## World Economic Outlook: Policy Pivot, Rising Threats — Preface and Chapter Excerpts (October 2024)

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### Assumptions and key projection parameters
- Real effective exchange rates assumed constant at their average levels during July 30, 2024–August 27, 2024 (currencies in ERM II constant in nominal terms relative to the euro).
- Established policies of national authorities are assumed to be maintained.
- Oil price assumptions:
  - Average price of oil: $81.29 a barrel in 2024 and $72.84 a barrel in 2025.
- Short-term government bond yield assumptions (three-month):
  - United States: 5.4 percent in 2024 and 3.9 percent in 2025.
  - Euro area: 3.5 percent in 2024 and 2.8 percent in 2025.
  - Japan: 0.1 percent in 2024 and 0.5 percent in 2025.
- Ten-year government bond yield assumptions:
  - United States: 4.1 percent in 2024 and 3.5 percent in 2025.
  - Euro area: 2.4 percent in 2024 and 2.5 percent in 2025.
  - Japan: 1.0 percent in 2024 and 1.3 percent in 2025.
- Estimates and projections based on statistical information available through October 7, 2024.

### Global snapshot and headline projections
- Inflation and growth:
  - Headline inflation peaked at 9.4 percent year over year in the third quarter of 2022.
  - Global headline inflation: 6.7 percent in 2023; projected 5.8 percent in 2024 and 4.3 percent in 2025.
  - Global growth: projected to hold steady at 3.2 percent in 2024 and 2025; medium-term global growth at 3.1 percent.
  - Global growth five years from now forecast at 3.1 percent.
- Recent developments:
  - Goods price inflation has declined substantially; services price inflation remains elevated.
  - Core services price inflation stands at 4.2 percent and is about 50 percent higher than before the pandemic in major advanced and emerging market economies (excluding the US).

### Policy triple pivot (recommended orientation)
- Monetary policy pivot
  - Major central banks in advanced economies began cutting policy rates since June; move toward neutral noted.
  - Benefits: supports activity amid weakening labor markets; eases pressures on emerging markets via currency strengthening.
  - Caution: services inflation remains elevated; supply shocks from climate, health, and geopolitics complicate price stability.
- Fiscal policy pivot
  - Fiscal space must be rebuilt to stabilize debt dynamics and restore buffers.
  - Long-term real interest rates remain much above prepandemic levels; primary balances need improvement in many countries.
  - Guidance: implement gradual and credible multiyear fiscal adjustments where consolidation is necessary; avoid excessive front-loading that would harm activity.
- Structural reform pivot
  - Priority: raise medium-term growth and productivity to address fiscal pressures, demographic challenges, climate transition, resilience, and poverty.
  - Reforms should boost technology and innovation, improve competition and resource allocation, and stimulate productive private investment.
  - Social acceptability is crucial: reforms should build trust through two-way government–public engagement and include compensatory measures.

### Major downside risks (tilted to the downside)
- Escalation in regional conflicts.
- Monetary policy remaining tight for too long.
- Possible resurgence of financial market volatility with adverse effects on sovereign debt markets.
- A deeper growth slowdown in China, including risks from its property sector.
- Continued ratcheting up of protectionist policies.
- Rising social tensions that could delay structural reforms.

### Baseline regional and country projections (selected exact figures)
- United States:
  - Growth projected for 2024: 2.8 percent.
  - Growth anticipated to slow to 2.2 percent in 2025.
  - Federal funds rate projected long-term equilibrium: 2.9 percent (third quarter of 2026).
  - US fiscal deficit in 2029: about 6.0 percent.
  - US public debt in 2029: almost 131.7 percent of GDP.
- Euro area:
  - GDP growth: 0.8 percent in 2024 and 1.2 percent in 2025.
  - Debt-to-GDP ratio in 2024: about 88 percent.
- Japan:
  - Growth revised downward to 0.3 percent for 2024; acceleration to 1.1 percent predicted in 2025.
  - Bank of Japan neutral policy rate target: about 1.5 percent; inflation target: 2 percent.
- Emerging market and developing economies:
  - Aggregate growth hovering at about 4.2 percent for the next two years, steadying at 3.9 percent by 2029.
  - Emerging and developing Asia: growth expected to subside from 5.7 percent in 2023 to 5.0 percent in 2025.
  - India: from 8.2 percent in 2023 to 7.0 percent in 2024 and 6.5 percent in 2025.
  - China: growth projected at 4.8 percent in 2024 (marginal slowdown).
- Low-income countries:
  - Debt-to-GDP ratios expected to fall from 53.2 percent in 2024 to 45.8 percent in 2029 (reduction of about 1.5 percent of GDP every year).

### Near-term policy priorities and operational guidance
- Fiscal policy
  - Urgently devise credible medium-term fiscal plans; avoid unduly delaying adjustment and avoid excessively sharp consolidation that would harm activity.
  - Safeguard public investments that boost productivity and competitiveness.
  - In cases of existing or imminent debt distress, consider debt restructuring in addition to consolidation.
- Monetary policy
  - Maintain flexible, data-calibrated monetary policy; prioritize anchoring short- and long-term inflation expectations.
  - Maintain restrictive stance with real interest rates above neutral where core inflation is persistently above target; transition to neutral where inflation abates.
  - Communicate consistently a commitment to price stability.
- Financial stability and exchange rate measures
  - Restore macroprudential buffers; implement Basel III reforms.
  - Consider temporary foreign exchange interventions or capital flow management measures where appropriate.
  - Vulnerable countries could consider global financial safety nets from international financial institutions.
- Multilateral cooperation
  - Strengthen cooperation to accelerate the green transition, support debt restructuring efforts, and mitigate costs from geoeconomic fragmentation.

### Scenarios around the baseline (exact scenario structures and model results)
- Scenario A — plausible downside alternative (five layers)
  - Layer 1: Global increase in tariffs — 10 percent tariffs among US, euro area, and China; 10 percent between US and rest of world. Affects about one-quarter of goods trade (~6 percent of global GDP). Tariff revenue transferred back to households.
  - Layer 2: Greater trade policy uncertainty — US aggregate investment assumed to decline by about 4 percent relative to the baseline; euro area hit similar magnitude; other regions half as large.
  - Layer 3: Taxation of US business income — renewal of expiring TCJA provisions lowers business income taxes by about 4.0 percent of baseline GDP cumulatively between 2025 and 2034.
  - Layer 4: Reduced migration — US labor force permanently reduced by 1 percent by 2030; euro area labor force permanently reduced by 0.75 percent by 2030.
  - Layer 5: Global financial conditions tighten in 2025–26 — sovereign premiums in emerging markets (excluding China) increase by 50 basis points; corporate premiums increase by 50 basis points in advanced economies and China and by 100 basis points in other emerging markets; term premiums increase by 40 basis points in the United States and by 25 basis points in the euro area.
  - Combined effects (model results):
    - Decrease in global GDP of about 0.8 percent by 2025 and 1.3 percent by 2026, relative to the baseline.
    - US GDP falls by about 1 percent relative to the baseline in 2025.
    - Global inflation impact muted at −10 basis points by 2026.
- Scenario B — policy-improvement alternative (two layers)
  - Layer 1: Rebalancing in China — private saving rate falls gradually starting 2025 and is 3 percentage points of GDP lower by 2027 (converging back to baseline starting 2030).
  - Layer 2: Higher EU public investment — region-wide public investment increase of 1.5 percent of baseline GDP on average during 2025–30; permanently higher by 0.5 percent after 2030; half financed by higher deficits and half by reallocation.
  - Combined effects (model results):
    - 0.5 percent increase in world GDP in 2025.
    - Rise of 30 basis points in headline inflation in 2025.
    - China rebalancing: China GDP peaks 2.5 percent above baseline by 2027; headline inflation in China increases by 90 basis points in 2025 and up to 140 basis points in 2027; China’s current account falls by more than 1 percent of GDP.
    - EU public investment: euro area GDP rises up to 2.5 percent above baseline by 2030; inflation about 40 basis points higher than baseline over 2025–30.

### Sectoral and structural insights
- Services inflation persistence linked to higher nominal wage growth relative to prepandemic trends; core services inflation at 4.2 percent.
- Goods-to-services rotation: global rotation from goods to services consumption ongoing; manufacturing shifting toward emerging markets (notably China and India).
- Metals and inflation (key findings)
  - A 10 percent increase in copper prices raises both headline and core inflation by about 0.2 percentage point within 12 months (average).
  - For countries with high network exposure to metals, a 10 percent copper price increase → headline inflation +0.5 percentage point and core inflation +0.3 percentage point (12-month cumulative).
  - Over 48 months, a 10 percent increase in copper prices leads to a cumulative 0.5 percentage point increase in core inflation for high-exposure countries.
  - Conclusion: metals supply shocks can have persistent effects on core inflation, implying central banks may need to react to metal price shocks more than they typically reacted to oil shocks.
- Automotive and EV transition (model results)
  - Policy-driven shift to EVs in the EU by 2035 (model): GDP in Europe reduced by about 0.3 percent in the medium term; employment declines in automotive sector with gradual labor reallocation; imports from China soften trade-offs between economic and climate goals.

### Monetary policy transmission and lessons
- Empirical evidence:
  - Real policy rates are currently above estimates of natural rates and acting to cool activity.
  - No broad-based significant change detected in monetary transmission magnitude when comparing post-2022 tightening with past tightening cycles.
- Lessons for policy rules from multisector model experiments:
  - Targeting stickiest-price sectors tends to deliver relatively fast disinflation with less medium-term GDP cost than rules overweighting flexible commodity sectors.
  - Inflation forecast targeting can “run the economy hot” in some scenarios, producing higher initial output but larger medium-term output costs to bring inflation back.
  - Overweighting food and energy in the policy rule risks overreacting to transitory moves and provoking sharp recessions.

### Structural reforms and social acceptability (Chapter 3 findings)
- Reform implementation facts:
  - Pace of reform efforts has more than halved since the global financial crisis.
  - Nearly 20 percent of policies aimed at increasing competition in the electricity sector and almost 50 percent of those providing incentives for elder workers are never implemented or are diluted.
- Drivers of public support:
  - Socioeconomic characteristics explain only 6 percent (PMR) and 11 percent (migrant integration) of support variation.
  - Beliefs and perceptions explain about 80 percent of reform support; misinformation and misperceptions account for about half of that.
- Experimental evidence (survey results):
  - Status quo treatment increases support for PMR electricity reforms by 4.5 percentage points.
  - Status quo + effect-of-policies treatment increases average PMR support from 41.4 percent to 57.1 percent — an increase of almost 16 percentage points (equivalent to 46.7 percent of the share opposing in the control group).
  - Effect-of-policies treatment increases support for migrant integration policies by about 9 percentage points; effect-of-policies + mechanism increases support by 10.5 percentage points (about 42 percent of those opposed in control group).
- Policy implications:
  - Active consultation, credible information campaigns, and compensatory or complementary measures materially raise the probability of implementation and social acceptability.
  - Institutional measures to build trust (independent policy research, two-way dialogue, pilot programs) are critical.

### Financial stability, macroprudential, and fiscal priorities
- Financial sector guidance:
  - Rebuild macroprudential buffers; strengthen supervision and resolution frameworks; implement Basel III reforms.
  - Be prepared to deploy liquidity support promptly to limit contagion.
- Fiscal guidance:
  - Gradual, well-communicated consolidation to restore buffers; protect growth-enhancing spending and social safety nets.
  - In cases of imminent debt distress, pursue debt restructuring and improved creditor coordination.

### Forecast uncertainty and risk assessment (model probabilities)
- Risks to growth moderately tilted to the downside.
- Probability of global growth falling below 2 percent in 2025: 17 percent (up from 12 percent in April).
- Probability of US growth falling below 0.8 percent in 2025 (short-lived US recession starting Q4 2024): about 25 percent (modest increase from 17 percent in April).
- Risk of average US headline inflation falling below 1.5 percent in 2025: about 40 percent.
- Risk of federal funds rate falling below 3 percent for 2025: about 28 percent.
- Probability of average headline inflation falling below 3 percent in 2025: about 20 percent.
- Probability of average core inflation falling below 3 percent in 2025: about 15 percent.

### Key numeric highlights (selected, verbatim)
- Headline inflation peaked at 9.4 percent year over year in the third quarter of 2022.
- Global headline inflation: 6.7 percent in 2023; 5.8 percent in 2024; 4.3 percent in 2025.
- Global growth: 3.3 percent in 2023; projected 3.1 percent by 2029.
- Federal funds rate projected long-term equilibrium: 2.9 percent (third quarter of 2026).
- Bank of Japan neutral policy rate target: about 1.5 percent.
- US fiscal deficit in 2029: about 6.0 percent.
- US public debt in 2029: almost 131.7 percent of GDP.
- Euro area debt-to-GDP ratio in 2024: about 88 percent.
- Low-income countries debt-to-GDP: from 53.2 percent in 2024 to 45.8 percent in 2029.
- Metals price impacts: a 10 percent increase in copper prices → about 0.2 percentage point rise in headline and core inflation within 12 months (average).

*International Monetary Fund | October 2024 — Preface and selected chapters (World Economic Outlook: Policy Pivot, Rising Threats; excerpts and staff calculations as provided).*

### Preface                                                                                                                 

### Preface

### Assumptions and Key Projection Parameters
- Real effective exchange rates assumed constant at their average levels during July 30, 2024–August 27, 2024, except currencies in the European exchange rate mechanism II, which are assumed constant in nominal terms relative to the euro.
- Established policies of national authorities are assumed to be maintained (see Box A1 in the Statistical Appendix for fiscal and monetary policy assumptions for selected economies).
- Oil price assumptions:
  - Average price of oil: $81.29 a barrel in 2024 and $72.84 a barrel in 2025.
- Short-term government bond yield assumptions (three-month):
  - United States: 5.4 percent in 2024 and 3.9 percent in 2025.
  - Euro area: 3.5 percent in 2024 and 2.8 percent in 2025.
  - Japan: 0.1 percent in 2024 and 0.5 percent in 2025.
- Ten-year government bond yield assumptions:
  - United States: 4.1 percent in 2024 and 3.5 percent in 2025.
  - Euro area: 2.4 percent in 2024 and 2.5 percent in 2025.
  - Japan: 1.0 percent in 2024 and 1.3 percent in 2025.
- Estimates and projections are based on statistical information available through October 7, 2024.
- These assumptions are working hypotheses rather than forecasts; uncertainties around them add to projection margins of error.

### Conventions Used Throughout the WEO
- "..." indicates data are not available or not applicable.
- "–" between years or months (for example, 2023–24 or January–June) indicates the covered span including start and end.
- "/" between years or months (for example, 2023/24) indicates a fiscal or financial year.
- "Billion" means a thousand million; "trillion" means a thousand billion.
- "Basis points" refers to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
- Data refer to calendar years except for a few countries that use fiscal years (see Table F in the Statistical Appendix for exceptional reporting periods).
- Some figures for 2023 and earlier are based on estimates rather than actual outturns (see Table G in the Statistical Appendix).
- In tables and figures:
  - Sources listed as “IMF staff calculations” or “IMF staff estimates” draw on data from the WEO database.
  - When countries are not listed alphabetically, ordering is by economic size.
  - Minor discrepancies between sums of constituent figures and totals reflect rounding.
  - Composite data are provided for groups of countries; unless noted, composites represent calculations based on 90 percent or more of the weighted group data.
  - Map boundaries, colors, denominations, and other map information do not imply IMF judgment on legal status or endorsement.
- The terms “country” and “economy” may cover territorial entities that are not states but have separate statistical data.

### What’s New in This Publication
- Updated WEO estimates of purchasing-power-parity weights and GDP at purchasing power parity following the 2021 World Bank Group’s International Comparison Program survey (see Box A2 in the Statistical Appendix).
- For Bangladesh, fiscal year estimates of real GDP and purchasing-power-parity GDP are now used in country group aggregates.
- For Zimbabwe, national accounts statistics were redenominated following the introduction on April 5, 2024 of a new national currency, the Zimbabwe gold, replacing the Zimbabwe dollar. The use of the Zimbabwe dollar ceased on April 30, 2024.

### Data Access, Corrections, and Editions
- Historical data and projections reflect information gathered by IMF country desk officers and are updated continually as new information becomes available.
- WEO data may differ from other official sources; WEO data and metadata are provided “as is” and “as available.”
- When errors are discovered, corrections and revisions are incorporated into the digital editions available from the IMF eLibrary and the IMF website; all substantive changes are listed in the online table of contents.
- Print copies can be ordered from the IMF bookstore at imfbk.st/551243.
- Multiple digital editions (ePub, enhanced PDF, HTML) are available on the IMF eLibrary at eLibrary.IMF.org/WEO.
- Free PDF and data sets for charts are available from the IMF website at www.IMF.org/publications/weo.

### Data Use and Inquiries
- The WEO web page provides a larger compilation of data from the WEO database than included in the report; files may be downloaded for use in various software packages.
- For details on terms and conditions for usage of the WEO database, refer to the IMF Copyright and Usage website.
- Inquiries about WEO content and the WEO database:
  - World Economic Studies Division, Research Department, International Monetary Fund, 700 19th Street, NW, Washington, DC 20431, USA.
  - Online Forum: www.imf.org/weoforum

### Corrections, Revisions, and Editorial Notes
- Corrections and revisions discovered after publication are incorporated into electronic editions on the IMF eLibrary and IMF website; all substantive changes are listed in the online tables of contents.
- Minor rounding discrepancies may appear between constituent figures and totals in tables and figures.

### Project Coordination and Primary Contributors
- Analysis coordinated in the Research Department under the general direction of Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research.
- Project directed by Petya Koeva Brooks, Deputy Director, Research Department, and Jean Marc Natal, Deputy Division Chief, Research Department.
- Primary contributors: Silvia Albrizio, Jorge Alvarez, Hippolyte Balima, Emine Boz, Damien Capelle, Pragyan Deb, Bertrand Gruss, Eric Huang, Thomas Kroen, Toh Kuan, Colombe Ladreit, Alberto Musso, Diaa Noureldin, Galip Kemal Ozhan, Nicholas Sander, Yu Shi, Sebastian Wende, and Sihwan Yang.
- Other contributors and editorial, production, survey design, and data support teams are listed in the Preface.

*International Monetary Fund | October 2024 — Preface (World Economic Outlook: Policy Pivot, Rising Threats)*

### PREFACE

### PREFACE

### Global inflation and growth snapshot
- Headline inflation peaked at 9.4 percent year over year in the third quarter of 2022.
- Headline inflation is projected to reach 3.5 percent by the end of 2025, below the average level of 3.6 percent between 2000 and 2019.
- Global growth is projected to hold steady at 3.2 percent in 2024 and 2025.
- Medium-term global growth remains lackluster at 3.1 percent.
- Global headline inflation is expected to fall from an annual average of 6.7 percent in 2023 to 5.8 percent in 2024 and 4.3 percent in 2025.
- Global growth five years from now is forecast at 3.1 percent.

### How disinflation unfolded
- Drivers:
  - A unique combination of shocks: broad supply disruptions after the pandemic plus strong demand pressures, followed by commodity price spikes caused by the war in Ukraine.
  - These shocks shifted and steepened the Phillips curve (the relationship between activity and inflation).
- Mechanisms enabling rapid disinflation without a global recession:
  - Easing of supply disruptions.
  - Monetary policy tightening that helped anchor inflation expectations and avoided wage-price spirals.
  - Normalization of labor markets and improvements in labor supply, often linked to immigration.
- Sectoral pattern:
  - Goods price inflation has declined substantially.
  - Services price inflation remains elevated and is a persistent driver of core inflation.

### Major downside risks identified
- Escalation in regional conflicts.
- Monetary policy remaining tight for too long.
- Possible resurgence of financial market volatility with adverse effects on sovereign debt markets.
- A deeper growth slowdown in China, including risks from its property sector.
- Continued ratcheting up of protectionist policies.
- Rising social tensions that could delay structural reforms.

### Policy triple pivot (recommended orientation)
1. Monetary policy pivot
   - The first pivot has started: since June, major central banks in advanced economies have started to cut policy rates, moving toward neutral.
   - Effects and cautions:
     - Supports activity amid weakening labor markets and rising unemployment in many advanced economies.
     - Eases pressure on emerging market economies through currency strengthening against the US dollar and improved financial conditions.
     - Vigilance needed because services inflation remains elevated and supply shocks from climate, health, and geopolitics complicate price stability.
2. Fiscal policy pivot
   - Fiscal space must be rebuilt to stabilize debt dynamics and restore buffers after years of loose fiscal policy.
   - Declining policy rates provide some fiscal relief, but not sufficient because long-term real interest rates are much above prepandemic levels.
   - Primary balances need improvement in many countries.
   - For some countries, like the United States and China, debt dynamics are not stabilized under current fiscal plans (see October 2024 Fiscal Monitor).
   - Policy guidance: implement gradual and credible multiyear fiscal adjustments without delay where consolidation is necessary; avoid unduly delaying adjustment and avoid excessively sharp consolidation that would harm activity.
3. Structural reform pivot
   - The hardest pivot: raise medium-term growth and productivity to address fiscal pressures, demographic challenges, climate transition, resilience, and poverty.
   - Structural reforms should boost technology and innovation, improve competition and resource allocation, further economic integration, and stimulate productive private investment.
   - Industrial and trade policy measures that do not carefully address market failures or national security concerns should be resisted because they often prompt retaliation and fail to deliver sustained improvements.
   - Social acceptability is crucial: reforms should build trust through two-way government–public engagement and include compensatory measures to mitigate distributional effects (explored in Chapter 3).

