G-20 Surveillance Note: G-20 Finance Ministers and Central Bank Governors’ Meeting, São Paulo, Brazil

February 2024

Prepared by IMF Staff 

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Executive Summary

The global economy appears on track for a soft landing, but activity and growth prospects remain weak. The cyclical position of G-20 countries has proven stronger than previously anticipated as disinflation has so far proceeded without triggering recession and emerging market economies have demonstrated improved resilience. Looking ahead monetary policy is expected to loosen somewhat in 2024. However, medium-term growth prospects remain subdued—reflecting secular trends and challenges including weak productivity growth, ageing, geoeconomic fragmentation and climate vulnerabilities. These trends also undermine income convergence and increase the vulnerability of economies to external shocks. Fiscal sustainability is being tested, with government financing conditions poised to remain challenging over the medium-term, amid high and rising levels of public debt.

With the economic recovery on firmer footing, risks to the outlook are more balanced. On the upside, global growth could be higher than expected if the pace of disinflation is faster than anticipated and brings forward monetary easing, or fiscal consolidation is more gradual than initially envisaged. On the downside, additional commodity price spikes, persistent labor market tightness, or renewed supply chain tensions would reignite inflationary pressures. If induced by debt distress, fiscal tightening would be faster than warranted by cyclical developments and undermine growth. Changes to the outlook in China—positive or negative— represent a source of global risk. Over the mediumterm, tepid growth prospects also risk increased recourse to protectionism, adding to the threat posed by geoeconomic fragmentation, which is already inhibiting trade and financial integration. Climate vulnerabilities also weigh on medium-term global growth prospects, falling disproportionately on Africa, where meaningful demographic dividends have yet to be realized. Even though the pace of globalization has slowed, growth opportunities remain—including from trade in digital services, and artificial intelligence (AI)—if properly harnessed.

An appropriate combination of fiscal and monetary policy will be critical to delivering debt, price, and financial stability. Monetary policy must ensure price stability and be ready to shift to a more neutral stance where inflation is coming back to target and growth could falter. At the same time, fiscal consolidation efforts—using an appropriate mix of revenue and spending measures— should not be delayed and proceed at a pace—that strikes the right balance between stabilizing debt and supporting inclusive growth. Macro-prudential policies are also necessary to manage ex-ante financial risks. Over the medium term, targeted and carefully sequenced structural reforms can help boost productivity. In G-20 emerging market economies and the African Union reforms to governance, business regulation, and the external sector can mitigate diverging income trends relative to rich economies.

Multilateral actions are needed to meet global challenges and leverage global opportunities. G-20 policymakers must step up efforts to mitigate the threat of climate change and support the climate transition and to help unlock Africa’s growth potential. Cooperation is necessary to manage fragmentation—notably by avoiding distortionary trade policies— and strengthen the resilience of the international monetary system. The G-20 has a key role to play in ensuring the benefits from AI adoption are fully exploited while the risks are minimized.

Prepared under the supervision of Aqib Aslam by a team led by Neil Meads comprising Eric Bang, Nicolas Fernandez- Arias, Carolina Osorio Buitron (co-lead), and Mel Zhang. Ilse Peirtsegaele provided administrative support. Prepared on information available as of February 15, 2024. G-20 Surveillance Notes are available on IMF.org.

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