Press Conference: World Economic Outlook Update, July 2024 - Transcript
IMF News, July 16, 2024
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- Published: July 16, 2024
Global outlook and headline projections
- Global growth remains steady at 3.2 percent this year, unchanged from the April World Economic Outlook, and is projected at 3.3 percent next year.
- Global inflation slowed to 5.9 percent this year from 6.7 percent last year.
- Asia's emerging market economies remain the main engine for global growth; growth in India and China was revised upwards and accounts for almost half of global growth.
- Longer-run prospects for China are weaker: growth in China is projected to moderate to 3.3 percent by 2029.
Risks to the baseline and disinflation dynamics
- Bumps on the disinflation path in advanced economies could force central banks, including the Federal Reserve, to keep borrowing costs higher for longer, putting overall growth at risk and increasing upward pressure on the dollar with harmful spillovers to emerging and developing economies.
- Global headline inflation shocks, mostly energy and food prices, have driven the inflation surge and subsequent decline across many countries.
- Although headline inflation shocks have receded and inflation came down without a recession, goods prices remain high relative to services; unless goods inflation declines further, pressure on services prices and wages may keep overall inflation higher than desired.
- Monetary policy guidance in the Update: remain vigilant—avoid premature easing where economies remain strong, but avoid excessive delays once inflation is decisively on its way back toward targets.
- Near-term scenario in the Update: one cut by the Federal Reserve before the end of 2024 (the Update’s expectation).
Fiscal vulnerabilities and policy space
- Public finances have deteriorated more than foreseen before the Pandemic in many countries; rebuilding buffers gradually and credibly while protecting the most vulnerable is a critical priority.
- Projected fiscal consolidations are largely insufficient in too many countries, magnifying economic policy uncertainty.
- Specific concern: the United States, at full employment, maintains a fiscal stance that pushes its debt-to-GDP ratio steadily higher and increasingly relies on short-term funding—this direction of travel is flagged as worrisome (short-term funding economizes on cost but raises rollover risk).
Multilateral trade, protectionism, and spillovers
- The Update flags a gradual dismantling of the multilateral trading system and a surge in unilateral trade-restrictive and industrial policy measures.
- Empirical evidence cited: upwards of 3,000 trade-restrictive measures implemented in 2023 versus 1,000 in 2019.
- Effects identified:
- Retaliation and reduced bilateral trade.
- Distorted trade and resource allocation, weaker growth, and harder coordination on global challenges such as the climate transition.
- Policy recommendation: use trade instruments sparingly and within a multilateral framework to correct well-identified distortions; constructive multilateral cooperation is emphasized as the only way to ensure broadly shared prosperity.
Regional and country highlights
- United States:
- Increasing signs of cooling; progress on disinflation slowed in some parts of the year but June CPI Report showed encouraging U.S. developments.
- IMF anticipates one Fed rate cut before end-2024 in the Update.
- Concern over increased reliance on short-term funding and a rising debt-to-GDP ratio (no immediate market pressure observed).
- China:
- Update revisions: "we have revised growth projections for 2024 and 2025. We've revised them up for China to 5 percent this year and to 4.6 percent, 4.5 percent next year."
- Growth moderation risk remains due to consumer confidence and property sector problems; full reassessment planned for the October WEO cycle.
- Euro area and Spain:
- Advanced economies’ growth is becoming more aligned as output gaps close; euro area growth is picking up.
- Spain upgraded: forecast for this year revised to 2.4; revision driven by strong first-quarter services, exports, and a pickup in investment; EU funds and decreasing inflation supporting domestic demand.
- Japan:
- Yen depreciation noted: about 13 percent depreciation against the U.S. dollar since the beginning of the year (and larger depreciation since 2022).
- Bank of Japan focused on price stability; beginning gradual normalization but policy focus is not on stabilizing the exchange rate.
- Saudi Arabia:
- Forecast for 2024 downgraded to 1.7, a downward revision of 0.9, entirely due to mandatory OPEC+ production cuts.
- Non-oil activity remains robust; growth is expected to pick up to 4.7 in 2025 as production-cut effects wane and large investment projects progress.
- Egypt:
- Revised forecasts: 2.7 in fiscal year ‘24 and 4.1 in ‘25.
- Inflation revised up modestly due to passthrough of depreciation and administrative price adjustments; projected to be a little bit over 20 percent on an average basis in 2025.
- Recovery prospects tied to Ras Al-Hekma development, abatement of Red Sea disruptions, and improved FX market functioning.
- Mexico and Latin America:
- Mexico: forecast revised down to 2.2 for this year, after 3.2 last year; downward revision reflects fading one-off non-resident construction investment and moderation in external demand.
- Latin America shows heterogeneity: some countries slowing this year and rebounding in 2025; region characterized as resilient overall with policy responses aimed at replenishing fiscal buffers and fighting inflation.
- Services inflation showing stickiness in some countries, partly linked to wage increases; IMF expects inflation to return to target in Mexico by end-2025.
- Sub-Saharan Africa:
- Growth for 2024 revised to 3.7 percent (negative 0.1 percentage point revision) and unchanged for 2025 at 4.1 percent.
- Main issue for many countries is inflation from depreciation-inflation cycles; IMF recommends monetary policy tighten to stabilize inflation, while protecting the most vulnerable (e.g., targeted cash transfers).
- Argentina:
- Inflation trend: 211 percent in 2023 and projected around 140 percent in 2024 (year-on-year/end-year context discussed).
- Significant fiscal tightening and end to monetary financing contributed to rapid disinflation but also to a sharp near-term contraction; a rebound to around 5 percent growth is expected in 2025.
Policy recommendations and priorities
- Monetary policy:
- Stay vigilant: avoid premature easing where economies remain strong; avoid excessive delays once inflation is clearly moving back toward targets.
- For countries with depreciation-inflation cycles, tighten monetary policy to restore price stability while protecting vulnerable populations.
- Fiscal policy:
- Gradually and credibly rebuild fiscal buffers to create space for emerging spending needs (climate transition, national and energy security) and to better handle unexpected shocks.
- Implement sufficient and credible fiscal consolidations; current projections are largely insufficient in too many countries.
- Trade and multilateral cooperation:
- Reverse the surge in unilateral trade-restrictive measures and strengthen multilateral frameworks for trade and industrial policy coordination.
- Use trade instruments within multilateral mechanisms and only to correct well-identified distortions.
- Structural and medium-term growth:
- Improve medium-term growth prospects by more efficient allocation of resources, better education and equality of opportunity, faster and greener innovation, and stronger policy frameworks.
Transcript of IMF press briefing on the World Economic Outlook Update, July 16, 2024.