### Sectoral and regional nuances
- Services inflation:
  - Core services price inflation stands at 4.2 percent and is about 50 percent higher than before the pandemic in major advanced and emerging market economies (excluding the US).
  - Persistence in services inflation is linked to higher nominal wage growth relative to prepandemic trends.
  - Whether recent wage increases translate into persistent core inflation depends on:
    - The impact of real wage increases on unit labor costs (itself dependent on labor productivity).
    - Firms’ willingness to absorb increased unit labor costs in profit margins.
- Labor markets and wages:
  - Labor market pressure has started to ease in many advanced economies.
  - In the United States, recent wage growth has reflected productivity gains, keeping unit labor costs contained.
  - In the euro area, recent wage increases have exceeded productivity, raising unit labor costs; however, firms may absorb costs given large increases in profit shares in recent years.
- Regional outlook shifts:
  - Upgrades to the US forecast offset downgrades for other advanced economies, especially the largest European countries.
  - Emerging market and developing economies faced downgrades in the Middle East and Central Asia and in sub-Saharan Africa due to commodity production/shipping disruptions, conflicts, civil unrest, and extreme weather.
  - Upgrades in emerging Asia reflect surging demand for semiconductors and electronics tied to significant investments in artificial intelligence.

### Near-term priorities and policy calibration
- As cyclical imbalances wane, policy priorities:
  - Shift gears on fiscal policy to place public debt on a sustainable path and rebuild buffers; pace should be country-specific.
  - Continue structural reforms while maintaining support for the most vulnerable.
  - Strengthen multilateral cooperation to accelerate the green transition and support debt-restructuring efforts.
  - Mitigate geoeconomic fragmentation and reinforce rules-based multilateral frameworks to preserve gains from future growth.
- High uncertainty factors:
  - Election-related policy shifts (about half of the world population has gone or will go to the polls in 2024).
  - Return of financial market volatility.
  - Potential intensification of geopolitical rifts and protectionism.

*Source: PREFACE, World Economic Outlook, IMF, October 2024.*

### CHAPTER 1 GLOBAL PROSPECTS AND POLICIES

### CHAPTER 1 GLOBAL PROSPECTS AND POLICIES

### Recent inflation and labor market developments
- Inflation pattern and drivers:
  - Sticky inflation is being driven by services; core goods prices remain elevated relative to services due to pandemic-era demand and supply effects.
  - Rising shipping costs noted (US$ per 40 ft. container; index, 2010 = 100).
- Labor market:
  - Wage growth, vacancy-to-unemployment ratios, and unit labor costs have shown notable shifts across major economies (figures reported for Japan, United Kingdom, Euro area, United States).
  - Decomposition of inflation and profit shares presented for the US (nonfinancial corporate sector) and the euro area (whole-economy data).

### Policy mix: tight monetary, loose fiscal
- Monetary policy:
  - Monetary policy tightened significantly after initial easing; many emerging markets started earlier than major advanced economies.
  - Most central banks stopped increasing nominal policy rates in the first half of 2023; real rates continued to rise as inflation expectations declined.
  - Real policy rates are currently above estimates of the natural rates and are acting to cool economic activity and bring inflation back to target.
- Transmission and real economy effects:
  - Higher policy rates increased mortgage and bank lending rates; pass-through to market rates has been gradual but appears to have finished.
  - Increased borrowing costs have held back private credit growth and investment, moderating aggregate demand.
- Fiscal policy contrast:
  - Fiscal policy has remained looser despite the 2022 rebound and inflationary pressures; some slippage relative to consolidation plans is evident (except in low-income developing countries).
  - From 2022 to 2024, monetary policy tightened significantly in most countries, but fiscal policy lagged and even eased in many instances.
  - Tight monetary policy combined with relatively loose fiscal policy—particularly in the United States—may have contributed to dollar appreciation in 2024.
- Expected policy rotation:
  - With public-debt-servicing costs on an upward trend in emerging market and developing economies and a recent jump in the United States, the baseline assumes a rotation of the policy mix.
  - Necessary fiscal consolidation in many economies is expected to slow growth and calls for looser monetary policy, which should in turn help governments trim deficits more easily.

### Monetary transmission and financial market volatility
- Monetary transmission indicators:
  - Real policy rate paths, median bank lending and deposit rates across advanced economies, and real credit growth show monetary tightening effects.
- Financial market volatility:
  - Early August experienced significant turbulence: weaker-than-expected US jobs data triggered a stock correction; the Bank of Japan’s rate hike unwound yen-funded carry trades and amplified equity declines.
  - VIX surged to its highest point since 2020 but has returned to its historical average.
  - Persistent vulnerabilities: disconnect between economic uncertainty and market volatility; overstretched equity valuations, notably in the technology sector.
- Exchange rate and emerging market pressures:
  - Revised market expectations for US monetary policy aligned rate-cut outlooks across advanced economies, halting US dollar appreciation versus major advanced-economy currencies, but depreciation pressures remain high in emerging market and developing economies.
  - Emerging markets that hiked earlier have also begun easing earlier, narrowing policy rate differentials with the United States.
  - For some EMDEs with large short-term external financing needs (a significant share of their buffer of net international reserves), sovereign borrowing spreads have increased since April; few are in debt distress (spreads > 1,000 basis points), but reliance on short-term external financing reveals vulnerability to sudden currency swings.

### Geopolitical tensions and trade fragmentation
- Current state:
  - Despite ongoing geopolitical tensions, global trade volume as a share of world GDP has not deteriorated so far.
  - Signs of geoeconomic fragmentation are emerging: more trade occurring within geopolitical blocs rather than between them.
  - Comparing averages for 2017–2022 and 2022–Q1 2024, goods trade growth has declined by approximately 2½ percentage points more between geopolitically distant blocs than within blocs.
- Potential consequences if fragmentation intensifies:
  - Reduced resilience of global supply chains.
  - Increased funding costs and disrupted cross-border capital flows.
  - Lower market efficiency and slower transfer of knowledge between advanced and emerging market and developing economies, which could hamper income convergence.
  - Increased costs and risks for businesses and a larger economic cost for the green transition.
- Historical parallels:
  - A more fragmented global trade landscape could resemble Cold War–era patterns; trade semi-elasticities for flows between blocs and with nonaligned countries are compared for the Cold War and since Russia’s invasion of Ukraine.

### Outlook: stable yet underwhelming; structural shifts
- Growth outlook:
  - Little change in the global growth outlook since April 2024 WEO.
  - Following the postpandemic rebound, the global projection for GDP growth has been hovering at about 3   percent, both in the short and medium term.
  - Weak growth extends beyond the disinflation period, suggesting potential growth has been durably affected.
- Sectoral and regional shifts:
  - A global rotation from goods to services consumption is underway, boosting activity in services in advanced and emerging markets while dampening manufacturing.
  - Manufacturing production is increasingly shifting toward emerging market economies—particularly China and India—as advanced economies lose competitiveness.

### Global assumptions and projections (baseline and alternatives)
- Scenario framing:
  - Baseline projection acknowledges exceptional policy uncertainty associated with newly elected governments in 2024 (in 64 countries representing about half of the global population); baseline is flanked by two alternative scenarios illustrating implications of shifts in trade and fiscal policy.
- Commodity price assumptions:
  - Oil prices are expected to rise by 0.9 percent in 2024 to about $81 a barrel as OPEC+ production cuts, sustained global oil demand growth, and Middle East geopolitical tensions offset strong non-OPEC+ supply growth.
  - Prices for fuel commodities are projected to fall on average by 3.8 percent—driven by natural gas falling by 16.4 percent and coal falling by 18.0 percent—as they come off 2022 peaks, but less rapidly than assumed in April.
  - Food prices are expected to decline by 5.2 percent in 2024 and by a further 4.5 percent in 2025 as global grain production is forecast to reach record highs in 2024–25.
- Monetary policy assumptions:
  - Compared with April 2024, the anticipated trajectory of policy rates for major central banks in advanced economies has shifted.
  - In the euro area, 100 basis points of cuts are expected in 2024 and 50 basis points in 2025, bringing the policy rate to 2.5 percent by June.

*Source: CHAPTER 1 GLOBAL PROSPECTS AND POLICIES, text - CHAPTER 1 GLOBAL PROSPECTS AND POLICIES (October 2024), IMF.*

### 2025. In the United States, the Federal Reserve

### 2025. In the United States, the Federal Reserve

### Monetary policy projections
- United States:
  - The Federal Reserve pivoted to cutting rates in September, starting with a 50 basis point drop.
  - The federal funds rate is projected to reach its long-term equilibrium of 2.9 percent in the third quarter of 2026, almost a year earlier than expected in April.
- Japan:
  - Policy rate projections have been revised upward (since the April 2024 World Economic Outlook) reflecting the Bank of Japan’s rate hike in July.
  - The policy rate is projected to continue to rise gradually over the medium term toward a neutral setting of about 1.5 percent, consistent with keeping inflation and inflation expectations anchored at the Bank of Japan’s 2 percent target.

### Fiscal policy assumptions
- Advanced economies (average expectation):
  - Governments are on average expected to tighten their fiscal policy stances in both 2024 and 2025, halving primary deficits by 2029.
- United States (baseline):
  - The US fiscal deficit is only marginally trimmed down, remaining at about 6.0 percent in 2029, with about half of this reflecting interest rate expenses.
  - Under current policies, the US public debt is not stabilized, reaching almost 131.7 percent of GDP in 2029.
- Euro area:
  - The debt-to-GDP ratio is expected to have stabilized already at about 88 percent in 2024, although with some cross-country differences.
- Emerging market and developing economies:
  - Fiscal stances are expected to remain relatively loose on average in emerging markets, while fiscal consolidation is ongoing among developing economies.
- Low-income countries:
  - Many low-income countries have either lost market access or been forced to drastically scale back deficits because higher interest rates have pushed up borrowing costs.
  - Forced consolidation is expected to bring down their debt-to-GDP ratios to 45.8 percent in 2029 from 53.2 percent in 2024, a reduction of about 1.5 percent of GDP every year.

### Baseline outlook — stable growth amid continuing disinflation
- Global growth:
  - Expected to remain broadly flat—decelerating from 3.3 percent in 2023 to 3.1 percent by 2029—and largely unchanged from World Economic Outlook forecasts in April 2024 and October 2023.
  - Interest rates are expected to gradually descend toward their natural levels: the levels of risk-free real interest rates compatible with output at potential and inflation at target.
- Inflation:
  - Global headline inflation is projected to decrease from an average of 6.7 percent in 2023 to 5.8 percent in 2024 and 4.3 percent in 2025 in the baseline.
  - Disinflation is expected to be faster in advanced economies (decline of 2 percentage points from 2023 to 2024 and stabilization at about 2 percent in 2025) than in emerging market and developing economies (inflation projected to decline from 8.1 percent in 2023 to 7.9 percent in 2024 and then fall faster in 2025).

### Growth outlook — major economies
- Advanced economies (overall):
  - Growth projected to oscillate between 1.7 and 1.8 percent until 2029.
- United States:
  - Projected growth for 2024 revised upward to 2.8 percent (0.2 percentage point higher than the July forecast).
  - Growth anticipated to slow to 2.2 percent in 2025 as fiscal policy is gradually tightened and a cooling labor market slows consumption.
  - Output expected to start closing in 2025 with GDP growth lower than potential.
- Euro area:
  - GDP growth expected to pick up to a modest 0.8 percent in 2024 and to 1.2 percent in 2025.
  - Rising real wages expected to boost consumption; gradual loosening of monetary policy expected to support investment.
- Japan:
  - Growth revised downward by 0.6 percentage point to 0.3 percent for 2024 (reflecting temporary supply disruption and base effects from historical data revisions).
  - Acceleration to 1.1 percent predicted in 2025, with growth boosted by private consumption as real wage growth strengthens.
- United Kingdom:
  - Growth projected to have accelerated to 1.1 percent in 2024 and to continue to 1.5 percent in 2025 as falling inflation and interest rates stimulate domestic demand.

### Growth outlook — emerging market and developing economies
- Aggregate:
  - Growth remarkably stable for the next two years, hovering at about 4.2 percent and steadying at 3.9 percent by 2029.
  - Compared with April, growth in emerging market and developing economies is revised upward by 0.1 percentage point for 2024, reflecting upgrades for Asia that more than offset downgrades for sub-Saharan Africa and for the Middle East and Central Asia.
- Emerging and developing Asia:
  - Growth expected to subside from 5.7 percent in 2023 to 5.0 percent in 2025.
  - India: GDP growth outlook to moderate from 8.2 percent in 2023 to 7.0 percent in 2024 and 6.5 percent in 2025.
  - China: Growth projected to slow marginally to 4.8 percent in 2024, with the forecast revised upward by 0.2 percentage point in 2024 and 0.4 percentage point in 2025 compared with April.
- Middle East and Central Asia:
  - Projected to pick up from an estimated 2.1 percent in 2023 to 3.9 percent in 2025.
  - Projection revised downward by 0.4 percentage point for 2024 compared with April, mainly due to extension of oil production cuts in Saudi Arabia and ongoing conflict in Sudan.
- Sub-Saharan Africa:
  - GDP growth projected to increase from an estimated 3.6 percent in 2023 to 4.2 percent in 2025.
  - Regional forecast revised downward by 0.2 percentage point for 2024 and upward by 0.1 percentage point for 2025 compared with April.
  - Ongoing conflict led to a 26 percent contraction of the South Sudanese economy.
- Latin America and the Caribbean:
  - Growth projected to decline from 2.2 percent in 2023 to 2.1 percent in 2024 before rebounding to 2.5 percent in 2025.
  - Brazil: Growth projected at 3.0 percent in 2024 and 2.2 percent in 2025 (an upward revision of 0.9 percentage point for 2024 compared with July 2024 WEO Update).
  - Mexico: Growth projected at 1.5 percent in 2024 and 1.3 percent in 2025.
- Emerging and developing Europe:
  - Projected to remain steady at 3.2 percent in 2024 but ease to 2.2 percent in 2025.
  - Russia: Projected slowdown from 3.6 percent in 2023 to 1.3 percent in 2025.
  - Türkiye: Growth expected to slow from 5.1 percent in 2023 to 2.7 percent in 2025 due to monetary and fiscal policy tightening since mid-2023.

### Key statistics and projections (selected exact figures from the text)
- Federal funds rate projected long-term equilibrium: 2.9 percent (third quarter of 2026).
- Bank of Japan neutral policy rate target: about 1.5 percent.
- Bank of Japan inflation target: 2 percent.
- US fiscal deficit in 2029: about 6.0 percent.
- US public debt in 2029: almost 131.7 percent of GDP.
- Euro area debt-to-GDP ratio in 2024: about 88 percent.
- Low-income countries debt-to-GDP: from 53.2 percent in 2024 to 45.8 percent in 2029 (reduction of about 1.5 percent of GDP every year).
- Global growth: 3.3 percent in 2023; projected 3.1 percent by 2029.
- Global headline inflation: 6.7 percent in 2023; projected 5.8 percent in 2024 and 4.3 percent in 2025.
- Advanced-economies inflation decline: 2 percentage points from 2023 to 2024; stabilization at about 2 percent in 2025.
- Emerging market and developing economies inflation: 8.1 percent in 2023; 7.9 percent in 2024.

*International Monetary Fund | October 2024 — Chapter 1, “Global Prospects and Policies” (excerpts provided)*

### 5.9 percent.

### 5.9 percent.

### Inflation Outlook
- Inflation in emerging Asia is projected to be on par with that in advanced economies, at 2.1 percent in 2024 and 2.7 percent in 2025.
- Inflation forecasts for emerging and developing Europe, the Middle East and North Africa, and sub-Saharan Africa remain in double-digit territory due to large outliers amid pass-through of past currency depreciation and administrative price adjustment (Egypt) and underperformance in agriculture (Ethiopia).
- Most countries in Latin America and the Caribbean have experienced significant declines from peak inflation and continue to trend downward, though large countries in the region have experienced upward revisions since the April 2024 WEO owing to:
  - robust wage growth preventing faster disinflation in the services sector (Brazil, Mexico);
  - weather events (Colombia);
  - hikes in regulated electricity tariffs (Chile).
- Core inflation is expected to drop by 1.3 percentage points in 2024, following a 0.1 percentage point decrease in 2023, with advanced economies leading this decline.
- Annual average inflation is expected to exceed official targets (or the midpoints of target ranges) in more than three-quarters of a representative group of inflation-targeting advanced and emerging market economies in 2025, largely reflecting annual carryover effects from 2024.
- By end-2025, most economies are expected to be either at target or within a stone’s throw of it.

### Medium-Term Outlook: Growth and Structural Challenges
- Five-year-ahead forecast for global growth stands at 3.1 percent.
- For many advanced and emerging market economies, the five-year-ahead forecast is weaker than the one-year-ahead forecast, indicating persistent medium-term headwinds.
- Structural constraints include population aging, weak investment, and historically low total factor productivity growth.
- Medium-term growth prospects for emerging market and developing economies have not improved since April 2024 and remain much weaker than prepandemic projections, reflecting prolonged scarring and a slower pace of structural reforms.
- Periods of low economic growth lasting four years or more tend to widen income inequality within countries (IMF 2024).

### Trade, External Balances, and Current Account Dynamics
- Global trade is expected to grow in line with GDP, reaching an average of 3¼ percent growth annually in 2024 and 2025, after near stagnation in 2023.
- Global trade-to-GDP ratio is expected to remain stable despite increased cross-border restrictions between geopolitically distant blocs.
- Global current account balances—the sums of absolute surpluses and deficits—are expected to continue to decline from their 2022 peaks.
- Creditor and debtor stock positions reached historically elevated levels in 2022 and are expected to moderate slightly over the medium term as current account balances narrow.
- In some economies, gross external liabilities remain large from a historical perspective and pose risks of external stress.

### Risks to the Outlook: Tilted to the Downside
Downside risks that have gained prominence since July 2024 include:
- Monetary policy tightening bites more than intended:
  - An unanticipated back-loaded strengthening of transmission of earlier rate increases could cause faster-than-anticipated deceleration in near-term growth and rising unemployment, weakening consumer and business sentiment.
- Financial markets repricing due to monetary policy reassessments:
  - If underlying inflation proves more persistent, consumers may adjust expectations, forcing central banks to revise normalization paths, weakening confidence, leading to market repricing and tighter financial conditions, with potential contagion and sovereign debt stress in emerging markets.
- Intensified sovereign debt stress in emerging market and developing economies:
  - Countries with large external financing needs and low reserves are most vulnerable; low-income countries face particular risk given limited fiscal space.
- Deeper-than-expected contraction in China’s property sector:
  - Further price corrections could dent consumer confidence, weaken household consumption, and produce negative spillovers to advanced and emerging market economies.
- Renewed spikes in commodity prices from climate shocks, regional conflicts, or geopolitical tensions:
  - Could lead to sustained increases in food, energy, and other commodity prices, higher inflation, and constrained central bank maneuverability; low-income countries would be disproportionately affected.
- Ratcheting up of protectionist policies:
  - A retreat from a rules-based trading system could disrupt supply chains and weigh on medium-term growth by limiting innovation and technology transfer spillovers.
- Resurgence of social unrest:
  - Driven by higher inflation, higher taxes, spillovers from conflicts, and rising inequality, social unrest could slow growth and complicate reform implementation.

### Upside Risks
- Stronger recovery in investment in advanced economies:
  - Accelerated public investment (green transition, infrastructure, science and technology) could crowd in private investment and lead to higher-than-projected recovery in global demand and trade, though it could be inflationary depending on supply-side impacts and financing.
- Stronger momentum of structural reforms:
  - Faster implementation of labor-market, product-market, and innovation-enhancing reforms could raise medium-term growth by increasing labor force participation and reducing misallocation.

### Policy Priorities: From Restoring Price Stability to Rebuilding Buffers
- Near-term policies should be carefully calibrated and sequenced to ensure a smooth landing.
- Urgent emphasis on medium-term fiscal consolidation to restore budgetary flexibility, fund priority investments, and ensure long-term debt sustainability.
- If inflation descends toward targets, central banks should consider monetary policy implications for growth and employment, provided price stability is not undermined.
- Easing monetary policy, while keeping inflation and expectations on a downward path, would support growth, employment, and lower debt-servicing costs, facilitating fiscal consolidation.
- Implement robust supply-enhancing structural reforms to curb inflation, reduce debt, and boost growth toward prepandemic rates.
- Multilateral cooperation is essential to limit costs and risks from geoeconomic fragmentation and climate change, speed the green energy transition, and support debt restructuring.

### Ensuring a Smooth Landing: Operational Guidance
- Maintain flexible monetary policy calibrated to incoming data; prioritize anchoring short- and long-term inflation expectations.
- Prepare for increased exchange rate volatility as disinflation and monetary easing diverge across economies; use alternative instruments where needed.
- Ensure close supervision and comfortable buffers to manage stress when higher borrowing costs or risk-off episodes strain financial sectors.
- Carefully calibrate monetary policy:
  - Maintain a restrictive stance with real interest rates above neutral where core inflation is persistently above target until sustained cooling is evident.
  - Transition to a more neutral stance where underlying inflation and expectations are diminishing; drop policy rates gradually to avoid undue rises in real interest rates.
  - When the economy cools faster than expected and inflation remains on a downward path, real rates could be reduced to support growth and employment, accounting for policy transmission lags.
  - Communicate consistently a commitment to price stability.
- Mitigate disruptive foreign exchange volatility:
  - For countries with deep FX markets and low foreign currency debt: adjust policy rates and allow exchange rate flexibility.
  - When market stress arises: use rapid and decisive liquidity support tools while avoiding moral hazard; for countries with shallow FX markets or high foreign currency debt, consider additional tailored measures (text truncated in source).

