prices returning to prepandemic levels, phase out untargeted fiscal measures that blunt price signals.
  - Ensure any new tax cuts or spending increases (including around elections in 2024) are funded so they do not expand budget deficits.

### Addressing debt distress and sovereign restructuring
- For countries in debt distress, orderly debt restructuring may be necessary.
- Progress noted on international sovereign debt resolution frameworks:
  - G20 Common Framework has begun delivering, with successive cases building on prior experiences.
  - Global Sovereign Debt Roundtable is fostering greater common understanding of processes and principles to facilitate timelier and more predictable restructurings.
- Continued efforts needed to improve creditor coordination, including in cases not eligible for the Common Framework.

### Structural reforms to boost productivity and growth
- Faster-than-expected implementation of macrostructural reforms could boost productivity and contribute to higher medium-term growth, helping to heal pandemic "scarring" (see Box 1.2 and Chapter 3).
- Reforms that relax binding constraints—raising labor participation, reducing resource misallocation, and improving talent allocation—can revive activity and reverse two decades of slower global growth.
- In emerging market and developing economies with constrained policy environments, supply-enhancing reforms (governance, business regulation, external sector policies) could spark greater-than-expected domestic and foreign investment and growth (Budina and others 2023).
- Narrowing gender gaps in labor market participation would amplify reform returns (Badel and Goyal 2023; Sayeh, Badel, and Goyal 2023).
- Sequencing and bundling reforms (including labor and credit market reforms) can front-load gains.
- Harnessing AI requires regulatory frameworks, infrastructure, digital skills, and complementary measures for displaced workers.

### Climate policy and the green transition
- Large global policy action gaps persist for reaching greenhouse gas emissions reduction goals consistent with limiting global average temperature increases to 1.5–2.0°C above preindustrial levels.
- Structural reforms that foster job and income growth can help build public support for deeper changes needed for a transition to cleaner energy sources.

### Sovereign ratings and institutional quality
- IMF staff analysis building on Blanchard (2022) indicates sovereign debt ratings respond to both debt-to-GDP forecasts and perceived institutional quality.
- Observed result:
  - Higher perceived institutional quality is associated with a higher probability of a high credit rating, for given forecasted debt-to-GDP ratios.
- Notes on methodology:
  - Estimated probability of a high rating defined as being in the top 10 percent of S&P Global sovereign credit ratings in the sample.
  - Sample includes 52 emerging market and developing economies during 2002–22; controls include per capita income and unemployment rate.

*Source: CHAPTER 1 gLObaL PROSPECTS aND POLICIES (PDF: ch1 - CHAPTER 1 gLObaL PROSPECTS aND POLICIES), International Monetary Fund | April 2024*

### CHAPTER 1 gLObaL PROSPECTS aND POLICIES

### CHAPTER 1 gLObaL PROSPECTS aND POLICIES

### Climate mitigation, energy transition, and resilience
- Emissions reduction requires a holistic set of mitigation instruments, ideally including carbon pricing, public infrastructure investment in clean energy sources, sectoral policies, regulations, and reductions in fossil-fuel subsidies.
- Carbon border-adjustment mechanisms and incentive programs for green investments can speed the green transition but need to be designed to be consistent with WTO rules.
- Fiscal incentives to shift to clean energy sources are also needed.
- Energy transition risks: if scaling back investments in fossil fuels is not adequately matched by corresponding increases in alternative clean energy supplies, energy security risks could rise over the longer term.
- Adaptation and resilience measures needed:
  - Investments in climate adaptation activities and infrastructure, especially for regions most vulnerable to climate shocks.
  - Enhancing climate-risk-monitoring systems and risk management frameworks.
  - Stronger safety nets and insurance to enhance climate resilience.
- Mobilizing climate finance for adaptation and mitigation in low-income countries will require coordinated efforts by international organizations, private investors, country authorities, and donors.
- Establishing the free flow of low-carbon technologies from advanced economies to emerging market and developing economies would further support meeting climate targets.

