Transcript of January 2024 WEO Update Press Briefing
IMF News, January 31, 2024
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- Published: January 31, 2024
Global outlook and headline projections
- Global growth under the baseline forecast: 3.1 percent this year (a 0.2 percentage point upgrade from October), edging up to 3.2 percent next year.
- World trade growth projected at 3.3 percent this year and 3.6 percent next year; historical average growth rate: 4.9 percent.
- Excluding Argentina, global headline inflation will decline to 4.9 percent this year, down 0.4 percentage point from the October projection.
- Advanced economies inflation will average around 2.6 percent this year, described as close to Central Bank targets.
- Advanced economies growth: 1.5 percent this year, returning to 1.8 percent next year.
Inflation dynamics and monetary policy
- Disinflation driven substantially by lower commodity and energy prices rather than solely by contraction of economic activity.
- Two channels through which prior monetary tightening contributed:
- Shifting expectations: rapid tightening convinced agents that high inflation would not be allowed to persist.
- Synchronized tightening lowered world energy demand and prices, directly reducing headline inflation.
- Risks to inflation:
- Core/services inflation persistence and wage developments could sustain price pressures.
- Central bank stance and cutting cycle:
- IMF expectation: central banks likely to hold off on easing until maybe the second half of 2024; anticipated easing by the Federal Reserve, the European Central Bank, the Bank of England, and others may begin in the second half of 2024.
- Warning against premature easing that would undermine credibility, and against waiting too long as strains grow in interest-rate-sensitive sectors (e.g., construction) and loan activity has declined markedly in many countries.
Key upside and downside risks (risk balance)
- Upside risks:
- Inflation could fall faster than expected, allowing central banks to ease sooner.
- Election-year fiscal slippage (delayed fiscal consolidation) could temporarily boost activity.
- Downside risks:
- Renewed geopolitical tensions (Middle East, Red Sea shipping disruptions) could disrupt commodities and supply chains.
- Financial conditions could tighten, raising long-term interest rates and pressure on economies and governments.
- Persistent core inflation driven by services and wages.
Fiscal risks and policy recommendations
- Most countries exited the pandemic and energy crisis with higher public debt levels and higher borrowing costs; elevated fiscal risks are the “biggest challenge.”
- Immediate steps:
- Phase out fiscal measures introduced to offset high energy prices “right away,” since the energy crisis is behind us.
- Required approach:
- Implement steady fiscal consolidation with a nontrivial first installment.
- Improve and enforce fiscal frameworks to ensure future consolidation efforts are both sizable and credible.
- Balance risks of doing too little too late (leading to fiscal crises) and of doing too much too soon (jeopardizing growth and climate transition efforts).
Emerging markets, low-income countries, and IMF support
- Emerging markets broadly more resilient with stronger-than-expected growth and stable external balances, helped by improved monetary and fiscal frameworks.
- Divergence in policies across countries can spur capital outflows and currency volatility; stronger buffers are recommended in line with the Fund’s integrated policy framework.
- Low income and developing countries, many in Africa, face acute pressure on borrowing costs and are being increasingly priced out of markets, crowding out investment.
- Recommended actions for high-risk debt countries:
- Mobilize revenues, improve policy frameworks, and pursue orderly debt restructuring if at high risk of debt distress.
- IMF financial assistance instruments cited:
- Temporary Food Shock Window
- Resilience and Sustainability Facility
Geoeconomic fragmentation and trade barriers
- Large rise in trade-distorting measures: around 3,000 in 2023 versus a little above a thousand in 2019.
- Geoeconomic fragmentation and rising trade barriers can depress global output; estimated aggregate costs cited in analysis range from 3 percent of world GDP to 7 percent of world GDP.
- Emerging and developing countries tend to be most adversely affected by increased trade tensions.
- Policy prescription: limit geoeconomic fragmentation, remove trade barriers (including on low-carbon technology products crucial for the climate transition), and keep economies interconnected through multilateral cooperation.
Regional and country specifics — United States, Euro area, China
- United States: slower growth expected as tight monetary policy continues working through the economy; tighter labor market conditions noted relative to the Euro area.