*WORLD ECONOMIC OUTLOOK: POLICY PIVOT, RISING THREATS — International Monetary Fund | October 2024*

### CHAPTER 1 GLOBAL PROSPECTS AND POLICIES

### CHAPTER 1 GLOBAL PROSPECTS AND POLICIES

### Financial Stability and Exchange Rate Risks
- Tightening global financial conditions can trigger a rise in risk premiums and lead to “taper tantrums” as investors offload domestic currency assets, posing systemic risks to financial stability and growth uncertainties.
- Policy responses when facing large foreign-currency debt exposures or sharp exchange rate movements:
  - Maintain suitable monetary and fiscal policies.
  - Consider temporary foreign exchange interventions or capital flow management measures where appropriate.
  - Deploy macro-prudential measures to mitigate vulnerabilities from large foreign-currency-denominated debt exposures.
  - Use temporary foreign exchange interventions to support monetary policy when sharp exchange rate movements threaten to de-anchor inflation expectations, provided sufficient reserves are available and the cost of using monetary policy alone is excessive.
  - Vulnerable countries could consider global financial safety nets from international financial institutions, such as precautionary financial arrangements from the IMF.
- Restore macroprudential buffers and ensure financial stability:
  - Carefully monitor serious misalignments in financing conditions and strengthen supervision given borrowing costs still higher than before the pandemic.
  - Implement Basel III reforms to protect the financial system from potential repercussions of a sudden repricing of risk and anticipate stress in the banking sector.
  - Gradually rebuild macroprudential buffers deployed during the pandemic and the 2021 global energy crisis where feasible, in the context of a rapidly evolving real estate market.
  - Be prepared to deploy necessary financial stability tools and provide prompt and forceful liquidity support to limit contagion (Adrian, Gopinath, and Gourinchas 2023).

### Rebuilding Fiscal Buffers while Avoiding Debt Distress
- Context and challenge:
  - Fiscal deficits and government debt remain above pre-pandemic levels, and debt-service costs remain high and rising in many countries.
  - To ensure debt sustainability and restore long-term budgetary flexibility, many countries, including both advanced and emerging market economies, need to tighten fiscal policy (Figure 1.18).
  - Fiscal consolidation can reduce aggregate demand and help ease overall inflationary pressures where inflation remains elevated.
  - For countries with limited fiscal space, reallocating spending toward productivity- and competitiveness-enhancing initiatives can stimulate growth while safeguarding key social spending and safety nets.
- Urgent policy guidance:
  - Urgently devise credible fiscal plans to avoid disruptive adjustments.
    - Consolidation paths should be carefully calibrated to country-specific economic conditions.
    - Avoid undue delays that may lead to market-imposed disruptive adjustments; avoid excessive front-loading that may hurt economic activity and burden vulnerable populations.
    - Pace consolidation gradually and communicate well to avoid abrupt adjustments that could diminish economic activity, trigger spikes in debt ratios, and undermine public support for fiscal plans.
    - In some cases, front-loading fiscal adjustments may be necessary to alleviate stress on sovereign debt, particularly where market access is lost or at risk.
    - A credible medium-term plan is essential: identify measures sufficient for meeting medium-term targets based on realistic assumptions about interest rates, revenues and spending, and the growth effects of consolidation.
    - Strengthen institutional frameworks, including binding legislation and fiscal frameworks, to support medium-term consolidation plans.
  - Safeguard growth-enhancing measures while reducing inequality:
    - Maintain public investments, particularly those that boost productivity and competitiveness such as public and digital infrastructure (Figure 1.19).
    - Implement structural reforms to reduce market inefficiencies and increase labor supply, amplifying benefits of growth-friendly investments.
    - Design consolidation to mitigate adverse impacts on poverty and inequality to increase social acceptability and political support.
  - Ensure debt sustainability:
    - Many countries, particularly emerging market economies and low-income countries, require significant fiscal adjustments to ensure government debt sustainability given elevated borrowing costs and sovereign spreads.
    - In cases of existing or imminent debt distress, debt restructuring may be required in addition to well-timed fiscal consolidation (see the October 2024 Fiscal Monitor).
    - Continue to build on recent progress in international sovereign debt resolution frameworks, including the G20 Common Framework and the Global Sovereign Debt Roundtable, and improve creditor coordination for cases not eligible under the Common Framework.

### Engineering Faster Medium-Term Growth and Combating Climate Change
- Macrostructural reforms to boost productivity:
  - Targeted, carefully sequenced reforms are vital in health care, education, labor markets, competition, and digitalization to revive productivity growth and attract infrastructure and human capital.
  - Key reforms include:
    - Expanding health care coverage and increasing access to early childhood and higher education with focus on affordability and quality.
    - Reducing labor market rigidity and increasing labor force participation, especially among women.
    - Reducing barriers to competition and supporting start-ups.
    - Advancing digitalization.
  - Active and effective communication, early stakeholder engagement, complementary compensatory measures, and strong institutions are essential for successful, inclusive, and sustainable reforms.
- Accelerating the green transition:
  - Comprehensive global policy actions are required to meet greenhouse gas reduction goals aiming to limit global temperature increases to 1.5–2.0°C above preindustrial levels.
  - Policy instruments and priorities:
    - Carbon pricing, subsidies for green investments, and carbon border-adjustment mechanisms can support the green transition while maintaining consistency with WTO rules.
    - Design green industrial policies to complement carbon pricing, avoid discriminatory elements, and be fully consistent with international law obligations.
    - Help firms with high emissions per unit of output adopt frontier technologies to achieve significant emissions cuts.
    - Scale back fossil fuel investments while increasing clean energy supplies to reduce long-term energy security risks.
    - Invest in climate adaptation and infrastructure, especially for regions most vulnerable to climate shocks.
    - Improve climate-risk-monitoring systems and risk management frameworks; strengthen safety nets and insurance to build climate resilience.
    - Mobilize climate finance for adaptation and mitigation in low-income countries through coordinated efforts by international organizations, private investors, country authorities, and donors (see the October 2023 Fiscal Monitor).
- Strengthening multilateral cooperation:
  - Multilateral cooperation is essential to prevent fragmentation, sustain growth and stability, and address climate change.
  - Trade policies should be clear and transparent to stabilize expectations, lessen investment distortions, and reduce market volatility, including for agricultural and critical mineral commodities.
  - Establish a “green corridor” agreement to secure flows of critical minerals for the green transition and increase data sharing to reduce uncertainty and price volatility.
  - Industrial policies may address negative externalities or market failures but must be well designed, have benefits greater than costs, protect fiscal sustainability and external stability, avoid protectionist measures, and comply with WTO agreements.
  - Promote a common platform for transfer of low-carbon technologies to emerging market and developing economies and regulate disruptive technologies such as artificial intelligence.
  - Priorities include restoring a fully and well-functioning WTO dispute settlement system and achieving greater clarity and coherence between climate considerations and trade rules.

### The Global Automotive Industry and the Shift to Electric Vehicles (Box 1.1)
- Structural characteristics of the car industry:
  - Very capital intensive with high investment and a significant capital share of value added.
  - Relies on skilled labor and pays wages reflecting high value added per worker (Figure 1.1.1, panel 1).
  - Multinational operations across deep global value chains measured by the share of foreign value added in production (Figure 1.1.1, panel 2).
  - Effective product differentiation allows carmakers to extract a sizable share of consumer surplus.
- Emissions and EV transition rationale:
  - In 2022, transportation sector GHG emissions were:
    - 36 percent of GHG emissions in the United States,
    - 21 percent in the European Union,
    - 8 percent in China (IEA 2024b).
  - Transportation emissions have not declined as fast as emissions from electricity generation and industry over the past 15 years; shifting personal transportation to EVs is key to reducing GHG emissions.
- Demand- and supply-side policies for EV adoption:
  - Examples:
    - European Union goal to reduce emissions from cars by 50 percent for 2030–35 from 2021 levels in its “Fit for 55” package.
    - United States Inflation Reduction Act includes subsidies for EV purchases and deployment of charging stations.
  - Supply-side policies target the entire EV value chain: vehicles, batteries, and extraction and processing of metals.
- Cost reduction drivers:
  - Innovation and increasing returns to scale underpin cost reductions, driving global competition among carmakers and battery manufacturers.
  - Rise of EV newcomers in the United States (Lucid, Rivian, Tesla) and many in China (BYD, Geely, Wuling, and the like).
  - Lithium ion battery manufacturing has risen rapidly; the industry started only 25 years ago.
- Recent developments and redistribution of comparative advantage:
  - Technological breakthroughs in batteries and policy support accelerated the global transition from conventional vehicles to EVs (Figure 1.1.2, panel 1).
  - China’s role in production and exports has dramatically increased compared with 15 years ago (Figure 1.1.2, panels 2 and 3).
- Macroeconomic implications and simulation findings:
  - An IMF working paper (Wingender and others 2024) estimates a policy-driven shift to EVs in the European Union by 2035:
    - Two main channels: regulation shifts demand from conventional vehicles to EVs; China maintains a relative cost advantage in building EVs.
    - Under realistic EV market penetration scenarios, GDP in Europe is reduced by about 0.3 percent in the medium term.
    - Employment declines in the automotive sector, with labor reallocating gradually to less capital-intensive sectors (with lower value added per worker).
    - Ability to import EVs from China softens trade-offs between economic and climate goals; fewer imports require more stringent climate policies to reach the same climate goal and reduce households’ purchasing power.
    - Imports of EVs redistribute gains and losses between countries specializing in car manufacturing (losing market share) and net car-importing countries (gaining purchasing power).
    - The EV transition has implications beyond car manufacturing—for the energy sector (shift from gasoline to electricity) and demand for minerals.

### Forecast Uncertainty and Risk Assessment (G20/GIMF models and Confidence Bands)
- Modeling approach:
  - IMF’s G20 and GIMF models derive confidence bands around the World Economic Outlook forecast and quantify scenarios.
  - Historical shocks are recovered and sampled; shocks from years with US recessions are oversampled for 2025 and 2026 confidence bands to reflect increased US recession risks.
  - Five recessions are oversampled: 1969, 1982, 1990, 2001, and 2008; shocks for all countries are also oversampled for those years to exploit co-movements.
- Risk assessment and probabilities:
  - Risks to growth are moderately tilted to the downside.
  - The risk of global growth falling below 2 percent in 2025 is assessed at 17 percent (compared with 12 percent in April), in part because the risk of a US recession has increased moderately.
  - Panels 1–3 in Figure 1.2.1 show distributions for US growth, headline inflation, and the federal funds rate:
    - Probability of US growth falling below 0.8 percent in 2025—corresponding to a short-lived US recession starting in the fourth quarter of 2024—is about 25 percent (modest increase from 17 percent in April 2024 WEO).
    - Risk of average US headline inflation falling below 1.5 percent in 2025 is assessed at about 40 percent.
    - Risk of the federal funds rate falling below 3 percent for 2025 is about 28 percent.
  - Panels 4–6 in Figure 1.2.1 show distributions for global growth and headline and core inflation:
    - The balance of risks for global growth is tilted to the downside.
    - Risks for global inflation remain broadly balanced.

*Italic source: CHAPTER 1 GLOBAL PROSPECTS AND POLICIES — text - CHAPTER 1 GLOBAL PROSPECTS AND POLICIES (PDF).*

### 1. US GDP Growth4. Global GDP

### 1. US GDP Growth4. Global GDP

### Risk assessment around baseline projections
- The probability of global growth in 2025 falling below 2 percent is assessed at about 17 percent.
- The probability of average headline inflation falling below 3 percent in 2025 is estimated at about 20 percent.
- The probability of average core inflation falling below 3 percent in 2025 is estimated at about 15 percent.

### Scenario A — plausible downside alternative (five layers)
- Overview: Scenario A consists of five layers and assumes endogenous monetary and fiscal policy responses (automatic stabilizers) and that exchange rate stability plays a role in China’s monetary policy.
- Layer 1 — Global increase in tariffs:
  - United States, euro area, and China impose a 10 percent tariff on trade flows among the three regions.
  - A 10 percent tariff is also levied on trade flows (in both directions) between the United States and the rest of the world.
  - The increase in tariffs directly affects about one-quarter of all goods trade, representing close to 6 percent of global GDP.
  - Tariff revenue is transferred back to households.
- Layer 2 — Greater trade policy uncertainty:
  - Tariff increases raise trade policy uncertainty from mid-2025 onward.
  - Assumed US aggregate investment declines by about 4 percent relative to the baseline (about twice the estimated effect from the previous episode).
  - The euro area experiences a decrease in investment similar to the United States; other regions, including China, experience a hit about half as large.
  - The impact on investment fades starting in 2027.
- Layer 3 — Taxation of US business income:
  - Many TCJA provisions are due to expire at end-2025; scenario A assumes these expiring provisions are renewed for 10 years.
  - Renewal lowers business income taxes by about 4.0 percent of baseline GDP, cumulatively, between 2025 and 2034.
- Layer 4 — Migration flows to the United States and Europe:
  - Scenario A assumes further reductions in net migration starting in 2025 relative to the baseline.
  - US labor force is permanently reduced by 1 percent by 2030 relative to the baseline.
  - Euro area labor force is permanently reduced by 0.75 percent by 2030 relative to the baseline.
- Layer 5 — Global financial conditions tighten moderately in 2025–26 due to:
  - Negative impact on world economy, trade, and uncertainty.
  - Endogenously tighter US monetary policy because of a small net increase in US inflation.
  - Further increases in debt, especially in the United States, raising debt sustainability concerns.
  - Resulting premia changes:
    - Sovereign premiums in emerging markets (excluding China) increase by 50 basis points.
    - Corporate premiums increase by 50 basis points in advanced economies and China and 100 basis points in other emerging markets.
    - Term premiums increase by 40 basis points in the United States and by 25 basis points in the euro area.

### Scenario A — impacts on output and inflation (summary of model results)
- Tariff effects and trade policy uncertainty:
  - US GDP falls by 0.4 percent in 2025 and by 0.6 percent in 2026 due to tariffs alone.
  - Impact on other regions and the world reaches −0.3 percent of GDP by 2026.
  - Global imports and exports fall by about 4 percent, relative to the baseline.
  - Trade policy uncertainty layer causes global investment to fall by close to 2 percent by 2026, lowering GDP by 0.4 percent over the same period, while global inflation falls by 10 basis points.
- Effects of temporary renewal of US TCJA provisions:
  - Raises US investment by about 2 percent in 2025 and 4 percent in 2026, relative to the baseline.
  - US GDP increases by 0.4 percent.
  - Inflation increases by an average of 20 basis points over 2025–30, prompting higher US policy rates.
  - Spillovers to other regions are negative as investment demand decreases slightly outside the United States.
- Effects of lower migration:
  - Permanently reduces potential output in the United States and euro area and raises inflation along the adjustment path.
  - GDP falls by 0.5 percent in the United States and by 0.4 percent in the euro area in 2025.
  - Inflation increases by about 20 basis points in the United States and 15 basis points in the euro area.
- Financial tightening effects:
  - Reduces activity globally, more so in emerging markets excluding China.
- Combined effect of Scenario A:
  - Decrease in global GDP of about 0.8 percent by 2025 and 1.3 percent by 2026, relative to the baseline (with some effects fading over time).
  - US GDP falls by about 1 percent relative to the baseline in 2025.
  - Impact on global inflation is muted at −10 basis points by 2026.

### Scenario B — policy-improvement alternative (two layers)
- Overview: Scenario B examines policies that, if implemented, could reduce the likelihood of Scenario A materializing. Scenario B assumes endogenous policy responses and uses the G20 model.
- Layer 1 — Rebalancing in China:
  - Reforms strengthen China’s social safety net by expanding coverage and increasing accessibility of social security benefits.
  - Private saving rate gradually falls relative to the baseline starting in 2025 and is 3 percentage points of GDP lower by 2027.
  - The saving rate gradually converges back to the baseline starting in 2030.
- Layer 2 — Higher EU public investment:
  - EU countries undertake a region-wide expansion in public investment, increasing by 1.5 percent of the region’s baseline GDP on average during 2025–30.
  - Public investment remains permanently higher by 0.5 percent of baseline GDP after 2030 to sustain higher public capital.
  - About half of the surge is financed by higher deficits and the rest by reallocation of government spending.

### Scenario B — impacts on output and inflation (summary of model results)
- China rebalancing effects:
  - Positive effect on China’s GDP peaks at 2.5 percent by 2027 relative to the baseline.
  - Headline inflation in China increases by 90 basis points in 2025 and by as much as 140 basis points in 2027.
  - China’s current account falls by more than 1 percent of GDP.
  - Benefits global activity; effect on inflation outside China is small.
- EU public investment effects:
  - Raises level of GDP in the euro area, peaking at 2.5 percent above the baseline by 2030.
  - Productivity increases, raising private investment and potential output and limiting inflationary pressures.
  - Inflation is about 40 basis points higher than the baseline over 2025–30.
  - Spillovers to other regions are small.
- Combined effect of Scenario B:
  - 0.5 percent increase in world GDP in 2025.
  - Rise of 30 basis points in headline inflation in 2025.

### Commodity market developments and inflationary pressures
- Primary commodity prices increased between February and August 2024, driven by natural gas, precious metal, and beverage prices.
- Oil markets:
  - OPEC+ supply cuts and Middle East geopolitical tensions offset strong non-OPEC+ supply growth.
  - Oil traded in a range of $75 to $90 a barrel between February and August, averaging $83 a barrel.
  - Deep OPEC+ production cuts totaling 5.86 million barrels per day (mb/d) helped put a floor on prices.
  - Futures markets suggest prices will rise by 0.9 percent year over year to average $81.3 a barrel in 2024 and then fall to $67.0 in 2029.
- Natural gas:
  - TTF trading hub prices in Europe rose 26.4 percent between February and August to $10.2 a million British thermal units (MMBtu).
  - Asian liquefied natural gas prices increased by 49.8 percent.
  - US Henry Hub prices rose by 16.8 percent.
  - Futures: TTF prices average $10.4/MMBtu in 2024, decreasing to $8.2/MMBtu in 2029; Henry Hub prices may rise from $2.3/MMBtu in 2024 to $3.6/MMBtu in 2029.
- Metals:
  - IMF metals price index increased by 7.7 percent between February and August 2024.
  - Gold prices rose by 21.9 percent.
  - Iron ore prices fell by 19.9 percent.
  - Copper and aluminum rose by 8.1 percent and 7.8 percent, respectively (reaching a record nominal high in early July).
- Agriculture and beverages:
  - IMF food and beverages price index decreased by 2.4 percent between February and August 2024.
  - Cereal prices declined by 14.3 percent.
  - Cocoa prices increased by 20.4 percent (peaked at a record high in April).
  - Coffee prices rose by 33.8 percent.
  - Global grain production forecast to reach a record high over marketing year (MY) 2024–25; cocoa supply expected to decline 11 percent for MY 2023–24 per International Cocoa Organization expectations.
- Crude oil supply note:
  - Russian oil exported primarily to China and India traded above the Group of Seven price cap for most of the past year but at a $15–$20 discount to Brent.
- Oil demand forecasts and risks:
  - Oil demand growth for 2024 expected to match its 21st century average, but with great uncertainty.
  - Major demand risk sources: weaker oil demand in China and the United States (which together account for almost 40 percent of global demand), Japan and other advanced economies, and a potential rise in OPEC+ production to regain market share.
- OPEC+ production context:
  - OPEC+ denotes OPEC members plus some other oil-producing countries; numbers are adjusted to account for Angola’s departure from OPEC. Data are from the IEA, which assumes an extension of OPEC+ cuts for 2024.

*Source: IMF staff calculations; World Economic Outlook, October 2024.*

### 7.5 percent, retreating from a multiyear peak reached

### 7.5 percent, retreating from a multiyear peak reached

### Metals Matter: The Economic Relevance of Critical Inputs
- Since the end of World War II, oil has been a major commodity source of shocks for the global economy and inflation (references: Hamilton 1983; Kilian 2008, 2009).
- The shift from fossil fuels to metals as inputs to energy systems may render the global economy less oil intensive and relatively more metals intensive (Boer, Pescatori, and Stuermer 2024).
- The International Energy Agency predicts:
  - demand for copper may grow by a factor of more than 1.5 in a net zero emissions scenario;
  - consumption of oil could decline by 25 percent by 2030 in a net zero emissions scenario (Figure 1.SF.2; IEA 2022).
- Metals production could become less reliable because:
  - most metals production is geographically concentrated (more so than oil);
  - most metals are not easily substitutable;
  - trade disruptions could lead to sharp swings in prices, with growing economic impact as reliance on metals increases (Alvarez and others 2023).
- New trade restrictions, including those on metals trade, have almost doubled since the start of the war in Ukraine (Gopinath and others 2024).

### Metals Embodied in Investment Goods
- Metals like copper and aluminum represent only a small fraction of final consumption expenditure (example: 0.01 percent for metals versus 2.6 percent for oil and coal products in the United States) but are critical direct intermediate inputs into production of investment goods.
- In the United States:
  - metals represent more than 10 percent of direct input expenditure in sectors for electrical equipment and machinery (Figure 1.SF.3, panel 1).
  - fabricated metals and machinery show shares of 28 percent and 46 percent, respectively, when indirect components are included (Figure 1.SF.3, panel 1).
- Contrast with oil:
  - gas and petroleum products are much less embodied in machines and investment goods and are used chiefly as fuel in transportation (air, water, truck, rail) and utilities (Figure 1.SF.3, panel 2).
  - oil price shocks therefore have a more immediate effect on headline inflation.
- Indirect input role example:
  - to produce vehicles, metals are used both for vehicle bodies and for the machines used to assemble vehicles.
- Modeling approach:
  - a production network model with flexible prices is used to capture indirect effects (example reference: Balke and Wynne 2000).