### Strengthening cross-border cooperation
- Multilateral cooperation is necessary to mitigate fragmentation and strengthen the resilience of the international monetary system.
- Policymakers should maintain stable and transparent trade policies and avoid discriminatory policies that induce trade and investment distortions.
- An intergovernmental dialogue on—or a consultation framework for—industrial policies could help improve data and information sharing and identify the impact of policies, including their unintended consequences across borders.
- Cooperation is required for the orderly resolution of debt problems to clear a path through an increasingly complex creditor landscape.
- International coordination is vital to mitigate the effects of climate change and facilitate the transition to green energy, building on recent agreements at the 2023 Conference of the Parties to the UN Framework Convention on Climate Change.
- Priorities include:
  - Safeguarding the transportation of critical minerals.
  - Restoring the WTO’s ability to settle trade disputes.
  - Ensuring the responsible use of potentially disruptive new technologies such as artificial intelligence by upgrading domestic regulatory frameworks and harmonizing global principles.

### Fragmentation already affecting international trade (Box 1.1)
- Stylized bloc analysis: hypothetical bloc A = Australia, Canada, the European Union, New Zealand, and the United States; hypothetical bloc B = China, Russia, and countries that sided with Russia during the March 2, 2022, UN General Assembly vote on Ukraine; all other countries considered nonaligned.
- Comparison periods: after Russia’s invasion of Ukraine (from the second quarter of 2022 to the third quarter of 2023) versus the five years leading up to the invasion (from the first quarter of 2017 to the first quarter of 2022).
- Key findings:
  - Total goods trade has slowed by about 2.4 percentage points more between countries not in the same bloc than among those in the same bloc.
  - Trade in strategic sectors (Harmonized System two-digit chapters: 28, 29, 30, 38, 84, 85, 87, 88, 90, and 93) has slowed by about 4 percentage points more among countries not in the same bloc.
  - Since the onset of China–US trade tensions in 2017, China’s share of US goods imports has fallen by almost 8 percentage points (from 22 percent in 2017 to 14 percent in 2023).
  - Evidence suggests some US sourcing was partly reallocated away from China and towards other countries during 2017-2022, including Mexico and Vietnam.
  - Supply chains are lengthening, with possible losses in efficiency.
- Robustness: results are robust to alternative bloc definitions and are not driven exclusively by China and the United States; they hold when excluding bilateral pairs where one partner is China or the United States.

### Risk assessment surrounding the WEO baseline (Box 1.2) — confidence bands and probabilities
- Methodology: IMF’s G20 Model used to derive confidence bands around WEO forecast; shocks sampled nonparametrically and fed back through the model.
- Uncertainty changes since October 2023:
  - Risk that global growth will fall below 2 percent in 2024 is assessed at less than 10 percent, compared with 15 percent in October.
  - Risk that core inflation will be higher in 2024 than in 2023 is assessed at less than 10 percent, compared with 15 percent in October.
- Forecast distributions:
  - There is a 70 percent probability that global growth will be between 2.4 percent and 4.1 percent in 2024.
  - There is a 70 percent probability that global growth will be between 2.2 percent and 4.3 percent in 2025.
  - There is a 70 percent probability that 2024 headline inflation will be about 1.3 percentage points higher or lower than currently projected (the band is smaller than the 1.8 percent band estimated in October).
  - The probability that headline inflation will be higher in 2024 than in 2023 is about 20 percent, compared with 25 percent in October.

### Scenario quantifications and key parameter changes
- General: Scenarios assume monetary policy and automatic fiscal stabilizers respond endogenously unless explicitly stated otherwise.