- Euro area: rebound expected after challenging 2023; inflation dynamics affected more by earlier energy/gas shocks; wage catch-up is a key concern.
- China: weaker consumption and investment continue to weigh on activity.
Sub-Saharan Africa, South Africa, Nigeria, Zambia, and region-specific notes
- Sub-Saharan Africa:
- Growth projected to rise as negative effects of earlier weather shocks subside and supply issues improve.
- IMF projection mentioned: 4.1 percent (reference to 2025 improvement).
- Medium-term growth around 4.3 percent in forecast commentary, above global average but with modest per capita gains given rapid population growth.
- South Africa:
- 2023 estimated growth: 0.6 percent.
- 2024 forecast: 1 percent (downgrade from 1.8 percent previously).
- Main downgrade drivers: logistical sector disruptions (rail, ports) and continuing electricity production challenges.
- 2025 forecast: 1.3 percent as bottlenecks ease.
- Reform priorities: resolve energy and logistical crises, bring power plants back online, accelerate renewable energy, open competition in network industries (energy, ports, rail, telecoms), and address governance weaknesses to attract private investment.
- Nigeria:
- Slight downgrade for 2024: 3 percent (a negative 0.1 percentage point revision from prior).
- Inflation trajectory cited: 24.6 percent in 2023, forecast 23 percent this year, and 15.5 percent into 2025 (efforts to bring inflation down are top priority).
- Central Bank policy: policy rate raised to 18.8 percent (cited as past tightening to lower inflation).
- Policy recommendations: revenue mobilization, strengthen revenue administration, widen tax base to create fiscal space for social support while safeguarding fiscal sustainability.
- Sovereign spread noted: about 570 (down from about 703 months ago).
- Zambia:
- Growth rising from 3.6 percent last year; medium-term growth to be underpinned by reforms in authorities’ program and debt restructuring to support investments in education and health.
- Egypt:
- Tourism strong in 2023 but slowed since Gaza conflict; Red Sea attacks may impact foreign exchange inflows (~$700 million a month noted).
- IMF: securing additional financing is essential to support reforms, bring down inflation, and restore growth.
- Forecast: growth recovering from 3 percent this year to 4.7 percent next year, supported by IMF financing and program reviews.
Argentina specifics
- Argentina 2024 growth: negative 2.8 percent in 2024 (a sizable downward adjustment of about 5.5 percentage points compared to October projections), with growth resuming in 2025 at about 5 percent (conditional on fiscal consolidation).
- Inflation context:
- Year-end-on-year-end inflation in Argentina in 2023 cited as in excess of 211 percent.
- That high level raised the regional average by almost 76 percentage points (commentary).
- Expected path: year-end-on-year-end inflation around 150 percent by the end of 2024, declining further thereafter if fiscal consolidation is implemented.
- Key drivers and policy stance:
- Root causes: prior rapid monetary expansion and significant monetary financing of government spending.
- Current administration aims for a 2 percent of GDP primary surplus in 2024 (about a five percentage point of GDP fiscal adjustment); removal of subsidies and an exchange rate adjustment contributed to near-term spikes in inflation but are intended to restore stability.
- Major risk: whether fiscal consolidation can be implemented durably.
Shipping disruptions and the Red Sea
- Attacks in the Red Sea have increased shipping costs and delays as vessels reroute around Africa.
- To date, IMF assessment: impact on inflation in European economies is “fairly modest” and markets have not seen a sizable macroeconomic effect beyond the region; oil prices have not seen a significant spike as of the briefing.
- Situation is being monitored closely; further briefings and region-specific updates planned.
Additional institutional and multilateral notes
- Progress noted: recent 50 percent increase of the Fund's permanent resources.
- Governance representation: creation of a 25th Chair of the IMF Executive Board for Sub-Saharan Africa and the African Union’s entry as a permanent member of the Group of 20; South Africa’s presidency of the G-20 in 2025 highlighted.
Transcript of January 30, 2024 press briefing — IMF Communications Department; Pierre-Olivier Gourinchas and Daniel Leigh.