### Metals Are Important in Many Countries’ Production Networks
- Analysis uses input-output data from the Organisation for Economic Co-operation and Development for the top 25 countries (45 sectors for 2018, includes imports of intermediates).
- Aggregation methods:
  - Panel 1: sectoral exposures to metals and oil aggregated using value-added shares (production-side exposure).
  - Panel 2: exposures aggregated using final consumption expenditure shares (consumption-side exposure), indicating the percent increase in a country’s CPI following a 10 percent negative supply shock that results in about a 15 (16) percent increase in metals (oil) prices, on average.
- Key cross-country findings:
  - Heterogeneity in production exposure is starker than in consumption exposure.
  - Differences in technological adoption induce significant heterogeneity in sectoral exposures.
  - Motor vehicle sector metal exposure: average country 16 percent; 10th percentile 5 percent; 90th percentile 34 percent.
  - Metals are more relevant than oil in production in 7 of the top 25 countries.
  - Once consumption shares are used to aggregate, only three countries display larger exposure to metals than to oil.
  - The median CPI exposure is three times larger for oil than for metals.
  - Significant cross-country differences: median country metals exposure 0.03; 90th percentile exposure is five times larger than 10th percentile exposure.
  - Example model outcome: a 10 percent supply-driven increase in metals prices would generate:
    - a 0.36 percentage point increase in China’s CPI;
    - a 0.1 percentage point increase in the United States’ CPI.

### The Impact of Metal Supply Shocks on Inflation
- Empirical strategy:
  - small open economy production network model (see Online Annex 1.1) and local projections instrumental variables (LP-IV) methods.
  - Effects estimated for copper and oil price shocks for a balanced panel of 39 countries from 1996 to 2019.
  - Instruments: copper supply shocks from Baumeister, Ohnsorge, and Verduzco-Bustos (2024) and oil supply shocks from Baumeister and Hamilton (2019).
- 12-month cumulative effects (Panel 1, Figure 1.SF.5):
  - A 10 percent increase in copper prices raises both headline and core inflation by about 0.2 percentage point within 12 months (average).
  - Oil price shocks show a substantial effect on headline inflation, but not on core inflation (average).
- Heterogeneity by network exposure (12-month cumulative effects):
  - For countries with high network exposure to metals and oil (90th percentile):
    - copper: 10 percent price increase → headline inflation +0.5 percentage point, core inflation +0.3 percentage point;
    - oil: 10 percent price increase → headline inflation +0.7 percentage point, core inflation +0.1 percentage point.
  - For countries with low network exposure to metals and oil (10th percentile):
    - copper: 10 percent price increase → headline inflation +0.1 percentage point, core inflation +0.2 percentage point;
    - oil: 10 percent price increase → headline inflation +0.5 percentage point, core inflation +0.1 percentage point.
- 48-month cumulative effects (Panel 2, Figure 1.SF.5):
  - A 10 percent increase in copper prices leads to a cumulative 0.5 percentage point increase over 48 months in core inflation for countries with high network exposure to metals.
  - A 10 percent increase in oil prices does not cause any significant increase in core inflation over the long term.
- Mechanism:
  - delayed and persistent effects of metals prices on inflation operate through production networks’ long-lasting effects on marginal costs via the cost of capital.
- Additional technical notes:
  - The persistence of copper and oil price shocks is roughly similar, but copper price shocks have a stronger 48-month effect on copper prices than oil supply shocks have on oil prices (see Online Annex 1.1).
  - Country heterogeneity is not significant for oil.
  - Copper represents 30 percent of the IMF’s trade-weighted base metals index; estimates are a lower bound for a supply shock that increases base metals prices by 10 percent (effect expected to be three times greater).

### Conclusions and Policy Implications
- Primary metals play a major role as intermediate inputs for investment goods in production networks.
- Given how metals enter production networks, metal supply shocks can have significant, persistent effects on core and headline inflation. In contrast, oil supply shocks affect mostly headline inflation.
- Implication for monetary policy:
  - Central banks have typically “looked through” oil price shocks provided they were not excessively large.
  - As the energy system moves away from fossil fuels, that approach may be less effective when facing major fluctuations in metals prices.
  - Monetary authorities may eventually need to react to metal supply shocks because these shocks have a more persistent effect on core inflation.
  - Central banks must be prepared for a potentially more metals-intensive global economy in which metals price shocks could become increasingly more relevant; their impact on inflation may initially appear subtle but could prove to be quite persistent.

*International Monetary Fund | October 2024*

### CHAPTER 1 GLOBAL PROSPECTS AND POLICIES

### CHAPTER 1 GLOBAL PROSPECTS AND POLICIES

### Regional macroeconomic tables (Annex Tables 1.1.3–1.1.5)
- Annex Table 1.1.3 (Western Hemisphere Economies) provides country-level annual percent change projections for Real GDP, Consumer Prices (annual averages), Current Account Balance (Percent of GDP), and Unemployment (Percent) for 2023, 2024, and 2025. The table includes North America, South America, Central America, the Caribbean, and a memorandum for Latin America and the Caribbean and the Eastern Caribbean Currency Union.
- Annex Table 1.1.4 (Middle East and Central Asia Economies) provides country-level annual percent change projections for Real GDP, Consumer Prices (annual averages), Current Account Balance (Percent of GDP), and Unemployment (Percent) for 2023, 2024, and 2025. The table separates Oil Exporters and Oil Importers and includes memoranda for the Caucasus and Central Asia, Middle East, North Africa, Afghanistan, and Pakistan, and Middle East and North Africa.
- Annex Table 1.1.5 (Sub-Saharan African Economies) provides country-level annual percent change projections for Real GDP, Consumer Prices (annual averages), Current Account Balance (Percent of GDP), and Unemployment (Percent) for 2023, 2024, and 2025. The table separates Oil Exporters, Middle-Income Countries, and Low-Income Countries.
- Source for all tables: IMF staff estimates. Notes indicate data for some countries are based on fiscal years and that consumer price movements are shown as annual averages; percent of GDP for current account balances; national definitions of unemployment may differ.

### Summary of world real per capita output (Annex Table 1.1.6)
- World (Annual percent change; in constant 2017 international dollars at purchasing power parity)
  - Average 2006–15: 2.2
  - 2016: 1.9
  - 2017: 2.5
  - 2018: 2.5
  - 2019: 1.8
  - 2020: –3.9
  - 2021: 5.6
  - 2022: 2.6
  - 2023: 2.3
  - 2024: 2.7
  - 2025: 2.3
- Advanced Economies
  - Average 2006–15: 0.9
  - 2016: 1.3
  - 2017: 2.1
  - 2018: 1.8
  - 2019: 1.4
  - 2020: –4.5
  - 2021: 5.8
  - 2022: 2.5
  - 2023: 1.1
  - 2024: 1.3
  - 2025: 1.5
- Emerging Market and Developing Economies
  - Average 2006–15: 4.0
  - 2016: 2.8
  - 2017: 3.3
  - 2018: 3.4
  - 2019: 2.4
  - 2020: –3.1
  - 2021: 5.9
  - 2022: 2.9
  - 2023: 3.3
  - 2024: 3.7
  - 2025: 3.1
- Selected economies (annual percent change in real per capita output)
  - China: 2006–15: 9.0; 2016: 6.2; 2017: 6.4; 2018: 6.3; 2019: 5.6; 2020: 2.1; 2021: 8.4; 2022: 3.0; 2023: 5.4; 2024: 4.9; 2025: 4.6
  - India: 2006–15: 5.3; 2016: 7.0; 2017: 5.6; 2018: 5.3; 2019: 2.8; 2020: –6.7; 2021: 8.8; 2022: 6.3; 2023: 7.3; 2024: 6.0; 2025: 5.5
  - United States: 2006–15: 0.8; 2016: 1.1; 2017: 1.8; 2018: 2.4; 2019: 2.1; 2020: –3.0; 2021: 5.7; 2022: 2.2; 2023: 2.4; 2024: 2.3; 2025: 1.7
  - Euro Area (sum of individual euro area countries): 2006–15: 0.5; 2016: 1.5; 2017: 2.4; 2018: 1.5; 2019: 1.3; 2020: –6.5; 2021: 6.4; 2022: 3.2; 2023: 0.0; 2024: 0.5; 2025: 1.0
  - Sub-Saharan Africa: 2006–15: 2.2; 2016: –1.4; 2017: 0.1; 2018: 0.5; 2019: 0.4; 2020: –4.3; 2021: 2.1; 2022: 1.4; 2023: 0.9; 2024: 0.9; 2025: 1.6

### Recent global inflationary experience and monetary policy lessons
- Text summary (verbatim from source):
  - "The recent global inflationary experience was characterized by a complex set of events. During COVID-19 lockdowns, demand shifted toward goods and then pivoted toward services as economies reopened. These demand shifts occurred in the context of supply disruptions and unprecedented fiscal and monetary stimulus. Subsequently, the war in Ukraine led to spikes in commodity prices. Evidence suggests that the pass-through of sectoral price pressures to core inflation and the steepening of the inflation-slack relationship—that is, the Phillips curve—are essential to understanding the global surge in inflation. This evidence is consistent with key sectors hitting their supply bottlenecks as demand rotated across sectors and was boosted over time by a drawdown of savings. This chapter offers a new lesson and confirms an old one for monetary policy. In extreme cases when sectoral supply bottlenecks are widespread across an economy and interact with strong demand, inflation can surge, but tighter policy can bring it down quickly with limited output costs. Outside of such cases, when supply bottlenecks are confined to specific sectors, conventional policy rules, such as those that target measures of core inflation, perform well."

### Key analytical takeaways
- Sectoral interactions matter: pass-through of sectoral price pressures to core inflation and a steepened Phillips curve played a central role in the global inflation surge.
- Supply bottlenecks plus strong demand can produce rapid inflation spikes; in such extreme cases, "tighter policy can bring it down quickly with limited output costs."
- When bottlenecks are confined to specific sectors, "conventional policy rules, such as those that target measures of core inflation, perform well."

*Source: CHAPTER 1 GLOBAL PROSPECTS AND POLICIES, IMF staff estimates (text and annex tables as provided).*

### Introduction

### Introduction

### Overview of the recent inflation episode
- The past three years featured an extraordinary set of inflationary events beginning with the COVID-19 pandemic, which caused widespread economic shutdowns and production cuts, followed by a goods-demand surge as recovery began while supply-chain disruptions persisted.
- The unprecedented fiscal and monetary stimulus deployed by advanced economies and some emerging markets initially increased savings; over time a drawdown of those savings boosted demand and widened supply-demand imbalances.
- The war in Ukraine produced a global food and energy crisis that exacerbated inflationary pressures.
- By mid-2022, global inflation had tripled relative to its prepandemic level.
- Fiscal and monetary support magnitudes noted in the chapter:
  - Fiscal stimulus: about 12 percent of GDP in advanced economies and about 4 percent of GDP in emerging markets.
  - Quantitative easing policies: about 20 percent of GDP in several advanced economies.

### Authors and acknowledgements
- Chapter authors: Jorge Alvarez (co-lead), Emine Boz (co-lead), Thomas Kroen, Alberto Musso, Galip Kemal Ozhan, Nicholas Sander, Sebastian Wende, and Sihwan Yang, under the guidance of Jean-Marc Natal.
- Research assistance: Canran Zheng and Weili Lin.
- Thanks for comments: Benjamin Carton, Rafael Portillo, and Silvana Tenreyro.

### Analytical goals and structure
- Principal aim: disentangle contributions of shocks and policy responses in the inflation surge and subsequent disinflation, to draw lessons for monetary policymakers.
- Key questions guiding the chapter:
  - What accounts for recent inflation dynamics in advanced economies and in emerging market and developing economies? What role did sectoral shocks and capacity constraints play, and how did they interact with monetary and fiscal policy?
  - Was the monetary policy response or its transmission unusual relative to the past?
  - What lessons can be drawn for monetary policy? Did the global nature of tightening make a difference?
- Chapter structure:
  - Stylized facts using raw data and empirical Phillips curves.
  - Documentation of monetary policy response and transmission across countries and time.
  - Development of a new multisector network model to construct counterfactual scenarios and compare alternative simple policy rules.

### What happened? Key empirical observations and statistics
- Timing and magnitude:
  - Inflation rose globally starting in late 2020, peaking in 2022.
  - Annual inflation peaked in 2022 at about 8 percent in the median advanced economy and emerging market and extended beyond that in the median low-income country, before receding over the course of 2023.
- Forecast errors:
  - Median forecast error in advanced economies reached 2.5 percentage points in 2022.
  - Median forecast errors: 1.1 percentage points for emerging markets and 1.5 percentage points for low-income countries.
  - Disinflation in 2023–24 progressed faster than expected, yielding negative forecast errors for 2024 forecasts made in 2023.
- Inflation expectations and wages:
  - The feared de-anchoring of inflation expectations reminiscent of the 1970s did not materialize, though short-term expectations and nominal wages rose.
  - Real wage growth remained contained in most economies; wage-price spirals did not occur broadly in line with most historical experience.
- Sectoral shifts and dispersion:
  - Large sectoral shifts driven by supply and demand increased relative-price variation and sectoral inflation dispersion.
  - Demand rotated toward goods amid lockdowns, leading goods inflation to surge earlier and higher than services.
  - The war in Ukraine placed substantial pressure on noncore headline components (food and energy), driving much of both the increase and subsequent decrease in overall inflation.
- Energy and commodity pass-through:
  - Using input-output tables, energy dependence of sectors was linked to earlier and stronger inflation in 2021 and peaking in 2022 for energy-dependent sectors; inflation broadened to less energy-dependent sectors by end-2023.
  - Historical peak pass-through from a 1 percentage point increase in energy prices into CPI inflation at the country level:
    - about 0.06 percentage point in advanced economies.
    - about 0.17 percentage point in emerging market and developing economies.
  - The pass-through from energy prices into CPI inflation did not strengthen materially across a wide range of countries during 2020–23.
- Price flexibility dynamics:
  - Headline inflation was initially led by price-flexible goods sectors (energy, vehicles, household equipment), then flexible-price services (restaurants, hotels, recreation).
  - By the end of 2023, inflation was driven primarily by more inflexible-price sectors such as clothing, communications, and health.

### Monetary policy response, transmission, and modeling approach
- The sectoral nature of shocks, relative price shifts, and uncertainty about ultimate inflationary effects complicated central bank timing and calibration of monetary responses.
- Central banks relied on tools and frameworks not fully accounting for the features of the new economic landscape; many countries used multiple policy levers simultaneously (balance sheet policies, price-suppressing measures, fiscal policy), requiring real-time assessment of joint effects.
- Central banks did not all start rate hikes at the same time; some (for example, Brazil and Chile) moved earlier than others depending on country-specific circumstances and timing/asymmetric shock effects.
- Focus of analysis is on policy interest rates through conventional demand channels; complementary topics (central bank communications, financial market risks, balance sheet policies, price-suppressing measures, liquidity measures) are noted but examined elsewhere or in boxes.

### Main findings and policy-relevant conclusions
- Defining features:
  - Price surges in specific sectors and their broadening over time were central to the episode.
  - Price pressures emerged sooner and were more pronounced in the goods sector and in sectors with higher energy dependence and flexible prices.
  - Spillovers from higher prices in energy and other sectors to core inflation played an important role.
  - Little evidence in most economies—possible exception being the US—that inflation was driven by labor market strength during peak inflation.
- Phillips curves and wages:
  - Price Phillips curves steepened (price inflation accelerated faster than expected as unemployment declined and disinflation occurred with fewer job losses than expected).
  - Wage Phillips curves did not steepen; wages did not spike in the same way as prices.
- Role of supply bottlenecks:
  - Interaction of supply bottlenecks with demand pressures can rationalize the steepening of price Phillips curves (sectoral capacity declines in high-demand sectors contributed significantly to inflationary pressures).
- Effectiveness of global tightening:
  - Tightening on a global scale can be more effective than individual-country tightening, because it can lower prices of tradable goods, especially commodities.
- Policy implications regarding supply constraints and policy rules:
  - Prevalence of supply bottlenecks and their interaction with demand are key for policy responses; diagnosing drivers of inflation is vital though challenging in real time.
  - When the Phillips curve is steep overall, the benefits of monetary tightening are amplified—counteracting demand-driven inflation in presence of supply bottlenecks presents a favorable sacrifice ratio.
  - When supply constraints are confined to the commodity sector, conventional policy rules (for example, targeting measures of core inflation) remain appropriate:
    - Reacting strongly to flexible commodity prices when supply constraints are present only in those sectors brings down inflation fast but risks a recession later.
    - Targeting sticky prices results in more gradual disinflation with a smoother output path.

*Source: Introduction, CHAPTER 2 — THE GREAT TIGHTENING: INSIGHTS FROM THE RECENT INFLATION EPISODE, World Economic Outlook: Policy Pivot, Rising Threats (text - Introduction).*

### 1. Drivers of US PCE Inflation

### 1. Drivers of US PCE Inflation

### Inflation dynamics and sectoral price flexibility
- Analysis focuses on price stickiness across sectors and pass-through of inflation from flexible to sticky prices.
- Sectoral price flexibility is computed using data from Rubbo (2023). Sectoral data feature 12 HICP sectors. Sectors are split along median of price flexibility, and then inflation is aggregated across countries using PPP country weights and within-country HICP weights.
- PCE = personal consumption expenditures; HICP = harmonised index of consumer prices; PPP = purchasing power parity.

### Shifting and steepening of the Phillips curve
- Prior to the pandemic, the Phillips curve was relatively flat; during the pandemic it notably steepened and shifted upward.
- Steepening and upward shift were particularly pronounced in advanced economies and more so for goods than for services.
- Empirical strategy:
  - Country-by-country estimates of empirical Phillips curves compare coefficients before and after the pandemic.
  - Sample of 29 advanced economies and 15 emerging markets; period from the first quarter of 2010 to the first quarter of 2024.
  - “Post-COVID” is defined as the first quarter of 2020 onward. The first two quarters of 2020 are excluded.
  - Unemployment gap estimated using a univariate Hodrick-Prescott filter.
- Implications observed:
  - A steeper slope implies a given decrease in economic slack produced a larger increase in inflation, and conversely a given increase in slack associated with a larger decline in inflation.
  - Wage Phillips curve: patterns were less pronounced; it did not steepen much in either advanced economies or emerging markets, but shifted upward as short-term inflation expectations increased.
  - Because wages were less responsive, recent inflation dynamics likely did not reflect, at least not solely, excessive tightness in the labor market.

### Decomposition: pass-through of commodity and headline shocks
- Statistical decomposition follows methodology similar to Ball, Leigh, and Mishra (2022) and Dao and others (2024); this is correlational and does not identify structural shocks.
- Across countries, since mid-2022:
  - Tight labor markets play a moderate role in explaining inflation dynamics, with the possible exception of the United States during the later period.
  - Energy shocks and other headline shocks played an outsized role and were subsequently passed on to broader inflation.
  - Import prices accounted for a sizable part of pass-through in emerging markets (import prices in local currency were used).
  - Long-term inflation expectations remained anchored and did not directly contribute to inflation dynamics.
- United States specifics:
  - Initial drivers: energy price shocks and other sector-specific shocks due to shortages and pandemic-related supply disruptions.
  - Since mid-2022, the main driver of US inflation has been a tight labor market.
  - By the first quarter of 2024, labor market tightness was contributing 2.5 percentage points to US CPI inflation, partly offset by a modest deflation in energy costs.
  - US inflation drivers are estimated on monthly data and converted to quarterly.
- Other economies:
  - Other advanced economies (particularly in Europe): large energy price shocks initially drove inflation; energy pass-through alone contributed more than 2.5 percentage points to CPI inflation at its peak.
  - Emerging markets: import price pass-through (including exchange rate effects) was a significant driver.
- Measurement notes:
  - “Slack” measured using vacancy-to-unemployment ratio for advanced economies and unemployment gap (HP filter) for emerging markets.
  - Fitted values for inflation gap converted into 12-month rates.
  - Country-level contributions aggregated using purchasing-power-parity GDP weights.

### Monetary policy reaction and timing of tightening
- Central banks initially adopted expansionary monetary policies during the pandemic and later transitioned to tightening as inflationary pressures emerged.
- Timing and pace of tightening varied across countries, influenced by:
  - Impact of shocks on individual economies.
  - Timing of lockdowns and reopenings.
  - Initial conditions and institutional features.
  - Policy credibility and history of low and stable inflation affected the willingness to “look through” supply shocks.
  - Wage and price indexation mechanisms limited room to maneuver in some countries.
  - Differences in fiscal stimulus size and price-suppressing measures affected monetary responses.
- Examples:
  - Brazil, Chile, and Mexico started rate hikes earlier than others.
  - Asia exhibited a more tempered response.
  - The United States adjusted policies relatively later.
- Figure and sample notes:
  - Sample comprises 16 advanced economies and 65 EMDEs.
  - “Early hikers” include Brazil, Chile, Hungary, Korea, New Zealand, Norway, Peru, and Poland.
  - Real rates constructed as nominal rates minus one-year-ahead inflation expectations.
  - Panel reporting economic conditions at first interest rate hike excludes early hikers Peru, Canada, the euro area, the United Kingdom, and the United States in that panel.