- Greater-than-expected healing from the pandemic:
  - Country-specific improvements in total factor productivity (TFP) help close the labor productivity gap by half relative to prepandemic forecasts.
  - For the median G20 country, total factor productivity increases by about 2 percent over 2024–26.
  - Labor force participation fully closes the gap back to the prepandemic trend, implying a 0.7 percentage point increase in labor force participation for the median G20 country.
  - Normalization is greater in emerging markets excluding China than in advanced economies.
  - The scenario does not assume supply-side improvement relative to baseline for China or the United States.
  - Impact: global GDP increases cumulatively by 1.3 percent by 2027 relative to current projections; the effect on inflation is close to zero.

- Fiscal policy (no fiscal tightening in 2024–25 relative to baseline):
  - Baseline context: structural primary deficits in the median G20 country decrease from about 1.5 percent of potential GDP in 2023 to zero by 2028.
  - Scenario assumption: structural primary deficits remain at their 2023 levels in 2024 and increase further in 2025.
  - Fiscal impulse relative to baseline (percent, year-over-year change in structural primary deficit in percent of potential GDP):
    - Advanced Economies: 2024 = 0.9; 2025 = 0.8; 2026 = –2.0; 2027 = –1.5.
    - Emerging Market and Developing Economies Excluding China: 2024 = 0.1; 2025 = 0.3; 2026 = –0.4; 2027 = –0.4.
  - Consequences:
    - Lack of fiscal consolidation generates an increase in global borrowing costs starting in 2025.
    - Advanced economies with debt levels above 100 percent of GDP experience increases in both term and sovereign premiums that peak at 100 basis points by 2026.
    - Emerging markets experience increases in both premiums that peak at 150 basis points by 2026.
    - A fiscal consolidation eventually takes place in 2026–27; it is larger than in current projections to partly offset earlier expansion and higher premiums.
  - Impact: the fiscal scenario generates a whipsaw-like movement in activity, inflation, and policy rates; global output initially increases relative to baseline, peaking at 0.5 percent in 2025; global inflation is about 30 basis points higher, on average, during 2024–25; monetary policy tightens (example: US policy rates increase by 100 basis points relative to baseline by 2026).

- Deflation in China:
  - Relative to October’s downside, a somewhat greater downside is analyzed with greater deflationary pressures due to larger-than-realized economy-wide slack and excess capacity in the goods sector and a steeper Phillips curve.
  - Core inflation in China declines relative to baseline by 1 percentage point in 2024 and 2 percentage points in 2025 and 2026, resulting in negative core inflation outturns in 2025–26.
  - China’s export price inflation decreases by 2 percentage points in 2024 and by 4 percentage points in 2025 and 2026.
  - The fall in inflation is persistent but ultimately temporary; monetary and fiscal policy accommodation help the initial demand shock fade, and China’s inflation gradually converges back to baseline after 2026.

- Geopolitical risk (escalation of conflict in the Middle East):
  - Oil prices are 15 percent higher.
  - Average container prices rise by 150 percent in 2024–25, mirroring increases similar to those following recent incidents in the Red Sea.
  - Most of the increase in the cost of shipping is concentrated in Asia-to-Europe routes.
  - Oil prices and container costs return to baseline in 2026.

- Divergence and global financial conditions:
  - US aggregate demand surprises to the upside, with domestic demand increasing by 1.5 percent in 2024 relative to current projections.
  - Domestic demand decreases by 0.5 percent in Japan and 1 percent in the euro area in 2024.
  - Monetary policy diverges—tighter in the US and looser in the euro area—while Japan’s monetary policy is unchanged relative to baseline.
  - US policy rates are 70 basis points higher than baseline in 2024, tightening global financial conditions unexpectedly.
  - Sovereign premiums in emerging markets and developing countries excluding China increase by 150 basis points in 2024–25.
  - Corporate premiums increase in emerging market and advanced economies by 75 basis points over the same period.
  - Premiums return to long-term averages in 2026.

