## FOREWORD

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### Global resilience and recent history
- The global economy "remains remarkably resilient, with growth holding steady as inflation returns to target."
- Key disruptive events since the pandemic included: supply-chain disruptions, a Russian-initiated war on Ukraine that triggered a global energy and food crisis, a considerable surge in inflation, and a globally synchronized monetary policy tightening.
- Despite these shocks:
  - The world avoided a recession.
  - "The banking system proved largely resilient, and major emerging market economies did not suffer sudden stops."
  - The inflation surge "did not trigger uncontrolled wage-price spirals (see October 2022 World Economic Outlook)."
  - Global inflation rose quickly and then "almost as quickly ... has been coming down."

### Growth and inflation outlook (recent and projected)
- On a year-over-year basis:
  - Global growth bottomed out at the end of 2022, at 2.3 percent.
  - Median headline inflation peaked at 9.4 percent.
- Latest projections:
  - Growth for 2024 and 2025 will "hold steady around 3.2 percent."
  - Median headline inflation is projected to decline "from 2.8 percent at the end of 2024 to 2.4 percent at the end of 2025."
- Most indicators point to a soft landing.
- Markets and finance:
  - Markets reacted to prospects of central banks exiting tight policy: financial conditions eased, equity valuations soared, and capital flows to most emerging market economies excluding China have been buoyant.
  - Some low-income countries and frontier economies regained market access (see the April 2024 Global Financial Stability Report).

### Regional and country developments
- United States:
  - The US economy "has already surged past its prepandemic trend."
  - Exceptional US performance partly reflects strong demand and "a fiscal stance that is out of line with long-term fiscal sustainability (see April 2024 Fiscal Monitor)."
  - This raises short-term risks to disinflation and longer-term fiscal and financial stability risks globally.
- Euro area:
  - Growth will pick up this year, but "from very low levels," as trailing effects of tight monetary policy, past energy costs, and planned fiscal consolidation weigh on activity.
  - Continued high wage growth and persistent services inflation could delay return to target.
  - "There is scant evidence of overheating" but the ECB must "carefully calibrate the pivot toward monetary easing" to avoid excessive slowdown and inflation undershoot.
- China:
  - Economy affected by "the enduring downturn in its property sector."
  - Domestic demand will remain lackluster unless "strong measures and reforms address the root cause."
  - Public debt dynamics are of concern if the property crisis morphs into a local public finance crisis; depressed domestic demand could raise external surpluses and exacerbate trade tensions.
- Other emerging markets:
  - Many large emerging market economies are performing strongly and may benefit from reconfiguration of global supply chains and rising trade tensions between China and the United States.
  - These countries' footprint on the global economy is increasing and they "will play an ever larger role in supporting global growth in years to come."
- Low-income developing countries:
  - A widening divergence: growth is revised downward while inflation is revised up.
  - Scarring estimates for these countries have been revised up, indicating persistent impacts from the pandemic and cost-of-living crises.
  - Conflicts continue to cause loss of life and raise uncertainty.
  - Policy priorities: invest in structural reforms to promote growth-enhancing domestic and foreign direct investment, strengthen domestic resource mobilization, and improve human capital of large young populations.

### Risks and near-term policy priorities
- Inflation remains a priority:
  - Though trends are encouraging, "we are not there yet."
  - Recent median headline and core inflation numbers are "pushing upward," which could be temporary but warrants vigilance.
  - Much disinflation has come from declines in energy prices and goods inflation; services inflation "remains high—sometimes stubbornly so—and could derail the disinflation path."
  - "Bringing inflation down to target remains the priority."
- Fiscal policy and sovereign debt:
  - Real interest rates have increased and sovereign debt dynamics are "less favorable in particular for highly indebted emerging markets."
  - Countries should "turn their sights toward rebuilding fiscal buffers."
  - Credible fiscal consolidations help lower funding costs and improve financial stability; they are "more likely to succeed when credible and when implemented while the economy is growing."
  - Where inflation is under control and countries engage in credible multiyear efforts to rebuild buffers, "monetary policy can help support activity."
- Monetary transmission nuances:
  - Transmission may have been more muted in countries such as the United States due to "an increased share of fixed-rate mortgages and lower household debt levels since the global financial crisis," which may have limited the drag on aggregate demand.

### Structural challenges and medium-term prospects
- Medium-term growth prospects remain "historically weak."
- Chapter 3 highlights drivers of the slowdown:
  - The main culprit is lower total factor productivity growth.
  - A significant part of the decline comes from increased misallocation of capital and labor within sectors and countries.
  - Facilitating faster and more efficient resource allocation can help boost growth.
- Artificial intelligence (AI):
  - "Much hope rests on artificial intelligence (AI) delivering strong productivity gains in the medium term."
  - AI may deliver gains, but "the potential for serious disruptions in labor and financial markets is high."
  - Harnessing AI requires improved digital infrastructure, investment in human capital, and coordination on global rules of the road.
- Geoeconomic fragmentation and trade:
  - Rising geoeconomic fragmentation and a surge in trade restrictive and industrial policy measures since 2019 harm medium-term prospects.
  - Global trade linkages are changing, with "potential losses in efficiency" and broader damage to global cooperation and multilateralism.

### Climate, green investment, and financing
- Huge global investments are needed for a green and climate-resilient future.
- Cutting emissions is "compatible with growth," and recent decades show growth has become "much less emissions intensive," yet emissions are still rising.
- Progress and gaps:
  - Green investment has expanded at a healthy pace in advanced economies and China.
  - Other emerging market and developing economies must "massively increase their green investment growth and reduce their fossil fuel investment."
- Policy and financing needs:
  - Cutting harmful fossil fuel subsidies can create fiscal room for green investments.
  - Technology transfer by advanced economies and China, plus substantial financing—much from the private sector and some concessional finance—will be required.
- Multilateral cooperation:
  - "There is little hope for progress outside multilateral frameworks and cooperation."

*Foreword by Pierre-Olivier Gourinchas, Economic Counsellor.*

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