### Comparison with the 1970s inflation episodes
- Inflation episode defined as a period with an increase in inflation of more than 2 percentage points in a year.
- Episodes grouped as “resolved” or “unresolved”; resolved if inflation declines within a five-year window to near 1 percentage point of pre-episode level.
- Observations comparing post-2020 and 1970s:
  - Post-2020 inflation episodes have been more pronounced and persistent compared with resolved episodes of the 1970s, with inflationary pressures building sharply and continuing to rise in the subsequent year.
  - Nominal interest rate hikes during resolved episodes of the 1970s were larger; real rates swiftly transitioned to contractionary territory.
  - Post-2020 episodes involved a milder nominal rate adjustment and a more prolonged expansionary policy stance, indicated by sustained negative real interest rates.
  - During unresolved episodes of the 1970s, the median policy stance remained consistently expansionary, with more prolonged and more negative real interest rates than observed after 2020.
- Overall conclusion: the recent episode lies between the resolved and unresolved episodes of the 1970s in terms of inflation dynamics and speed of policy response.
- Additional diagnostics:
  - Proxying inflation expectations anchoring using past inflation volatility suggests inflation expectations were more strongly anchored post-2020 than in the 1970s.

### Monetary policy transmission during tightening: continuities and changes
- Multiple forces could weaken or strengthen transmission relative to historical experience:
  - Potential weakening: growing popularity of fixed-rate mortgages (reducing sensitivity of household payments to rising rates); excess household savings buffering consumption; globally synchronized tightening weakening exchange rate channel.
  - Potential strengthening: world price of commodities channel; a steeper Phillips curve implying stronger disinflationary impact for small output effects.
- Empirical assessment:
  - Transmission measured using a vector autoregression model with time-varying coefficients across selected countries during tightening cycles since the 1990s (focuses on post-1990 period after adoption of inflation-targeting regimes).
  - Preliminary evidence suggests variation across countries but not a broad-based and significant change in overall transmission over time.
  - Peak effects of consumer prices vary somewhat in response to a standardized tightening shock across countries.
  - No systematic and statistically significant difference detected in magnitude of responses when post-2022 price responses are compared with average transmission during tightening cycles in the 1990s through 2019.
  - Conclusion holds when comparing full impulse response paths over time, not only peak effects.
- Caveats:
  - Methodology is designed to detect significant changes given available data; it does not rule out moderate changes in transmission.
- Figure notes:
  - Country median peak responses shown for groups: 1 = 1990s to 2019, 2 = 2021 to 2022, 3 = 2021 to 2023, 4 = 2022 to 2023.
  - CPI peak responses shown for selected countries including US, Euro area, UK, India, Brazil, Mexico; whiskers represent upper and lower bounds of 68 percent HPD set of responses.

*Source: https://www.imf.org/-/media/files/publications/weo/2024/october/english/text.pdf*

### CHAPTER 2 THE GREAT TIGHTENING: INSIGHTS FROM THE RECENT INFLATION EPISODE

### CHAPTER 2 THE GREAT TIGHTENING: INSIGHTS FROM THE RECENT INFLATION EPISODE

### Model design and key features
- Global Dynamic Network Model includes:
  - Rich input-output linkages across sectors and countries to replicate transmission of sectoral price pressures to core inflation and to assess synchronized global tightening.
  - Occasionally binding supply constraints in the form of limits on maximum employment levels of firms, mimicking supply bottlenecks that bind in extreme cases (for example, lockdowns or sectoral demand surges).
  - Aggregate and sectoral shocks, including monetary policy shocks, aggregate demand shocks, and a rich set of sectoral demand and supply shifts.

### Widespread bottlenecks and the nonlinear Phillips curve
- Mechanism:
  - When demand is low and policy is contractionary, sectors operate below labor constraints; increases in demand raise employment and inflation modestly.
  - As policy becomes more expansionary, more sectors hit supply constraints; constrained sectors cannot raise employment/output, so prices rise, producing higher inflation.
  - Aggregating across sectors yields a nonlinear (steepening) aggregate Phillips curve when constraints are widespread; without supply bottlenecks, the aggregate Phillips curve would be linear.
- Shifting Phillips curve:
  - Adding relative demand shocks (high demand in some sectors, low in others) can shift the aggregate Phillips curve upward: constrained sectors exhibit upward price pressure while unconstrained sectors have weak output.

### Role of constraints and commodity-specific shocks (model-to-data counterfactuals)
- Calibration:
  - Model fitted to US and rest-of-world sectoral and aggregate data to match observed inflation and output as well as sectoral dispersion.
- Key quantified impacts:
  - Supply constraints were an important persistent drag on real GDP during the period examined (Figure 2.12, panel 4).
  - Supply constraints contributed 2–3 percentage points to US inflation during 2020–22 and produced a negative net contribution after 2023 (Figure 2.12, panel 3).
  - Supply bottlenecks raise prices persistently but tend to produce one-off rather than persistent increases in inflation, so GDP effects appear larger relative to inflation effects.
- Commodity-sector shocks:
  - Turning off shocks specific to agriculture and raw energy reduces inflation, especially around the beginning of the war in Ukraine; these shocks make a smaller difference for GDP.
  - Even with agriculture and energy shocks removed, prices in those sectors are still affected by aggregate demand shocks and constraints in other sectors because sectoral prices are not purely exogenous in the model.

### Policy experiments — counterfactuals and coordination
- Counterfactual: tightening three quarters earlier
  - "Tighten early" lowers peak inflation by about 2 percentage points relative to the data (Figure 2.13, panel 1).
  - The same "tighten early" scenario results in a 0.8 percentage point reduction in real GDP for 2022 (Figure 2.13, panel 2).
  - When capacity constraints are imposed at estimated levels (solid red lines), earlier tightening has greater potency in lowering inflation with lower output cost relative to the case where constraints are removed (dashed red lines). Explanation: constraints steepen the Phillips curve, making tight policy more effective at lowering inflation with a smaller output cost.
- International coordination: delayed tightening abroad
  - A scenario in which the rest of the world (ROW) delays tightening by three quarters slows domestic disinflation; sectoral impacts differ across agriculture, mining, and energy (highly flexible prices), manufacturing, and services (Figure 2.14).
  - Agriculture, mining, and energy generate further waves of price increases in manufacturing and services through input-output linkages when ROW delays tightening.
- Hypothetical milder shock scenario (positive aggregate demand + capacity constraints only in food and energy)
  - Four monetary policy rules compared:
    1. Targeting inflation in sectors with the stickiest prices (stickiest-price sectors defined as information technology and telecommunications; finance and insurance; professional, scientific, and technical; education, health, and government services; and arts, entertainment, and recreation).
    2. Inflation forecast targeting: stabilizes the four-quarter moving average of future CPI inflation.
    3. Average inflation targeting: targets the average of the preceding four quarters of inflation.
    4. Sectoral Taylor rule: targets equally CPI inflation and sectoral inflation in agriculture, mining, and energy.
  - Comparative insights (Figure 2.15):
    - Targeting stickiest-price sectors delivers relatively fast disinflation.
    - Inflation forecast targeting “runs the economy hot”: it responds to medium-term inflation (lower than inflation on impact), which leads to a surge in inflation and inflation expectations. Despite higher nominal rates, this rule yields lower real rates than the other rules, producing higher initial output but requiring a prolonged medium-term reduction in real GDP to bring inflation to target.
    - A rule with higher weight on food and energy tightens markedly more on impact because these prices are more flexible and supply constrained; focusing policy on these sectors overreacts to transitory inflation, producing a sharp recession. As shocks dissipate, food and energy prices fall faster than CPI, leading to a rapid fall in policy rates and subsequent surges in inflation and GDP.
    - Average inflation targeting produces inflation and GDP responses most like the stickiest-price targeting rule, but its delayed response yields a more gradual return of inflation to target and keeps real GDP below steady state in the medium term for longer.
  - Efficient-benchmark comparison:
    - An “efficient” economy with perfectly flexible prices is included as a benchmark to assess the maximal role monetary policy can play in offsetting nominal frictions.

### Summary and policy implications
- The recent inflation episode was characterized by prominent sectoral shifts amid policy stimulus and capacity constraints.
- Supply bottlenecks and sectoral demand shifts interacted to steepen and shift the aggregate Phillips curve; these interactions help explain the steepening observed in many countries during the episode.
- Policy lessons:
  - Earlier tightening can lower peak inflation materially (about 2 percentage points in the modeled counterfactual) while incurring output costs (about 0.8 percentage point reduction in real GDP for 2022 in the counterfactual).
  - Supply bottlenecks increase the potency of monetary tightening on inflation and reduce the relative output cost of disinflation because they steepen the Phillips curve.
  - Delays in tightening by other economies slow disinflation domestically through input-output linkages, especially via agriculture, mining, and energy sectors.
  - Monetary rules that target inflation in sectors with stickiest prices or that react to realized inflation tend to deliver faster disinflation with less medium-term GDP cost than rules that focus on forecasting medium-term inflation or that overweight flexible commodity sectors; overweighting food and energy can provoke sharp recessions by overreacting to transitory price moves.
- Overall implication: recognizing sectoral heterogeneity, the transient nature of many supply-driven price movements, and international coordination is crucial for setting monetary policy during episodes featuring widespread bottlenecks and commodity-specific shocks.

*Source: CHAPTER 2 THE GREAT TIGHTENING: INSIGHTS FROM THE RECENT INFLATION EPISODE (text - CHAPTER 2 THE GREAT TIGHTENING: INSIGHTS FROM THE RECENT INFLATION EPISODE; IMF staff calculations).*

### 1. Interest Rates2. Inflation

### 1. Interest Rates2. Inflation

### Sectoral drivers of inflation and Phillips-curve dynamics
- Statistical decompositions attribute an important role to price pressures arising from individual sectors and their spillovers to core inflation.
- Evidence suggests the relationship between inflation and economic slack shifted and steepened.
- A multisector structural model accounts for:
  - transmission of sector-specific price pressures to the rest of the economy;
  - shifting and steepening of Phillips curves via a mechanism running through binding supply constraints combined with demand shocks.
- Key model parameters and experiment settings (as reported):
  - Taylor parameter = 3.
  - Persistence parameter = 0.5.
  - GDP and the output gap are not targeted in the presented Taylor-rule experiments.
  - “Targeting stickiest prices” targets the five sectors with the steepest Phillips curves.
  - “Inflation forecast targeting” targets the four-quarter moving average of future CPI inflation.
  - “Average inflation targeting” targets the average of the previous four quarters of inflation.
  - “50/50 on CPI and constrained sectors” targets CPI inflation and sectoral inflation in agriculture, mining, and energy.
  - “Flexible prices” scenario assumes no nominal rigidities in any sector market.
  - CPI = consumer price index.

### Policy insights and implications
- Sectoral supply constraints tend to have large but short-lived effects on inflation as they start to bind.
- Steeper aggregate Phillips curves arise when supply constraints interact with demand shocks.
- Distinction between aggregate and sectoral Phillips-curve steepening:
  - New lesson:
    - When supply bottlenecks are prevalent and combined with strong demand, the aggregate Phillips curve steepens.
    - Policy tightening is effective in that case: it can ease demand pressures and bring down inflation quickly with limited output costs (the sacrifice ratio is low).
    - Monitoring whether key sectors bump against supply bottlenecks in an overheated economy is crucial.
  - Old lesson:
    - When supply bottlenecks are confined to specific sectors (for example, commodities), rules focusing on inflation in sectors with the stickiest prices remain appropriate.
    - Sectoral Phillips curves steepen in constrained sectors, but effects may not spread widely enough to steepen the aggregate Phillips curve.
    - Monetary tightening can sharply lower flexible commodity prices but at the expense of lower output; over time, inflation may undershoot as flexible commodity prices decline and other prices react to tighter policy.
  - Putting them together:
    - Central banks should consider well-defined escape clauses in policy frameworks to tackle inflationary pressures when aggregate Phillips curves steepen.
    - Forward guidance should internalize those escape clauses and allow for front-loading of tightening in such situations.
- Complementary considerations:
  - Running the economy hot can facilitate relative price adjustment when shocks are permanent, but risks include de-anchoring of inflation expectations and wage-price spirals.
  - Central banks should weigh most likely outcomes and the distribution of risks, and keep inflation from drifting too far from target for an extended period, especially when inflation expectations are less anchored and policy credibility is weaker.
  - Credible policy frameworks proved valuable: inflation expectations remained anchored and wage-price spirals did not materialize in countries with credible frameworks during the episode.

### Recommendations on models and data for policy calibration
- Invest in improved models and data collection to capture sectoral dynamics over time.
- Specific suggestions:
  - Develop models that capture sectoral linkages and heterogeneity, as exemplified by the chapter’s model, to inform framework reviews.
  - Collect more granular sectoral data to map sectoral networks and refine models—quantify how much and how fast sectoral price pressures propagate depending on sector centrality or price stickiness.
  - Build high-frequency sectoral indicators of supply constraints and demand pressures (including upstream/downstream supply-chain disruptions and sectoral labor-market indicators).
  - Measure overall supply-demand mismatches (for example, back orders) to highlight interacted effects of supply and demand shocks.

### Cross-border spillovers and exchange-rate considerations
- Positive spillovers from other central banks’ tightening can lower tradable goods prices for open economies.
- Spillovers are especially important for countries highly exposed to tradable goods prices (for example, food and energy) and with limited policy levers (for example, low-income countries with fixed exchange rate regimes).
- Exchange rate depreciations and pass-through can exert upward price pressures in countries with flexible exchange rate regimes if they are not hiking interest rates simultaneously.
- The exchange-rate channel would be muted relative to the lower tradable-goods prices channel to the extent that policy tightening is synchronized.

### Central bank balance sheet policies and quantitative tightening (Box 2.1)
- Since the global financial crisis, central banks expanded toolkits using balance sheet policies at the effective lower bound (ELB).
- QE during the pandemic:
  - Used to mitigate acute pandemic-related financial distress in spring 2020 and by many emerging markets and advanced economies.
  - Advanced-economy central bank balance sheets grew during 2020–22:
    - by more than 20 percent of GDP in Japan, the United Kingdom, and the euro area.
    - by about 18 percent of GDP in the United States.
  - QE had sizable effects in containing financial distress and supporting economic activity.
- QT is not merely QE in reverse:
  - QE is used when short-term policy rates are constrained by the ELB; QT has been used alongside policy tightening.
  - If QT and rate hikes are partially substitutable, greater QT can be partly offset by slower policy-rate tightening, muting QT’s effects.
  - QT may take place against a steeper Phillips curve.
- Evidence on QT effects so far:
  - Erceg and others (2024a) find a one-standard-deviation QT shock had a small, possibly slightly negative, effect on short-term rates while raising term premiums by about 12 basis points.
  - Du, Forbes, and Luzzetti (2024) find active QT tended to have a stronger impact on long-term rates than passive QT during the recent episode.
  - The cumulative impact of QT announcements since 2021 has equaled at most two or three rate hikes in some countries, thus contributing moderately to a tighter policy stance.
- Potential for larger QT effects:
  - QT may have stronger effects if conducted more rapidly or on a larger scale because reducing balance sheet size withdraws reserves from the banking system.
  - QT may have stronger effects once reserves become scarce (example: United States in 2019).
  - Financial-stability risks could arise (for example, higher liquidity dependence through credit lines and uninsured deposits), which can raise the risk of sudden deposit withdrawals.
  - Advanced-economy QT strengthens their currencies (through higher term premiums) more than conventional tightening (through the short-term policy rate), increasing pressure on emerging market and developing economies and worsening inflation-output trade-offs, especially in countries with fixed exchange rates that must raise rates sharply to maintain pegs.
  - Conventional tightening can achieve similar macroeconomic outcomes with smaller adverse international spillovers.

### Inflation stabilization policies outside monetary policy (Box 2.2)
- Governments frequently resorted to non-monetary tools to combat inflation during the pandemic and recovery; these tools have rationale and limitations.
- Energy and consumption subsidies:
  - Historically used to maintain lower prices, especially for energy.
  - During the pandemic, most governments subsidized fuel and electricity and reduced value-added taxes, sales taxes, and excises on essential goods.
  - Subsidies absorb cost increases and can limit pass-through to prices; Dao and others (2023) find energy subsidies played a significant role in stabilizing inflation in the euro area.
  - Limitations: substantial fiscal costs, misalignment with climate goals, poor targeting of the vulnerable, distortions of relative prices, overconsumption of subsidized goods, and potential to fuel further price rises.
- Import tax reductions and export restrictions:
  - Used to stabilize domestic prices, particularly in emerging markets and low-income countries.
  - Import tax cuts lower imported goods prices and increase domestic supply; export restrictions can ease domestic inflationary pressures.
  - Limitations: fiscal costs of tax cuts; both policies induce adverse international spillovers by reducing global supply or increasing global demand and can contribute to further price increases.
- Price and wage controls:
  - Historically used (for example, United States and Europe in the 1960s and 1970s) and employed to some degree since the pandemic, especially on essential food items in emerging markets and low-income countries.
  - May be justified in contexts involving monopsony or monopoly power.
  - Limitations: can lead to black markets, shortages, and prevent necessary relative-price adjustment.
- Other policies:
  - Government-led negotiations to coordinate wage and price setting can help manage wage-price spirals and anchor expectations but can distort relative prices.
  - Tax on inflation policies (taxes proportional to a firm’s increase in prices) were discussed and implemented in several periods; they can provide incentives to moderate price increases and offer stabilization gains under certain conditions, but practical implementation needs clarification.
- Conclusion on non-monetary tools:
  - These tools are useful for addressing inflation from cost-push shocks or when monetary policy is constrained (for example, under an exchange rate peg).
  - Monetary policy remains the primary tool for managing demand-driven inflation.
  - Use of alternative tools requires careful assessment of effectiveness and trade-offs to minimize adverse side effects.

*Source: IMF staff calculations; text from Chapter 2, “The Great Tightening: Insights from the Recent Inflation Episode,” World Economic Outlook, October 2024.*

### Box 2.2 (continued)

### Box 2.2 (continued)

### Introduction and objectives
- Context: The global economy faces a prolonged period of structural weakness driven by aging populations, weak investment, and structural frictions that impede reallocation of capital and labor (see Chapter 3 of the April 2024 World Economic Outlook [WEO]).
- Policy imperative: Policymakers are urged to advance structural reforms to boost productivity, employment, and growth by:
  - easing entry barriers and fostering competition in product markets;
  - encouraging workers to work longer;
  - facilitating integration and improving skill matching of foreign-born workers.
- Central challenge: Securing social acceptability for policy changes is often a major obstacle, with reform efforts waning since the global financial crisis amid rising public resistance.
- Behavioral emphasis: Resistance to reforms often transcends economic self-interest and is deeply rooted in behavioral factors including perceptions, misinformation, and trust deficits.
- Chapter objectives:
  - Shed light on factors that influence the social acceptability of structural reforms.
  - Identify strategies, tools, and institutions that enhance acceptability, increase the probability of implementation, and help reforms endure.

### Scope, methods, and evidence
- Reform focus: Product and labor market reforms, specifically:
  - product market regulation (PMR) and competition in the electricity sector;
  - incentives for labor supply of elder workers;
  - integration of foreign-born workers.
- Data and methods:
  - Leverages a novel narrative database to uncover facts about reform attempts since the mid-1990s.
  - Collects new evidence from surveys of individuals to:
    - investigate how beliefs, misinformation, and misperceptions affect support for reforms;
    - test whether providing information on how policies work and complementing reforms with mitigating measures can increase support.
  - Conducts an in-depth review of 11 labor market reform episodes to contextualize survey lessons and identify broader strategies and tools.

### Key diagnostic findings
- Slow and uneven progress: Progress on progrowth structural reforms has historically been slow and uneven across countries and policy areas (Figure 3.1, panel 1).
- Political economy drivers: Weak acceptability and slow progress reflect uneven distribution of costs and benefits across the economy and over time, but behavioral factors can be critical deterrents to support (for example, Douenne and Fabre 2022; Duval and others 2024).
- Role of misinformation and misperceptions: Misinformation about the problems targeted by reforms and misperceptions about how policies work can significantly reduce reform support.

### Policy implications and strategies highlighted
- Information strategies:
  - Raising awareness of the need for reform and correcting misinformation can significantly boost reform support.
  - Such strategies must address both understanding of the problem and how proposed policies function.
- Institutional and procedural requirements:
  - Effective communication alone is insufficient; reforms require a strong institutional framework that fosters trust.
  - Two-way dialogue from early stages of policy design is essential.
  - Thorough consultation with all stakeholders and the public is necessary to identify mitigating measures addressing personal and societal concerns.
- Complementary measures:
  - Use of compensatory or mitigating measures alongside reforms is common and relevant for building consensus (historical reliance and effectiveness reviewed in chapter).
- Objective outcome: Informed, inclusive, and trust-based approaches can enhance policy quality and increase likelihood that reforms are implemented, sustained, and deliver gains for productivity, employment, and growth.

### Chapter authorship and support
- Authors: Silvia Albrizio (co-lead), Hippolyte Balima, Pragyan Deb, Bertrand Gruss (co-lead), Eric Huang, Colombe Ladreit, and Yu Shi.
- Support: Yaniv Cohen, Shrihari Ramachandra, and Isaac Warren.
- Technical assistance: Tohid Atashbar, Max Yarmolinsky, and Arash Sheikholeslam.
- External consultant: Christopher Roth.
- Reviewed with comments from Santiago Levy and internal seminar participants and reviewers.