### Impacts on world output and inflation (summary of scenario outcomes)
- Healing scenario: global GDP increases cumulatively by 1.3 percent by 2027 relative to current projections; larger increase for emerging markets excluding China; inflation effect close to zero.
- Fiscal scenario: global output initially peaks at 0.5 percent in 2025; global inflation about 30 basis points higher on average during 2024–25; monetary policy tightens (example: US policy rates increase by 100 basis points relative to baseline by 2026).
- China deflation scenario: significant downward effects on China’s core and export price inflation in 2024–26, with gradual convergence back to baseline after 2026.
- Geopolitical scenario: sharp but temporary increases in oil prices (15 percent) and container costs (150 percent in 2024–25) with return to baseline in 2026.
- Divergence scenario: tighter US policy and higher global premiums (150 basis points sovereign; 75 basis points corporate) induce tighter global financial conditions with spillovers to output and inflation.

*Source: CHAPTER 1 gLObaL PROSPECTS aND POLICIES (ch1 - CHAPTER 1 gLObaL PROSPECTS aND POLICIES), International Monetary Fund | April 2024*

### 2025. As borrowing costs rise and fiscal policy goes

### ch1 - 2025. As borrowing costs rise and fiscal policy goes

### Global activity reversal (2026–27)
- Advanced-economy growth falls by about 1 percent relative to current projections in both 2026 and 2027.
- Global inflation is about 60 basis points lower during 2026–27.
- Monetary policy turns accommodative during that period; US policy rates are 75 basis points lower than baseline by 2027.

### China deflation scenario
- Global GDP falls cumulatively by 0.5 percent relative to current projections by 2025.
- Impact is smaller than in the October 2023 scenario and mostly results from the direct impact on China’s GDP.
- Activity spillovers to advanced economies and other emerging markets are close to zero due to offsetting forces:
  - Lower Chinese activity reduces global demand.
  - Large decrease in Chinese export prices improves terms of trade, lowers inflation, and raises purchasing power outside China.
- Inflation in advanced economies and emerging markets excluding China is 20 basis points lower, on average, during the 2024–26 period for both headline and core measures.
- Policy rates outside China are lower, with US rates 40 basis points lower than baseline by 2025.

### Geopolitical risk scenario (negative global supply shock)
- Global headline inflation increases by close to 70 basis points in 2024 and remains 25 basis points above baseline in 2025.
- Core inflation increases by about 20–30 basis points in 2024–25 from second-round effects (higher oil prices and higher production costs from disruptions to international shipping).
- Monetary policy tightens relative to baseline, with rates in both advanced economies and emerging markets about 30 to 40 basis points higher in 2025.
- Hit to purchasing power and tighter monetary policy lower global activity by as much as 0.4 percent by 2025.
- Impact on inflation and activity is broadly similar in advanced economies and emerging markets; within advanced economies the effect is slightly larger in Europe than in the United States because of greater impact from shipping costs.

### Global divergence scenario
- Initial US upside surprises to activity and inflation are offset by downside surprises in other countries.
- The dollar appreciates in 2024 by 2 percent against advanced-economy currencies and by 5 percent against emerging-market currencies (nominal terms), reducing global demand for US exports.
- In emerging markets, depreciation supports export demand and initially offsets tighter domestic financial conditions, while causing a modest increase in inflation.
- Global negative implications become more visible in 2025 as tighter financial conditions increasingly affect activity in advanced economies (outside the United States) and emerging markets.
- Global output falls by 0.4 percent in 2025.
- Global headline inflation falls by about 25 basis points below baseline over the same period.

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### Commodity Special Feature — Market developments and the power of prices