*International Monetary Fund | October 2024*

### 1. Regulatory Stance

### 1. Regulatory Stance

### Main findings
- Passing structural reforms has typically been challenging, but the use of strategies to garner consensus is associated with higher chances of implementation.
- The pace of reform efforts has more than halved since the global financial crisis of 2008–09.
- A substantial fraction of reforms that are attempted are never implemented: nearly 20 percent of policies aimed at increasing competition in the electricity sector and almost 50 percent of those providing incentives for workers to work longer—or get passed only after being diluted amid resistance.
- The macroeconomic or political context can sometimes matter, but it does not seem determinant. Use of communication and consultation strategies and mitigating measures are more reliable predictors of reform implementation.
- Beliefs and perceptions are key determinants of attitudes toward structural reforms:
  - Socioeconomic characteristics accounted for only 6 percent of individuals’ support for reforms to increase competition in network sectors and 11 percent for policies to integrate foreign-born workers in the chapter’s surveys.
  - Individuals’ beliefs and perceptions explain about 80 percent of reform support.
  - Misinformation about policies and misperceptions about how they work account for about half of that support.
- Communication, information strategies, and complementary/compensatory measures can shift policy views, especially when forged in a context of trust:
  - Randomized survey experiments show that providing information can correct misperceptions and increase support for reforms.
  - In the surveys for this chapter, additional support for migrant integration policies in the group that received information about how those policies work was equivalent to more than 40 percent of the share of those in the control group who were opposed.
- An expanded toolkit and a strong institutional setting fostering two-way dialogue with stakeholders helps garner support and sustain reforms:
  - Independent, nonpartisan policy research and early stakeholder consultations helped build consensus and sustain reforms.
  - Reforms not tailored to domestic conditions or pushed alongside multiple other major reforms often faced major implementation challenges or were reversed.

### Social acceptability: primer
- Structural reforms modify acquired rights and economic rents to improve resource allocation, creating winners and losers.
- Gains and losses are unevenly distributed across society and over time; costs are often more evident in the short term and concentrated, while gains are diffused and accrue slowly.
- Public resistance is not solely grounded in objective economic self-interest; beliefs, perceptions, and trust in policymakers matter for acceptability.
- Lack of trust in compensation plans or policymakers’ ability to implement measures has derailed reforms or required commitment solutions at the cost of efficiency.

### The challenge of implementing structural reforms: key facts and data
- New database constructed tracking product and labor market reform episodes during 1996–2023 using text analysis of quarterly Economist Intelligence Unit country reports.
  - Sample coverage: 26 advanced economies, 36 emerging market economies, and 14 low-income countries.
- Three policy areas tracked:
  - PMR-electricity: ease product market regulation to increase competition in the electricity sector.
  - Elder LP: provide incentives for labor participation among elder workers.
  - Migrant integration: increase integration of foreign-born workers into labor markets.
- Observed trends and statistics:
  - Number of reform episodes, including discussed-but-not-implemented, has declined over time in almost all policy fields and country groups.
  - Only about 50 percent of all PMR-electricity and elder LP reforms discussed in advanced economies over the past three decades were eventually implemented.
  - Implementation rates:
    - Elder LP reforms: implementation rate in emerging market economies comparable to advanced economies.
    - PMR-electricity reform episodes: implementation share is 90 percent for emerging market economies and for low-income countries.
    - Migrant integration reform episodes: implementation rate about 80 percent across country groups.
  - Public resistance during implemented episodes (evidenced by strikes, protests, or riots):
    - Migrant integration episodes: roughly 22 percent faced resistance.
    - PMR-electricity episodes: roughly 30 percent faced resistance.
    - Elder LP episodes: roughly 40 percent faced resistance.
  - Dilution amid resistance:
    - Nearly 40 percent of resisted elder LP reform episodes were scaled down.
    - As many as 45 percent of resisted episodes in the second half of the sample were scaled down.
  - Among reforms later reversed, a higher share had faced resistance when implemented (see Online Annex references in source).

### Strategies for building consensus: measurement and correlations
- Two new indicator variables (see Online Annex 3.2 in source for details):
  - Use of consultation and communication strategies: records whether policymakers used tools such as consultations, hearings, referendums, or independent communication agencies during a reform episode.
  - Complementary and compensatory measures: records whether authorities considered mitigating measures such as job training programs, temporary job protections, price subsidies, or grandfathering clauses.
- Use patterns by country income group and reform area:
  - In a significant share of reform episodes (close to half, on average), use of these strategies was not prominent enough to be captured in the data.
  - Advanced economies used consultation and communication strategies more often than complementary and compensatory measures, though the latter have picked up significantly since the global financial crisis.
  - Emerging market economies and low-income countries relied more on complementary and compensatory measures, particularly in PMR-electricity episodes where subsidies or price controls were frequently included.
- Historical correlations (multinomial logit regressions) suggest:
  - These strategies are associated with a more than 6 percentage point increase in the probability of implementation (correlational evidence; causal effects cannot be convincingly tested with the aggregate data).

### Caveats and implications for policy design
- Social acceptability is not the only factor determining implementation success: vested interests can influence decision-making bodies irrespective of public opinion.
- Strategies to cement social acceptability are not substitutes for sound policy design: better understanding of a policy will not legitimize ill-designed reforms.
- Public resistance can reflect justifiable concerns about poorly designed reforms; social acceptability is not an end in itself.
- A sustained effort to make independent and trustworthy policy analysis widely available can help protect societies from opportunistic populist proposals that hide costs and undesirable outcomes.
- Understanding country- and policy-area-specific conditions is critical; broad principles from diverse cases can still guide policymakers with appropriate caveats.

*Source: IMF staff calculations; chapter 3, “Understanding the Social Acceptability of Structural Reforms,” WORLD ECONOMIC OUTLOOK: POLICY PIVOT, RISING THREATS (October 2024).*

### CHAPTER 3 UNDERSTANDING THE SOCIAL ACCEPTABILITY OF STRUCTURAL REFORMS

### CHAPTER 3 UNDERSTANDING THE SOCIAL ACCEPTABILITY OF STRUCTURAL REFORMS

### Key empirical findings on reform implementation
- Reform strategies (consultation, communication, compensatory and complementary measures) are associated with an increase, on average, in the likelihood of implementing proposed reforms across policy areas, with stronger effects for attempts facing resistance.
- In reform episodes met with public resistance, reaching implementation is more likely when explicit efforts to consult or communicate with social stakeholders are used than when they are not used.
- Compensatory and complementary measures are generally associated with a higher likelihood of implementing reform proposals in both resisted and less resisted episodes, with differences across reform areas.
- Reform strategies jointly explain about 28 percent of the implementation likelihood, on average, across different policy areas.
- Variables capturing the macroeconomic context explain 16 percent of implementation likelihood, on average.
- Variables capturing the political context explain 22 percent of implementation likelihood, on average.
- Macroeconomic and political contexts can influence implementation likelihood (for example, whether a reform is proposed in good times or after a severe crisis, or timing relative to elections), but correlations vary across reform areas.

### Survey evidence: scope and topics
- Sample: surveys of 12,600 individuals from six countries covering two policy areas.
- PMR (product market regulation) reforms: electricity and telecommunications sectors in Mexico, Morocco, and South Africa.
- Migrant integration policies: Canada, Italy, and the United Kingdom (policies such as recognition of qualifications, free language courses, professional training, job placement programs).

### Drivers of individual support for reforms
- Socioeconomic characteristics account for:
  - 6 percent of individuals’ support for PMR reforms.
  - 11 percent of individuals’ support for migrant integration policies.
- Beliefs and perceptions are the primary drivers of policy views:
  - Market-oriented beliefs account for 35 percent of policy views for PMR reforms.
  - Knowledge and perceptions of policies explain:
    - 37 percent of support for PMR reforms.
    - More than 50 percent of support for migrant integration policies.
- Distributional concerns, trust, and perceptions of corruption weigh as much as individual characteristics in explaining support for PMR reforms.
- Stereotypes about immigrants are key for migrant integration policies: positive views of immigrants (for example, that they are hard‑working) and beliefs that immigration has positive economic or cultural effects increase support; associating immigrants with illegal work or negative outcomes decreases support.

### Experimental evidence: information and empathy treatments
- Three hypotheses tested via randomized information treatments:
  1. Status quo hypothesis: providing information on the costs of not reforming.
  2. Effect-of-policies hypothesis: explaining the effect of policies with research-based evidence.
  3. Empathy hypothesis: providing real-life narratives of immigrants’ experiences.

- Effects on PMR reform support:
  - Status quo treatment (awareness of need for reform) increases support for PMR reforms in the electricity sector by 4.5 percentage points relative to the control group (statistically significant).
  - Status quo treatment effect for telecommunications is positive but not statistically significant.
  - Status quo + effect-of-policies treatment increases average support across sectors from 41.4 percent in the control group to 57.1 percent among treated respondents — an increase of almost 16 percentage points.
  - The 16 percentage-point increase is equivalent to 46.7 percent of the share of respondents who oppose PMR reforms in the control group.

- Effects on migrant integration policy support:
  - Effect-of-policies treatment increases support by about 9 percentage points relative to the control group (statistically significant).
  - Effect-of-policies + mechanism treatment increases support by 10.5 percentage points relative to the control group (equivalent to about 42 percent of the share opposed in the control group).
  - Explaining mechanisms is particularly effective among respondents with negative stereotypes of immigrants and politically right-leaning respondents.
  - The empathy (immigrants’ stories) treatment increases support but with a less pronounced effect than the effect-of-policies treatment.

- Information treatments change perceptions:
  - PMR survey respondents receiving treatments are significantly more likely to perceive competition in electricity and telecommunications as beneficial for consumers.
  - Respondents receiving effect-of-policies treatments are significantly more likely to believe migrant integration policies have positive effects on natives’ jobs, public finances, and crime rates; the effect is particularly strong for crime rates.

### Understanding objections and the role of compensatory measures
- When non-supporters’ reasons are grouped:
  - Societal concerns dominate over personal concerns across both PMR and migrant-integration surveys.
- PMR non-support reasons:
  - Top concerns are consequences for the poorest households in terms of service affordability and access if private companies manage the sector.
  - All societal concerns together account for more than half of total responses.
  - Personal concerns (price, quality, job loss) represent 22 percent of responses.
- Migrant integration non-support reasons:
  - Primary concerns are fairness (belief it is unfair to assist immigrants when many locals struggle to find jobs) and fears of overcrowded public services (hospitals, schools, public transport).
  - Self-interest concerns account for 30 percent of responses, with access to public services or housing more prominent than job concerns.
- Tailored complementary and compensatory measures can substantially increase support among initial opponents:
  - In the PMR control group, 50–80 percent of respondents initially opposed indicate they would change their stance to support if mitigating measures address their concerns (for example, the government committing to create an independent regulatory agency for concerns about cost and quality).

### Policy implications
- Active use of consultation, communication, and mitigating strategies is a more robust predictor of implementation success than the macroeconomic or political context.
- Clear information on the impact of policies is particularly effective at increasing public support for reforms.
- Addressing distributional concerns, unintended side effects, and short-term costs through compensatory or complementary measures is important to secure comprehensive support and implementation.
- Information strategies should be designed to correct specific misperceptions (for example, about crime and immigration) and to explain mechanisms by which policies produce benefits, especially to persuade groups with negative stereotypes or ideological opposition.

*Source: CHAPTER 3 UNDERSTANDING THE SOCIAL ACCEPTABILITY OF STRUCTURAL REFORMS, text - CHAPTER 3 UNDERSTANDING THE SOCIAL ACCEPTABILITY OF STRUCTURAL REFORMS.*

### 1. PMR Reform2. Migrant Integration Policies

### 1. PMR Reform2. Migrant Integration Policies

### Concerns about reform impacts and the role of compensatory/complementary measures
- Concerns about the effects of reforms on others, especially the vulnerable, are key obstacles for reform.
- Mitigating measures play an important role in boosting support from individuals who may fear job losses from PMR reforms, such as workers in public utility companies or individuals with close connections to them.
- The share of respondents who would change their stance varies more across specific concerns and is generally somewhat lower for those initially against migrant integration policies, but still sizable, at about 50 percent, on average.
- One complementary policy that would significantly increase support is international coordination and cooperation (example: EU Temporary Protection Directive).
- Individuals who say they would still oppose reforms mostly cite reasons related to trust in the parties involved and doubts about institutions’ ability to implement reforms or mitigating measures effectively.
- OECD (2024) results cited: only 39 percent of the population in a country finds it likely that the government will clearly explain how individuals will be affected by a reform, with lower shares in countries where trust in government is weaker.
- Mechanisms to build trust in the reform process mentioned: crowdsourcing, participatory budgeting (OECD 2022), pilot cases.

### Tools and strategies for advancing reform agendas — overview of 11 country cases
- The analysis focuses on employment protection legislation (EPL).
- Historical EPL reform episodes reviewed (Table 3.2 — country classification at reform and reform status):
  - Bolivia (1985) — LIC — Reversed in 2006
  - Brazil (2017) — EME — Implemented with some resistance
  - Denmark (1990s) — AE — Implemented and sustained
  - France (2015–17) — AE — Implemented with some resistance
  - Georgia (2006) — LIC — Reversed in 2013
  - Germany (2003–05) — AE — Implemented with some resistance
  - India (2014–2020) — EME — Legislated in 2020 but not yet fully implemented
  - Korea (2016) — AE — Largely withdrawn as a result of resistance
  - Mexico (2012) — EME — Implemented and sustained
  - Peru (2008) — EME — Implemented with adjustments
  - Vietnam (2012) — LIC — New labor code enacted in 2012 and sustained

### Building consensus — approaches observed across cases
- Economic crises sometimes demonstrated necessity for reform (examples: Bolivia hyperinflation in the 1980s; Denmark early 1990s; Germany early 2000s; France after the euro area crisis), but macroeconomic context alone was neither necessary nor sufficient.
- Multiple approaches were used to garner consensus:
  - Securing explicit electoral mandates for reform (examples: France 2017 labor reform agenda; India 2014 elections and the “Gujarat model”; also Georgia, Mexico, Peru).
  - Extensive communication with key stakeholders, including trade unions and business associations (Denmark’s continuous social dialogue; contrast: France 2016 El Khomri law adopted without prior negotiations and followed by protests).
  - Pilot cases to demonstrate benefits and build public confidence (Denmark examples: paid leave arrangements and public employment services; India: Gujarat and Rajasthan as state-level pilots later adopted nationally).
  - Policy research and international comparisons by independent researchers and international financial institutions (examples: Bolivia, Brazil, IMF roles in India and Germany; OECD recommendations for Germany and France).

- No single approach was sufficient; multipronged strategies were typically required, especially when trade unions were politically influential yet fragmented or when consensus needed agreements at multiple levels (example: India required both federal and state-level agreements).

### Carefully crafted policy design and complementary measures
- Well-articulated policy design that balances needs of different social interest groups is critical.
- Involving social partners in design stage has been effective (Denmark tripartite negotiations; Mexico 2012 parliamentary negotiations).
- Compensatory measures used to ease negative effects of less stringent employment protection:
  - Examples of compensatory measures: improved social security and unemployment benefits (Brazil, Denmark, France, Germany, Korea).
  - Complementary measures to facilitate worker reallocation: enhanced active labor market policies and training programs (Denmark, France, Germany, Vietnam).
- Independent research institutes and think tanks helped evaluate and communicate reforms (Germany’s RWI and ZEW in Hartz reforms; France Stratégie and CESE in France).

### Incremental implementation
- Incremental rollout starting with focused areas that do not immediately threaten core benefits is associated with stronger sustainability.
  - Brazil: focus on reducing excessive labor litigation costs.
  - India: consolidating and standardizing minimum wage regulations across sectors as initial steps.
  - France: starting with simplifying collective bargaining.
  - Denmark: reforms in early to mid-1990s extended into the 2010s targeting youth and long-term unemployment.
- Pursuing multiple substantial market-oriented reforms simultaneously often correlates with less successful implementation (examples: Bolivia and Georgia, where enacted reforms were eventually reversed).

### Conclusions and policy implications for PMR reforms
- Policymakers need policies that boost labor participation and facilitate reallocation of labor and capital to high-productivity firms and growing sectors.
- Active use of multipronged strategies to build consensus is a more reliable predictor of implementation success than context alone.
- Strategies include consultation, communication, and mitigating measures to compensate those affected.
- Individuals’ views and social acceptability of reforms are driven largely by beliefs: trust in government and institutions, distributional concerns, and perceptions about effects on jobs, access to public services, and national security—not only by objective socioeconomic characteristics.
- Survey experiments show communication interventions can shift perceptions:
  - Informing individuals about the cost of not undertaking reforms raises awareness and increases support.
  - Trustworthy communication on economic effects corrects misperceptions (example: research-based evidence on crime impact of granting work permits to foreign-born workers significantly boosts support for integration policies).
- Effective communication strategies must be supported by institutional frameworks that foster trust, including credible independent policy research bodies (examples mentioned: CPB Netherlands Bureau for Economic Policy Analysis; Productivity Commission in Australia; Conseil d’orientation des retraites in France).
- Two-way dialogue tools to involve citizens: large-scale surveys, scenario planning, participatory budgeting, evaluation laboratories, open town hall meetings, digital community engagement platforms.
- Mitigating measures do not always require fiscal compensation; sometimes establishing institutional frameworks and participatory mechanisms to build trust suffices and can be viable even in fiscally constrained environments.
- Strengthening governance (rule of law, controlling corruption, impartial public administration) is critical to successful passage of second-generation product and labor market reforms and should be reflected in IMF program design.

### Migrant integration policies — EU experience during 2022–23 and lessons
- Immigration into the EU reached a historic high in 2022—driven by more than 4 million refugees from Ukraine—and remained above prepandemic levels in 2023.
- About two-thirds of jobs created between the end of 2019 and the end of 2023 were filled by non-EU citizens, even as the unemployment rate for EU citizens remained at record lows.
- Available data suggest Ukrainian refugees integrated into EU labor markets noticeably faster than previous waves of refugees.
  - Several countries estimated employment rates among Ukrainian refugees at about or above 50 percent, which is usually achieved only five or more years after arrival (OECD 2023).
- Factors supporting rapid integration:
  - EU Temporary Protection Directive (TPD) provided immediate protection and rights across countries: residency rights, access to housing and social welfare assistance, medical or other assistance, and means of subsistence.
  - Many EU member states removed barriers to labor market access (simplified entry requirements for certain regulated professions; language courses; skills validation and recognition of qualifications; skills mapping; financial incentives for employers to recruit TPD beneficiaries; on-the-job training — EMN 2024).
  - High education levels among displaced individuals (survey data show most Ukrainian refugees have tertiary education — Caselli and others 2024).
  - Tight labor markets in many EU countries supported fast integration.
- Challenges observed:
  - Evidence of widespread worker overqualification and skills mismatches (EMN 2024), indicating room for improvement in integration policies.
- Policy lessons:
  - Granting asylum seekers early access to private and public sector labor markets and self-employment is a key prerequisite for speedy integration.
  - Availability of language courses is crucial.
  - Simplified entry requirements for regulated professions, skills validation, and recognition of qualifications are important elements for successful refugee integration.

*Source: IMF staff compilation from chapter content in World Economic Outlook: Policy Pivot, Rising Threats (October 2024).*

### Box 3.1. Policies to Facilitate the Integration of Ukrainian Refugees into the

### Box 3.1. Policies to Facilitate the Integration of Ukrainian Refugees into the European Labor Market: Early Evidence

### Referenced literature and sources
- The box is accompanied by an extensive reference list citing IMF staff notes, IMF working papers, IMF occasional papers, OECD and World Bank publications, academic journal articles, NBER working papers, and reports from European institutions. Notable entries include:
  - Aiyar, Shekhar, Bergljot Barkbu, Nicoletta Batini, Helge Berger, Enrica Detragiache, Allan Dizioli, Christian Ebeke, and others. 2016. “The Refugee Surge in Europe: Economic Challenges.” IMF Staff Discussion Note 16/02.
  - Albrizio, Silvia, Hippolyte Balima, Bertrand Gruss, Eric Huang, and Colombe Ladreit. 2024a. “Private Participation and its Discontents: Insights from Large-Scale Surveys.” IMF Working Paper 24/216.
  - Albrizio, Silvia, Hippolyte Balima, Bertrand Gruss, Eric Huang, and Colombe Ladreit. 2024b. “Shifting Perceptions: Unpacking Public Support for Immigrant Workers Integration in the Labor Market.” IMF Working Paper 24/217.
  - Caselli, Francesca, Huidan Lin, Frederik Toscani, and Jiaxiong Yao. 2024. “Migration into the EU: Stocktaking of Recent Developments and Macroeconomic Implications.” IMF Working Paper 24/211.
  - European Migration Network (EMN). 2024. “Labour Market Integration of Beneficiaries of Temporary Protection from Ukraine.” European Migration Network–OECD Joint Inform.
  - Organisation for Economic Co-operation and Development (OECD). 2023. “What Are the Integration Challenges of Ukrainian Refugee Women?.” OECD Publishing, Paris.
  - Additional references include empirical studies on labor-market reforms (Germany, Denmark), public attitudes toward immigration, policy communication, and structural reform political economy from a wide range of institutions and journals as listed in the source.