#### Recent commodity price movements (August 2023–February 2024)
- Primary commodity prices declined slightly between August 2023 and February 2024, driven by a decrease in oil prices.
- Oil:
  - After breaking $95 a barrel in late September, oil prices decreased by 4.2 percent between August 2023 and February 2024, standing at a monthly average of $80.70.
  - Red Sea tensions led to a 50 percent rise in global freight rates of oil product tankers; prices on the Middle East to Europe route increased by 200 percent from mid-November 2023 to mid-March 2024.
  - Russian oil was mostly above the Group of Seven price cap since the second half of 2023, at a $15–$20 discount (based on Argus data).
  - Futures markets suggest oil prices will average $78.60 per barrel in 2024 (a slide of 2.5 percent year over year) and fall to $67.50 in 2029.
- Natural gas:
  - Title Transfer Facility (TTF) trading hub prices in Europe fell 24.4 percent from August 2023 to $8.10 a million British thermal units (MMBtu) in February 2024.
  - Asian LNG prices declined by 24.9 percent.
  - US Henry Hub prices decreased by 32.3 percent.
  - Futures: TTF prices expected to average $9.45 in 2024 and $8.73 in 2029.
  - Henry Hub prices may rise from an average of $2.66 per MMBtu in 2024 to $3.63 in 2029, as US export capacity is expected to almost double from 11.4 billion cubic feet a day (bcf/d) to 21.1 bcf/d until 2027.
- Metals:
  - IMF base metals price index rose by 4.7 percent from August 2023 to February 2024.
  - Iron ore prices increased by 14.9 percent due to record steel production in China.
  - Uranium prices rose by 75.3 percent to their highest level since 2007.
  - Gold prices rose by 5.5 percent on safe haven demand and expectations of monetary policy easing.
- Agriculture and food:
  - IMF food and beverages price index gained 6.0 percent between August 2023 and February 2024.
  - Cereals and vegetable oils declined by 7.2 percent and 10.9 percent, respectively.
  - Cocoa prices rose 64.2 percent; coffee prices rose 18.2 percent.
  - Rubber prices jumped 39.8 percent.
  - Seafood prices surged 25.9 percent.
- Risks to commodity price outlook are balanced, with upside risks from escalation of conflicts or supply disruptions and downside risks from slower demand growth or larger-than-expected harvests.

#### Commodity market concentration and shocks
- Many commodity markets are highly concentrated in production and consumption (elevated Herfindahl-Hirschman indices).
  - Example: for palm oil the production HHI is 0.4, roughly 80 times higher than the value of the HHI if all 195 countries had the same market share.
- Country-specific idiosyncratic shocks are substantial drivers of global commodity production and consumption fluctuations, though common factors are, on average, the stronger driver.
- For food commodities, idiosyncratic shocks in production are bigger than those in consumption; for industrial commodities this is not the case.

#### Price elasticities of supply and demand — key findings
- Commodities are mostly inelastic.
- Supply elasticities:
  - Metals, especially copper and zinc, tend to have the lowest supply elasticities (copper and zinc have a supply elasticity close to zero).
  - Agricultural commodities have the highest supply elasticities (cereals show a supply elasticity of about 0.6, implying that a 10 percent increase in prices raises output by 6 percent within a year).
  - Perennial crops (coffee, palm oil, cocoa) have smaller short-term supply elasticities than annual crops; perennial crops show a statistically significant peak about two to three years after a shock.
  - Energy commodity supply elasticities tend to be between those for mineral and agricultural commodities.
- Demand elasticities:
  - Determined less by commodity groups and more by commodity-specific characteristics.
  - Rice shows a price elasticity of demand close to zero.
  - Tea, cotton, and wheat have demand elasticities above 0.4.
  - Crude oil and coal show demand elasticities below 0.2.
  - Copper and zinc have demand elasticities close to zero.
  - Lead and tin have demand elasticities between 0.2 and 0.3.
- Dynamics over time:
  - Supply and demand become more responsive over time as markets adjust to shocks.
  - For most agricultural commodities, supply responses are flat over a five-year horizon; perennial crops show delayed peaks.
  - For most metals and energy commodities, supply elasticities are upward sloping over time (only copper’s upward slope is statistically significant).
  - Demand-side multipliers are generally imprecisely estimated; metals show the largest increases in multipliers over longer horizons.
  - Agricultural goods are generally more responsive to shocks than minerals and energy, consistent with lower historical price volatility for agricultural goods.

#### Conclusions and policy implications
- The Special Feature provides a consistently identified and estimated set of supply and demand elasticities for a broad range of commodities using a granular instrumental variable approach and an annual cross-country data set from 1960 to 2021.
- The results indicate generally inelastic commodity markets, with important heterogeneity across commodities and over time.
- Understanding these elasticities is essential because lower elasticities imply larger price reactions to unexpected changes in supply and demand, increasing price volatility and complicating fiscal and monetary policy responses—especially for low-income and commodity-exporting countries.
- Policy relevance includes anticipating the speed and magnitude of quantity adjustments after shocks and designing fiscal and monetary policies that account for potentially large price responses when elasticities are low.

*International Monetary Fund | April 2024*

### 1. Food Commodities

### 1. Food Commodities

### Elasticities and Supply–Demand Responses
- Impulse response functions (IRFs) measure the change in the quantity supplied (blue line) or demanded (red line) as a result of a 1 percent increase in prices, with time measured in years. IRFs are based on a combination of local projections and the granular instrumental variable approach. Figure shows 90 percent confidence intervals.
- Supply and demand are generally price inelastic, with notable differences across commodity groups:
  - The supply of agricultural perennial crops is more inelastic than that of annual crops.
  - Supply and demand of mineral commodities are particularly inelastic.
  - Supply and demand for energy commodities are between those for agricultural commodities and those for metals.
- Elasticities evolve over time:
  - Supply and demand become more elastic for mineral and energy commodities over time.
- Demand-side substitution matters within cereals:
  - Within cereals, cross-elasticities of demand allow for substitution, which may help explain movements in specific commodity prices (for example, wheat prices spiked at the start of the war in Ukraine and have now come down below prewar levels).

### Quantitative and Statistical Notes
- The IRFs show responses to a 1 percent price increase and include 90 percent confidence intervals.
- The y-axis in the panel regressions displays the standard deviation of the common and idiosyncratic components of the country-specific residuals. The residuals are obtained from panel regressions using countries’ commodity consumption or production as dependent variables and time fixed effects as controls. Whiskers indicate the 10th and 90th percentiles; the bars show the 25th and the 75th percentiles; black markers indicate the median.

### Policy Implications and Recommendations
- For countries exposed to commodity markets with relatively low elasticities, especially metals:
  - Build fiscal buffers and monetary policy space to prepare for the larger impact of possible shocks.
- To increase elasticities and reduce price volatility:
  - Replacing energy and agricultural subsidies with targeted transfers would help increase the demand and supply elasticities of many commodities and could reduce their price volatility.
- Role of international trade:
  - International trade can play a prominent role in smoothing out commodity shocks and buffering against their economic impact.
  - Trade smoothing will be especially relevant amid increasing geopolitical tensions and trade fragmentation and for critical minerals for the energy transition.

*Sources: Food and Agriculture Organization; World Bureau of Metal Statistics; and IMF staff calculations.*

### CHAPTER 1 gLObaL PROSPECTS aND POLICIES

### CHAPTER 1 gLObaL PROSPECTS aND POLICIES

### Content summary
- The supplied pages consist primarily of the References section for Chapter 1.
- The References list includes IMF Working Papers, IMF Staff Discussion Notes, IMF Country Reports, external working papers and journal articles, databases (for example, FAOSTAT, IEA, World Bank Commodity Price Data, World Bureau of Metal Statistics), and other research outputs cited in the chapter.
- Several entries contain year citations ranging from 2007 through 2024 and include working paper and report identifiers (for example, IMF Working Paper and Staff Discussion Note series).

### Implications for Chapter content ingestion
- These pages do not contain substantive findings, projections, analysis, or policy recommendations themselves; they document the sources underpinning Chapter 1.
- For LLM ingestion and citation mapping, this page signals primary supporting materials and data sources to link back to the chapter’s analyses.

*Source: ch1 - CHAPTER 1 gLObaL PROSPECTS aND POLICIES (pages including References).*

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_Source: https://www.imf.org/-/media/files/publications/weo/2024/april/english/ch1.pdf_