### Data and methodological context excerpt
- The surrounding chapter and statistical appendix provide methodological context relevant to the box:
  - The Statistical Appendix presents historical data as well as projections and comprises eight sections: Assumptions, What’s New, Data and Conventions, Country Notes, Classification of Economies, General Features and Composition of Groups in the World Economic Outlook Classification, Key Data Documentation, and Statistical Tables.
  - The first section summarizes the assumptions underlying the estimates and projections for 2024–25.
  - Data in these tables have been compiled on the basis of information available through October 7, 2024, but may not reflect the latest published data in all cases.
  - Real effective exchange rates for the advanced economies are assumed to remain constant at their average levels measured during July 30, 2024–August 27, 2024.

### Implicit scope for the box (based on referenced material and context)
- The box draws on empirical literature and policy reports that address:
  - Economic challenges and labor-market effects of refugee inflows.
  - Private sector participation, public attitudes, and information effects on support for immigrant integration.
  - Specific analyses of labor-market integration of Ukrainian refugees and beneficiaries of temporary protection.
  - Comparative lessons from labor-market reforms (for example, Germany and Denmark) and citizen participation/communication best practices.
- The Statistical Appendix context indicates that findings and any quantitative statements in the box would be framed against WEO projections for 2024–25 and data current through October 7, 2024.

*International Monetary Fund | October 2024*

### 2024. For 2024 and 2025 these assumptions imply

### text - 2024. For 2024 and 2025 these assumptions imply

### Assumptions for exchange rates, oil price, and interest rates
- Average US dollar–special drawing right conversion rates:
  - 2024: 1.331
  - 2025: 1.341
- US dollar–euro conversion rates:
  - 2024: 1.090
  - 2025: 1.097
- Yen–US dollar conversion rates:
  - 2024: 150.0
  - 2025: 143.6
- Oil price assumptions (average):
  - 2024: $81.29 a barrel
  - 2025: $72.84 a barrel
- Interest rate assumptions—three-month government bond yield:
  - United States: 2024: 5.4 percent; 2025: 3.9 percent
  - Euro area: 2024: 3.5 percent; 2025: 2.8 percent
  - Japan: 2024: 0.1 percent; 2025: 0.5 percent
- Interest rate assumptions—10-year government bond yield:
  - United States: 2024: 4.1 percent; 2025: 3.5 percent
  - Euro area: 2024: 2.4 percent; 2025: 2.5 percent
  - Japan: 2024: 1.0 percent; 2025: 1.3 percent
- Policy stance:
  - National authorities’ established policies are assumed to be maintained.
  - Box A1 (referenced) describes more specific policy assumptions for selected economies.

### What’s new in the dataset and methodology
- Purchasing-power-parity updates:
  - Following the recent release of the 2021 survey by the World Bank Group’s International Comparison Program, the WEO’s estimates of purchasing-power-parity weights and GDP valued at purchasing power parity have been updated. (See Box A2 for more details.)
- Country-specific aggregation changes:
  - For Bangladesh, fiscal year estimates of real GDP and purchasing-power-parity GDP are now used in country group aggregates.
- Currency redenomination:
  - For Zimbabwe, the authorities redeominated their national accounts statistics following the introduction on April 5, 2024, of a new national currency, the Zimbabwe gold, replacing the Zimbabwe dollar. The use of the Zimbabwe dollar ceased on April 30, 2024.

### Data and conventions: scope, standards, and aggregation rules
- Coverage:
  - Data and projections for 196 economies form the statistical basis of the WEO database.
- Statistical standards and alignment:
  - Most countries’ macroeconomic data as presented in the WEO conform broadly to the 2008 version of the System of National Accounts (SNA 2008).
  - IMF sector statistical standards aligned with SNA 2008 include BPM6, the Monetary and Financial Statistics Manual and Compilation Guide, and the Government Finance Statistics Manual 2014 (GFSM 2014).
  - Full concordance with the most recent manuals depends on national statistical compilers providing revised country data; WEO estimates are only partly adapted to the most recent versions.
- Debt and fiscal data:
  - Fiscal gross and net debt data in the WEO are drawn from official data sources and IMF staff estimates; attempts are made to align with GFSM 2014 definitions but deviations can occur.
- Composite construction rules:
  - Country group composites are either sums or weighted averages of individual country data.
  - Multiyear averages of growth rates are expressed as compound annual rates of change unless noted otherwise.
  - Arithmetically weighted averages are used for all data for the emerging market and developing economies group—except for inflation and money growth, for which geometric averages are used.
  - Specific weighting conventions:
    - Exchange rates, interest rates, and growth rates of monetary aggregates: weighted by GDP converted to US dollars at market exchange rates (averaged over the preceding three years) as a share of group GDP.
    - Other domestic economy data (growth rates or ratios): weighted by GDP valued at purchasing power parity as a share of total world or group GDP.
    - Aggregation of inflation:
      - Advanced economies (and subgroups): annual rates are simple percent changes from the previous year.
      - World inflation and inflation in emerging market and developing economies (and subgroups): annual rates are based on logarithmic differences.
    - Real GDP, inflation, GDP per capita, and commodity price averages: calculated based on the compound annual rate of change, except unemployment rate, which uses the simple arithmetic average.
  - Composites for real GDP per capita in purchasing-power-parity terms: sums of individual country data after conversion to international dollars in the years indicated.
  - Euro area composites: corrected for reporting discrepancies in transactions within the area unless noted otherwise.
  - Fiscal data composites: sums of individual country data after conversion to US dollars at the average market exchange rates in the years indicated.
  - External sector composites: sums after conversion to US dollars at the average market exchange rates for balance of payments data; end-of-year market exchange rates for debt denominated in currencies other than US dollars.
  - Trade volume and price composites: arithmetic averages of percent changes for individual countries weighted by the US dollar value of exports or imports as a share of total world or group exports or imports (in the preceding year).
  - Group composites computed only if 90 percent or more of the share of group weights is represented.
- Temporal and reporting conventions:
  - Data refer to calendar years, except for a few countries that use fiscal years; Table F (referenced) lists economies with exceptional reporting periods.
  - For some countries, figures for 2023 and earlier are based on estimates rather than actual outturns; Table G (referenced) lists latest actual outturns.
- Notes on composite calculation specifics:
  - Composites for unemployment rates and employment growth: weighted by labor force as a share of group labor force.
  - Composites of changes in foreign trade volumes and prices: arithmetic averages weighted by US dollar export/import shares.
  - Composites for real GDP per capita in PPP terms: sums after conversion to international dollars.

### Country notes and exceptions (selected)
- Afghanistan:
  - Data for 2021–23 reported for selected indicators with estimates for fiscal data.
  - Estimates and projections for 2024–29 are omitted because the IMF has paused engagement due to lack of clarity regarding government recognition.
  - WEO data contain a structural break in 2021 from calendar year to solar year reporting; the actual reported GDP growth rate for solar year 2021 is –20.7 percent.
- Algeria:
  - Total government expenditure and net lending/borrowing include net lending by the government, reflecting support to the pension system and other public sector entities.
- Argentina:
  - Official national CPI starts in December 2016; prior CPI series differ in coverage and methodology. WEO does not report average CPI inflation for 2014–16 or end-of-period inflation for 2015–16.
  - Argentina discontinued publication of labor market data starting Q4 2015; new series became available starting Q2 2016.
- Costa Rica:
  - Central government definition expanded as of January 1, 2021, to include 51 public entities in accordance with Law 9524; data back to 2019 adjusted for comparability.
- Dominican Republic:
  - Fiscal series coverage: public debt, debt service, and cyclically adjusted/structural balances are for the consolidated public sector; remaining fiscal series for the central government.
- Eritrea:
  - Data and projections for 2020–29 are excluded because of constraints in data reporting.
- India:
  - Real GDP growth rates calculated in accordance with national accounts with base year 2011/12.
- Iran:
  - Historical nominal GDP in US dollars computed using the official exchange rate up to 2017; from 2018 onward, the NIMA exchange rate is used to convert nominal rial GDP into US dollars.
- Israel:
  - Projections subject to heightened uncertainty owing to the conflict in the region and thus may undergo revisions.
- Lebanon:
  - Fiscal and national accounts data for 2022–23 and debt data for 2023 are IMF staff estimates; estimates and projections for 2024–29 are omitted owing to unusually high uncertainty.
- Sierra Leone:
  - Currency redenominated on July 1, 2022, but local currency data are expressed in the old leone for the October 2024 WEO.
- Sri Lanka:
  - Data and projections for 2023–29 excluded from publication owing to ongoing discussions on restructuring of sovereign debt.
- Sudan:
  - Projections reflect IMF staff analysis assuming the ongoing conflict will terminate by the end of 2024 and that reengagement and reconstruction will commence shortly thereafter. Data for 2011 exclude South Sudan after July 9; data for 2012 onward pertain to the current Sudan.
- Syria:
  - Data excluded from 2011 onward because of the uncertain political situation.
- Timor-Leste:
  - Published real GDP refers to non-oil real GDP, while published nominal GDP refers to total nominal GDP.
- Turkmenistan:
  - Real GDP data are IMF staff estimates compiled in line with SNA, using official estimates and UN and World Bank databases.
  - Fiscal balance estimates and projections exclude receipts from domestic bond issuances and privatization operations, in line with GFSM 2014.
- Ukraine:
  - Revised national accounts data are available for 2000 and after and exclude Crimea and Sevastopol from 2010 onward.
- Uruguay:
  - Authorities began reporting national accounts according to SNA 2008 with base year 2016; new series begin in 2016. Data prior to 2016 reflect IMF staff efforts to preserve previously reported data and avoid structural breaks.
  - Public pension system transfers under Law 19,590 of 2017 affected data for 2018–22: transfers amounted to 1.2 percent of GDP in 2018 and 1.0 percent of GDP in 2019.

*Statistical Appendix, WORLD ECONOMIC OUTLOOK: POLICY PIVOT, RISING THREATS — International Monetary Fund | October 2024*

### 0.6 percent of GDP in 2020, 0.3 percent of GDP in

### text - 0.6 percent of GDP in 2020, 0.3 percent of GDP in

### Fiscal data coverage and revisions
- Uruguay: coverage of fiscal data changed from consolidated public sector to nonfinancial public sector with the October 2019 WEO.
- Nonfinancial public sector in Uruguay includes: the central government, local government, social security funds, nonfinancial public corporations, and Banco de Seguros del Estado.
- Under the narrower fiscal perimeter (which excludes the central bank), assets and liabilities held by the nonfinancial public sector for which the counterpart is the central bank are not netted out in debt figures.
- Capitalization bonds issued in the past by the government to the central bank are now part of the nonfinancial public sector debt.
- Historical data were revised accordingly. See IMF Country Report 19/64 for further details.
- Disclaimer: the disclaimer about the public pension system applies only to the revenues and net lending/borrowing series.

### Countries with data reliability or projection limitations
- Venezuela:
  - Projecting the economic outlook is rendered difficult by the lack of discussions with the authorities (the most recent Article IV consultation took place in 2004), incomplete metadata for limited reported statistics, and difficulties in reconciling reported indicators with economic developments.
  - Fiscal accounts include the budgetary central government; social security; FOGADE; and a reduced set of public enterprises, including Petróleos de Venezuela, S.A.
  - Following methodological upgrades to achieve a more robust nominal GDP, historical data and indicators expressed as a percentage of GDP have been revised from 2012 onward.
  - For most indicators, data for 2018–22 are IMF staff estimates.
  - The effects of hyperinflation and the paucity of reported data mean that the IMF staff’s projected macroeconomic indicators should be interpreted with caution.
  - Broad uncertainty surrounds these projections.
  - Venezuela’s consumer prices are excluded from all WEO group composites.
- West Bank and Gaza:
  - Projections for 2024–29 are excluded from publication owing to the unusually high degree of uncertainty.
  - Annual data for the unemployment rate are available up to 2022.
- Zimbabwe:
  - Authorities redenominated national accounts statistics following the introduction on April 5, 2024, of a new national currency, the Zimbabwe gold, replacing the Zimbabwe dollar.
  - The use of the Zimbabwe dollar ceased on April 30, 2024.

### Classification of economies (WEO groups)
- The WEO divides the world into two major groups: advanced economies and emerging market and developing economies.
- The classification is not based on strict criteria and has evolved over time; objective is to facilitate analysis.
- Some economies remain outside the classification (examples: Cuba and the Democratic People’s Republic of Korea) because they are not IMF members.

### Advanced economies (general features)
- Table B lists 41 advanced economies.
- The subgroup of major advanced economies comprises seven largest by GDP at market exchange rates: the United States, Japan, Germany, France, Italy, the United Kingdom, and Canada (the Group of Seven).
- The euro area members are distinguished as a subgroup; composite data for the euro area cover current members for all years.

### Emerging market and developing economies (composition and regional groups)
- Emerging market and developing economies group comprises 155 economies (all not classified as advanced).
- Regional breakdowns: emerging and developing Asia; emerging and developing Europe; Latin America and the Caribbean; Middle East and Central Asia; and sub-Saharan Africa.
- Analytical classifications:
  - By source of export earnings: fuel (SITC 3) and nonfuel; identifies nonfuel primary products (SITCs 0, 1, 2, 4, and 68) when main source exceeded 50 percent of total exports on average between 2019 and 2023.
  - By external financing source and income: net creditor vs net debtor economies; heavily indebted poor countries (HIPCs); low-income developing countries (LIDCs); and emerging market and middle-income economies (EMMIEs).
- Net debtor economies: categorized when latest net international investment position was less than zero or current account balance accumulations from 1972 to 2023 were negative.
- During 2019–23, 41 economies incurred external payments arrears or entered into official or commercial bank debt-rescheduling agreements (“economies with arrears and/or rescheduling during 2019–23”).

### Key numeric shares and counts (Table A highlights, 2023)
- Advanced Economies: Number of Economies 41; GDP 100.0 (group share) / World 40.7; Exports of Goods and Services 100.0 / World 61.8; Population 100.0 / World 13.8.
- United States: GDP share 37.0 / World 15.0; Exports 16.1 / World 9.9; Population 30.7 / World 4.2.
- Euro Area (20 members): GDP 29.3 / World 11.9; Exports 24.4 / World 26.3; Population 31.8 / World 4.4.
- Japan: GDP 8.5 / World 3.5; Exports 4.8 / World 3.0; Population 11.4 / World 1.6.
- Other Advanced Economies (17): GDP 16.4 / World 6.7; Exports 27.2 / World 16.8; Population 16.2 / World 2.2.
- Emerging Market and Developing Economies (155): GDP 100.0 / World 59.3; Exports 100.0 / World 38.2; Population 100.0 / World 86.2.
- Emerging and Developing Asia (30): GDP 56.7 / World 33.6; Exports 49.4 / World 18.9; Population 55.3 / World 47.6.
- China: GDP 31.6 / World 18.7; Exports 29.7 / World 11.3; Population 20.7 / World 17.9.
- India: GDP 13.4 / World 7.9; Exports 6.6 / World 2.5; Population 21.0 / World 18.1.
- Emerging and Developing Europe (15): GDP 13.2 / World 7.8; Exports 15.6 / World 6.0; Population 5.4 / World 4.6.
- Latin America and the Caribbean (33): GDP 12.3 / World 7.3; Exports 14.1 / World 5.4; Population 9.5 / World 8.2.
- Middle East and Central Asia (32): GDP 12.3 / World 7.3; Exports 16.8 / World 6.4; Population 4.6 / World 11.3.
- Sub-Saharan Africa (45): GDP 5.4 / World 3.2; Exports 4.1 / World 1.6; Population 16.8 / World 14.4.
- Analytical groups by export earnings:
  - Fuel economies 26: GDP 9.8 / World 5.8; Exports 16.0 / World 6.1; Population 9.7 / World 8.4.
  - Nonfuel economies 127: GDP 90.2 / World 53.5; Exports 84.0 / World 32.1; Population 90.2 / World 77.7.
- Net Debtor Economies 118: GDP 48.8 / World 28.9; Exports 42.5 / World 16.2; Population 67.1 / World 57.8.
- Emerging Market and Middle-Income Economies 96: GDP 92.9 / World 55.1; Population 96.0 / World 36.7.
- Low-Income Developing Countries 58: GDP 7.1 / World 4.2; Population 4.0 / World 1.5.

### Group listings and classification tables (summaries)
- Table B: Advanced economies by subgroup (Major Currency Areas; Major Advanced Economies; Other Advanced Economies).
- Table C: European Union member listing.
- Table D: Emerging Market and Developing Economies by region and main source of export earnings (fuel, nonfuel primary products); emerging and developing Europe omitted because no economies in that group have fuel or nonfuel primary products as main source.
- Table E: Detailed listing of emerging market and developing economies by region with indicators: Net External Position (dot/star indicates net creditor or net debtor), Heavily Indebted Poor Countries (dot/star indicates reached completion point), and Per Capita Income Classification (dot/star indicates EMMIE or LIDC).
- Table F: Economies with exceptional reporting periods — national accounts and government finance reporting period exceptions listed (examples include Afghanistan Apr/Mar; Bangladesh Jul/Jun; India Apr/Mar; Thailand Oct/Sep; Tonga Jul/Jun).
- Table G: Key Data Documentation — extensive country-by-country metadata on national accounts, prices (CPI), government finance, balance of payments, including Historical Data Source, Latest Actual Annual Data, Base Year, System of National Accounts in use (SNA/ESA), subsectors coverage, accounting practice, and statistics manual in use at source.

### Institutional and methodological notes
- Use of chain-weighted methodology: noted where applied and its role in measuring GDP growth more accurately.
- Definitions and notes:
  - HIPC: countries considered for the HIPC Initiative to reduce external debt burdens.
  - LIDC threshold based on $2,700 in 2017 measured by the World Bank’s Atlas method and updated following new information in early 2024.
  - Net debtor definition based on net international investment position or cumulative current account balance accumulations from 1972 to 2023.

### Economic policy assumptions underlying projections (Box A1)
- Fiscal policy assumptions:
  - Short-term fiscal policy assumptions are normally based on officially announced budgets, adjusted for differences between national authorities and IMF staff.
  - Medium-term fiscal projections based on judgment about policies’ most likely path; when insufficient information, an unchanged structural primary balance is assumed unless indicated otherwise.
  - Country-specific notes: Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Denmark, France, Germany, Greece, Hong Kong SAR, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Mexico, Netherlands, New Zealand, Portugal, Puerto Rico, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Türkiye, United Kingdom, United States — each summarized with the particular data sources or specific assumptions used (examples include use of Budget 2024, IMF-supported program targets, medium-term plans, or adjustments for one-offs such as energy support measures).
  - Example numeric policy detail: Spain’s fiscal numbers for 2023 include energy support measures amounting to 1 percent of GDP, phased out throughout 2024.
- Monetary policy assumptions:
  - Based on established policy framework in each economy; typical assumption is a nonaccommodative stance over the business cycle.
  - Country-specific monetary assumptions noted (examples include Canada: inflation returns to 2 percent by early 2025; South Africa: maintain inflation within 3–6 percent target band; Singapore: broad money growth in line with projected nominal GDP).
  - Russia: monetary policy projections assume a tight monetary policy stance.
  - Saudi Arabia and Hong Kong SAR: assumptions linked to exchange rate peg maintenance.

### PPP weight revisions (Box A2)
- PPPs sourced from the International Comparison Program (ICP); May 2024 release provided new PPPs for the 2021 reference year and revised 2017 and annual PPPs for 2018–20.
- WEO derives PPPs by taking 2017–21 data and extrapolating to preceding and subsequent years using growth rates in relative GDP deflators.
- The PPP data update leads to revisions in PPP GDP weights and regional/global aggregates.
- Based on the new ICP extrapolated to 2024:
  - Price levels are estimated to be lower for most countries compared with extrapolated data based on the previous ICP release.
  - PPP-based GDP is estimated to be higher for both advanced economies and emerging market and developing economies.
  - In relative terms, the increase in PPP GDP for emerging market and developing economies was bigger than for advanced economies, causing the share of advanced economies in world GDP to decrease.

*International Monetary Fund | October 2024 — Statistical Appendix, World Economic Outlook: Policy Pivot, Rising Threats*

### 40.9 percent, based on the previous PPP measures

### 40.9 percent, based on the previous PPP measures

### Changes in world GDP shares from PPP revisions
- Advanced economies: previous PPP share 40.9 percent (Table A2.1, column 3) to new PPP share 40.2 percent (column 6) in 2024; difference –0.7 percentage point (column 7).
- Emerging market and developing economies: previous PPP share 59.1 percent to new PPP share 59.8 percent in 2024; difference 0.7 percentage point.
- Revisions driven mostly by:
  - Advanced economies: decline in the US share.
  - Emerging market and developing economies: upward revision concentrated in Russia and India.
- Regional exception: Middle East and Central Asia share of world GDP decreased by 0.3 percentage point in 2024.
- Note on PPP versus market exchange rates: PPP-based share of world GDP for emerging market and developing economies is higher than the market exchange rate share of 41.2 percent (column 8); for advanced economies it is lower than the market exchange rate share of 58.8 percent.

### Key figures from Table A2.1 (selected entries, PPP shares and differences)
- Advanced Economies: previous 44.0 (2017), 42.3 (2021), 40.9 (2024); new 43.6 (2017), 41.6 (2021), 40.2 (2024); 2024 difference –0.7; US dollar share 58.8 (column 8).
- United States: previous 16.0 (2017), 15.9 (2021), 15.6 (2024); new 15.9 (2017), 15.2 (2021), 15.0 (2024); 2024 difference –0.6; US dollar share 26.5.
- Japan: previous 4.3 (2017), 3.8 (2021), 3.6 (2024); new 4.3 (2017), 3.6 (2021), 3.4 (2024); 2024 difference –0.2; US dollar share 3.7.
- Emerging Market and Developing Economies: previous 56.0 (2017), 57.7 (2021), 59.1 (2024); new 56.4 (2017), 58.4 (2021), 59.8 (2024); 2024 difference 0.7; US dollar share 41.2.
- Emerging and Developing Asia: previous 29.6 (2017), 32.2 (2021), 33.9 (2024); new 30.1 (2017), 32.5 (2021), 34.3 (2024); 2024 difference 0.4; US dollar share 23.9.
- China: previous 16.1 (2017), 18.4 (2021), 18.9 (2024); new 16.6 (2017), 18.5 (2021), 19.1 (2024); 2024 difference 0.2; US dollar share 16.6.
- India: previous 6.7 (2017), 7.0 (2021), 7.9 (2024); new 6.8 (2017), 7.3 (2021), 8.2 (2024); 2024 difference 0.3; US dollar share 3.5.
- Russia: previous 3.1 (2017), 3.1 (2021), 2.9 (2024); new 3.1 (2017), 3.7 (2021), 3.6 (2024); 2024 difference 0.7; US dollar share 2.0.
- Middle East and Central Asia: previous 7.8 (2017), 7.5 (2021), 7.5 (2024); new 7.8 (2017), 7.3 (2021), 7.2 (2024); 2024 difference –0.3; US dollar share 4.5.
- Sub-Saharan Africa: previous 3.1 (2017), 3.1 (2021), 3.1 (2024); new 3.2 (2017), 3.2 (2021), 3.2 (2024); 2024 difference 0.1; US dollar share 1.7.
- Emerging Market and Middle-Income Economies: previous 52.1 (2017), 53.7 (2021), 55.1 (2024); new 52.4 (2017), 54.3 (2021), 55.7 (2024); 2024 difference 0.6; US dollar share 39.2.
- Low-Income Developing Countries: previous 3.9 (2017), 4.0 (2021), 4.1 (2024); new 3.9 (2017), 4.1 (2021), 4.2 (2024); 2024 difference 0.1; US dollar share 2.0.

### Impact of PPP revision on aggregate growth
- Given the relatively small changes in world GDP shares, the impact of the new weights on world and regional aggregates is negligible.
- Table A2.2 (referenced) shows aggregate real GDP growth rates for 2023–25 derived using previous and new weights; differences are small (columns 7–9), not exceeding the small magnitudes reported.

*Source: IMF staff calculations.*

### 0.1 percentage point in either direction, and are

### 0.1 percentage point in either direction, and are

### Revisions to Real GDP Growth of WEO Aggregates (Table A2.2)
- Revisions are driven by changes in weights for some slower- or faster-growing economies due to updated PPP shares (ICP 2017 → ICP 2021).
- World: 2023 = 3.3, 2024 = 3.2, 2025 = 3.2 using both previous and new weights; Difference 2023 = 0.0, 2024 = 0.0, 2025 = 0.0.
- Advanced Economies: Previous = 1.8, 1.8, 1.8 (2023–2025); New = 1.7, 1.8, 1.8; Differences = –0.1, 0.0, 0.0.
- Other Advanced Economies (excludes G7 and euro area): Previous = 1.9, 2.1, 2.2; New = 1.8, 2.1, 2.2; Differences = –0.1, 0.0, 0.0.
- Emerging Market and Developing Economies: Previous and New = 4.4, 4.2, 4.2; Differences = 0.0, 0.0, 0.0.
- Emerging and Developing Europe: Previous = 3.4, 3.1, 2.3; New = 3.3, 3.2, 2.2; Differences = –0.1, 0.1, –0.1.
- Middle East and Central Asia: Previous = 2.0, 2.4, 4.0; New = 2.1, 2.4, 3.9; Differences = 0.1, 0.0, –0.1.
- Sub-Saharan Africa: Previous = 3.5, 3.6, 4.1; New = 3.6, 3.6, 4.2; Differences = 0.1, 0.0, 0.1.
- Low-Income Developing Countries: Previous = 4.0, 3.9, 4.7; New = 4.1, 4.0, 4.7; Differences = 0.1, 0.1, 0.0.
- Source: IMF staff calculations. Note: Differences are percentage points between new and previous aggregations.

### Summary of World Output (Table A1)
- World Real GDP (annual percent change):
  - 2006–15 average = 3.6
  - 2022 = 6.6
  - 2023 = 3.6
  - 2024 = 3.3
  - 2025 = 3.2
  - 2029 = 3.1
- Advanced Economies:
  - 2006–15 = 1.5; 2022 = 2.9; 2023 = 1.7; 2024 = 1.8; 2025 = 1.8; 2029 = 1.7
- United States:
  - 2006–15 = 1.6; 2022 = 2.5; 2023 = 2.9; 2024 = 2.8; 2025 = 2.2; 2029 = 2.1
- Emerging Market and Developing Economies:
  - 2006–15 = 5.6; 2022 = 4.0; 2023 = 4.4; 2024 = 4.2; 2025 = 4.2; 2029 = 3.9
- Regional highlights:
  - Emerging and Developing Asia: 2006–15 = 7.9; 2022 = 7.7; 2023 = 4.4; 2024 = 5.3; 2025 = 5.0; 2029 = 4.5
  - Latin America and the Caribbean: 2006–15 = 3.0; 2022 = 7.4; 2023 = 4.2; 2024 = 2.2; 2025 = 2.1; 2029 = 2.6
  - Sub-Saharan Africa: 2006–15 = 5.2; 2022 = 4.8; 2023 = 4.1; 2024 = 3.6; 2025 = 3.6; 2029 = 4.4
- World output value:
  - At market exchange rates (billions of US dollars): 2023 = 105,685; 2024 = 110,065; 2025 = 115,494; 2029 = 139,652.
  - At PPP (billions of US dollars): 2023 = 184,258; 2024 = 194,569; 2025 = 204,473; 2029 = 248,716.
- Output per capita (selected groups):
  - Advanced Economies: 2006–15 = 0.9; 2023 = 2.5; 2024 = 1.1; 2025 = 1.3; 2029 = 1.4
  - Emerging Market and Developing Economies: 2006–15 = 4.0; 2023 = 2.9; 2024 = 3.3; 2025 = 3.7; 2029 = 2.9

### Advanced Economies—Real GDP and Components (Tables A2, A3)
- Advanced Economies Real GDP (Q4 over Q4):
  - 2006–15 avg = 1.5; 2022 = 2.9; 2023 = 1.7; 2024 = 1.8; 2025 = 1.8
- Real total domestic demand (Advanced Economies):
  - 2006–15 avg = 1.3; 2023 = 3.4; 2024 = 1.1; 2025 = 1.6
- Selected country vignettes (Real GDP Q4 over Q4 and projections):
  - United States: 2006–15 = 1.6; 2022 = 2.5; 2023 = 2.9; 2024 = 2.8; 2025 = 2.2
  - Euro Area: 2006–15 = 0.8; 2022 = 3.3; 2023 = 0.4; 2024 = 0.8; 2025 = 1.2
  - Japan: 2006–15 = 0.5; 2022 = 2.7; 2023 = 1.2; 2024 = 1.7; 2025 = 0.3
- Components (Annual percent change):
  - Private consumer expenditure (Advanced Economies): 2006–15 = 1.4; 2022 = 4.1; 2023 = 1.7; 2024 = 1.7; 2025 = 1.6
  - Public consumption (Advanced Economies): 2006–15 = 1.2; 2022 = 3.4; 2023 = 0.7; 2024 = 1.9; 2025 = 2.2
  - Gross fixed capital formation (Advanced Economies): 2006–15 = 1.0; 2022 = 6.0; 2023 = 2.0; 2024 = 1.9; 2025 = 1.3
- Foreign balance and stock building series are provided as percent of GDP and levels by country (see tables for exact values).

### Emerging Market and Developing Economies—Real GDP and Inflation (Tables A4, A5, A7)
- Emerging and Developing Asia (selected countries, annual percent change):
  - China: 2006–15 = 9.6; 2022 = 8.4; 2023 = 3.0; 2024 = 5.2; 2025 = 4.8; 2029 = 3.3
  - India: 2006–15 = 6.8; 2022 = 9.7; 2023 = 7.0; 2024 = 8.2; 2025 = 7.0; 2029 = 6.5
  - Vietnam: 2006–15 = 6.2; 2022 = 8.1; 2023 = 5.0; 2024 = 6.1; 2025 = 6.1; 2029 = 5.6
- Emerging and Developing Europe (aggregate): 2006–15 = 3.1; 2022 = 7.1; 2023 = 0.6; 2024 = 3.3; 2025 = 3.2; 2029 = 2.5
- Selected severe swings:
  - Ukraine: 2006–15 = –0.6; 2022 = –28.8; 2023 = 5.3; 2024 = 3.0; 2025 = 2.5; 2029 = 4.2
  - Venezuela: 2006–15 = 1.9; 2017 = –17.0; 2018 = –15.7; 2019 = –19.7; 2020 = –27.7; 2021 = –30.0; 2022 = 1.0; 2023 = 8.0; 2024 = 4.0; 2025 = 3.0
- Consumer Prices (Emerging Market and Developing Economies summary, annual percent change):
  - 2006–15 = 6.0; 2022 = 5.8; 2023 = 9.6; 2024 = 8.1; 2025 = 7.9; 2029 = 4.0
- Regional inflation examples (end of period and averages available by country in Table A7).

### Fiscal Balances and Debt (Table A8)
- Major Advanced Economies (Net Lending/Borrowing, percent of GDP):
  - Average 2006–15 = –5.2; 2022 = –8.6; 2023 = –3.9; 2024 = –5.9; 2025 = –6.2; 2029 = –4.7
- United States:
  - Net Lending/Borrowing: 2006–15 = –6.6; 2022 = –11.0; 2023 = –3.9; 2024 = –7.1; 2025 = –7.6; 2029 = –6.0
  - Net Debt: 2006–15 = 67.3; 2022 = 97.3; 2023 = 95.7; 2024 = 98.8; 2025 = 109.7; 2029 = 109.2
  - Gross Debt: 2006–15 = 90.0; 2022 = 131.8; 2023 = 124.5; 2024 = 118.6; 2025 = 118.7; 2029 = 131.7
- Japan (debt levels):
  - Net Debt: 2006–15 = 125.8; 2022 = 162.0; 2023 = 156.3; 2024 = 149.8; 2025 = 155.8; 2029 = 151.1
  - Gross Debt (nonconsolidated basis): 2006–15 = 206.9; 2022 = 258.4; 2023 = 253.7; 2024 = 256.3; 2025 = 249.7; 2029 = 245.0
- France, Italy, United Kingdom, Germany and other major economies: series reported for Net Lending/Borrowing, Output Gap, Structural Balance, Net Debt, Gross Debt (see Table A8 for country values).

### Trade, Prices, and Commodities (Table A9)
- World trade (goods and services) volume annual percent change:
  - 2006–15 avg = 4.1; 2022 = 10.8; 2023 = 5.7; 2024 = 0.8; 2025 = 3.1; 2029 average notated in Table A15.
- World trade price deflator (US dollars): 2006–15 = 1.0; 2022 = 12.7; 2023 = 6.8; 2024 = –2.6; 2025 = 1.1
- Average oil price (US$ per barrel, annual average): 2006–15 avg = 83.36; 2022 = 76.9; 2023 = 259.6; 2024 = 80.5; 2025 = 68.0 (note: table lists series with specific annual changes; consult Table A9 for exact year-by-year values).
- World exports in billions of US dollars:
  - Goods and Services: 2022 = 28,119; 2023 = 31,552; 2024 = 30,963; 2025 = 32,263; 2029 = 33,542
  - Goods: 2022 = 21,846; 2023 = 24,287; 2024 = 23,133; 2025 = 23,922; 2029 = 24,810

### Current Account Balances (Table A10–A12)
- Advanced Economies (billions of US dollars):
  - 2022 = 456.8; 2023 = –236.7; 2024 = 139.0; 2025 = 226.5; 2029 = 497.3
- United States current account (billions of US dollars): 2016 = –396.2; 2022 = –868.0; 2023 = –1,012.1; 2024 = –905.4; 2025 = –948.6; 2029 = –746.5
- Emerging Market and Developing Economies (billions of US dollars): 2016 = –110.3; 2022 = 706.3; 2023 = 278.8; 2024 = 173.4; 2025 = 126.9; 2029 = –98.9
- World current account (billions of US dollars): 2016 = 256.6; 2022 = 469.6; 2023 = 417.8; 2024 = 400.0; 2025 = 378.4; 2029 = 398.4
- Current account as percent of GDP:
  - Advanced Economies: 2016 = 0.8; 2022 = 0.8; 2023 = –0.4; 2024 = 0.2; 2025 = 0.4; 2029 = 0.4
  - United States: 2016 = –2.1; 2022 = –3.7; 2023 = –3.9; 2024 = –3.3; 2025 = –3.3; 2029 = –2.1
  - Emerging and Developing Asia: 2016 = 1.3; 2022 = 1.4; 2023 = 1.3; 2024 = 1.0; 2025 = 0.8; 2029 = 0.9
- Current accounts by country and region are detailed in Tables A10–A12 (percent of GDP and percent of exports of goods and services also provided).

### Financial Account Balances and External Flows (Table A13)
- World Financial Account Balance (billions of US dollars, memorandum): 2016 = 44.1; 2022 = 654.5; 2023 = 513.6; 2024 = 308.2; 2025 = 510.1; 2029 = 406.8
- Advanced Economies Financial Account Balance: 2016 = 440.0; 2022 = –38.6; 2023 = 442.5; 2024 = –37.6; 2025 = 132.7
- Emerging Market and Developing Economies Financial Account Balance: 2016 = –396.0; 2022 = 212.0; 2023 = 551.1; 2024 = 175.6; 2025 = 183.5; 2029 = 131.9
- Components (selected):
  - Direct Investment, Net (Emerging Market and Developing Economies): 2016 = –271.4; 2022 = –483.6; 2023 = –250.5; 2024 = –155.9; 2025 = –185.7
  - Portfolio Investment, Net (Emerging Market and Developing Economies): 2016 = –50.2; 2022 = 115.2; 2023 = 502.8; 2024 = 150.3; 2025 = –30.3
  - Change in Reserves (Emerging Market and Developing Economies): 2016 = –481.1; 2022 = 513.6; 2023 = 120.0; 2024 = 197.0; 2025 = 486.7

### Net Lending and Borrowing, Savings, and Investment (Table A14)
- World net lending/net borrowing (percent of GDP):
  - 2006–15 average = 0.4; 2022 = 0.6; 2023 = 0.4; 2024 = 0.4; 2025 = 0.4; 2026–29 average = 0.3
- Advanced Economies (Net Lending/Borrowing percent of GDP):
  - 2006–15 average = –0.3; 2022 = –0.2; 2023 = 0.2; 2024 = 0.2; 2025 = 0.4; 2026–29 average = 0.5
- Emerging Market and Developing Economies:
  - Net Lending/Borrowing 2006–15 average = 1.9; 2022 = 1.6; 2023 = 0.6; 2024 = 0.4; 2025 = 0.3; 2026–29 average = 0.0
- Savings and investment shares (percent of GDP) reported by group and country; identity S – I = current account balance noted, with capital account and measurement caveats.

### Medium-Term Baseline Scenario (Table A15)
- World Real GDP (annual percent change):
  - 2006–15 = 3.6; 2022–25 = 3.3 (2022), 3.2 (2023), 3.2 (2024), 3.2 (2025); 2026–29 average = 3.2
- Advanced Economies: 2006–15 = 1.5; 2022–25 = 1.7 (2022), 1.8 (2023), 1.8 (2024), 1.8 (2025); 2026–29 = 1.7
- Emerging Market and Developing Economies: 2006–15 = 5.6; 2022–25 = 4.0 (2022), 4.4 (2023), 4.2 (2024), 4.2 (2025); 2026–29 = 4.0
- World trade volume (goods and services) 2006–15 = 4.1; 2022–25 = 5.7 (2022), 0.8 (2023), 3.1 (2024), 3.4 (2025); 2026–29 = 3.3
- Consumer prices (median):
  - Advanced Economies: 2006–15 = 1.7; 2022 = 2.6; 2023 = 7.3; 2024 = 4.6; 2025 = 2.6; 2026–29 = 2.0
  - Emerging Market and Developing Economies: 2006–15 = 6.0; 2022 = 6.1; 2023 = 9.6; 2024 = 8.1; 2025 = 7.9; 2026–29 = 4.2
- World real long-term interest rate (GDP-weighted): 2006–15 = 1.2; 2022 = –0.7; 2023 = –5.0; 2024 = –1.3; 2025 = 0.8; 2026–29 = 1.2
- Total external debt (Emerging Market and Developing Economies): 2006–15 = 27.3; 2022 = 29.1; 2023 = 29.6; 2024 = 29.0; 2025 = 28.3; 2026–29 = 27.5
- Debt service (Emerging Market and Developing Economies): 2006–15 = 9.7; 2022 = 10.3; 2023 = 10.5; 2024 = 10.3; 2025 = 9.9; 2026–29 = 10.1

*Source: IMF World Economic Outlook, Statistical Appendix tables and staff calculations, October 2024.*

### Annex 1.SF.1

### Annex 1.SF.1

### Executive Directors’ assessment of the global outlook
- Executive Directors broadly agreed with staff’s assessment of the global economic outlook, risks, and policy priorities.
- They welcomed continued growth resilience in the face of recurring shocks.
- Recovery remains uneven; growth is steady but “underwhelming,” reflecting weak productivity growth.
- Directors warned of the risk that mediocre medium‑term growth and rising debt trajectories could entrench the global economy in a “low‑growth, high‑debt environment.”
- Consensus: as monetary policy becomes less restrictive, renewed emphasis is needed on gradual and sustained fiscal consolidation coupled with ambitious structural reforms, tailored to country‑specific conditions.

### Risks to the outlook
- Most Directors judged risks to be tilted to the downside, though some cautioned against overstating the deterioration in the balance of risks.
- Highlighted downside risks:
  - Potentially more persistent underlying inflation.
  - Increased geopolitical conflicts and tensions in different regions.
  - Intensification of protectionist policies that could weigh on medium‑term growth.
- Financial vulnerabilities concerns:
  - Monetary easing has kept financial conditions accommodative, which may facilitate buildup of financial vulnerabilities.
  - The widening disconnect between subdued financial market volatility and elevated economic and geopolitical uncertainty raises the chances of sharp disorderly repricing.
  - Further volatility surges could impair financial stability, investment, and growth—especially in emerging market and developing economies heavily reliant on external financing.
- Sectoral pressures:
  - Still‑acute pressures on commercial real estate sectors and ongoing property sector adjustments in some countries.
- Upside factors noted by some Directors:
  - Stronger recovery in investment in advanced economies.
  - Better performance in some emerging market economies.
  - Economic benefits from artificial intelligence.

### Monetary policy guidance
- Directors called on central banks to carefully calibrate monetary policy to restore price stability while avoiding a tighter‑than‑necessary stance that could weaken growth and employment.
- Emphasis on being data dependent and clearly communicating policy decisions.
- Specific guidance:
  - Where core inflation persists above target, policy rates should remain in restrictive territory until underlying inflation shows clear signs of moving toward target.
  - Moving to a more neutral stance is appropriate where inflation is unambiguously abating, long‑term inflation expectations remain anchored, and output gaps are closing.
- Given elevated economic and policy uncertainty, central banks should stand ready to mitigate disruptive impacts of foreign exchange volatility and capital flows, including by leveraging, where appropriate, country‑specific guidance from the IMF’s Integrated Policy Framework.

### Financial sector resilience and policy priorities
- Directors welcomed that the global banking sector has remained resilient.
- Emphasized further progress on adopting and implementing frameworks for recovery and resolution to address weak or failing banks.
- Urged full, timely, and consistent implementation of international standards, including Basel III, to enhance prudential frameworks.
- Stressed the need to:
  - Improve non‑bank financial institutions’ liquidity preparedness.
  - Implement the Financial Stability Board’s agreed‑upon standards.
  - Close data gaps.
  - Enhance stress testing for non‑banks to reduce systemic risks.

### Fiscal policy stance and debt management
- Directors generally called for sustained, gradual, and carefully designed fiscal adjustments amid elevated public debt and associated risks.
- Noted that larger adjustments than currently envisaged in many countries are needed to stabilize debt and build necessary buffers against adverse shocks.
- Fiscal adjustment principles:
  - Pace should be calibrated to country‑specific economic conditions.
  - Ensure continuous support to the most vulnerable.
  - Protect public investment.
  - Be well communicated and anchored in credible medium‑term frameworks.
- Strengthening fiscal governance should be a priority to help reduce debt buildup from contingent liabilities and arrears.

### Structural reforms and the green transition
- Directors stressed advancing structural reforms to boost growth and accelerate the green transition.
- Importance of enhancing social acceptability of reforms through improved communication and trust‑building mechanisms.
- Targeted reforms recommended to:
  - Boost productivity.
  - Enhance competition.
  - Improve human capital.
  - Increase labor force participation.
- Reiterated need to advance climate mitigation and adaptation reforms.
- Some Directors emphasized strengthening efforts to increase climate finance for adaptation, especially for vulnerable countries exposed to significant climate risks.

### Multilateral cooperation
- Directors underscored that stronger multilateral cooperation is essential to:
  - Facilitate debt restructuring processes.
  - Mitigate risks from geoeconomic fragmentation.
  - Accelerate the green transition in a manner consistent with World Trade Organization rules.

*Remarks by the Chair at the conclusion of the Executive Board’s discussion of the Fiscal Monitor, Global Financial Stability Report, and World Economic Outlook on October 8, 2024.*

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