IMF Chief Economist Claims Global Inflation Battle Won Without Recession

October 22, 2024 TruthUSA

Global economic output is anticipated to reach 3.2 percent in both 2024 and 2025.

The International Monetary Fund (IMF) chief economist Pierre-Olivier Gourinchas stated that the global battle against inflation has been successful without causing a significant economic downturn.

In the October edition of the World Economic Outlook, the IMF forecasted that headline inflation would decrease to 3.5 percent by the end of next year, slightly below the two-decade average before the pandemic.

Gourinchas also noted that the achievement of lowering inflation without a global recession is significant. With inflation approaching the 2 percent target of advanced economies, major central banks can now focus on monetary easing.

The IMF chief economist emphasized the role of monetary policy in keeping inflation expectations stable alongside other factors like supply and demand shocks and labor supply improvements.

Projected global real GDP growth for 2024 and 2025 is 3.2 percent.

In the US, economic output is expected to be 2.8 percent this year and 2.2 percent next year, an improvement from the previous projection of 2.6 percent and 1.9 percent, respectively.

Canada is expected to lead advanced economies with a projected real GDP growth rate of 2.4 percent in 2025.

The eurozone and UK economies are predicted to grow by 1.2 percent and 1.5 percent, respectively, next year.

Emerging markets and developing economies, after strong growth rates in 2023, are forecasted to slow down in the new year. China’s growth is expected to be 4.5 percent in 2025, down from 4.8 percent this year, and India’s growth is also anticipated to drop to 6.5 percent from 7 percent.

Despite the positive developments in inflation, Gourinchas warned of increasing risks like geopolitical tensions, trade and industrial policies, and reduced migration, which could lead to spikes in energy and food prices due to supply shocks.

The IMF highlighted potential issues with tariffs and retaliations that may escalate international conflicts.

Key issues in the upcoming US election include tariffs and immigration. Policies proposed by Trump could potentially impact inflation and economic growth prospects.

To counter potential economic challenges, the IMF recommended a policy “triple pivot” involving monetary easing, fiscal health stabilization, and economic reforms.

Gourinchas emphasized that this approach is crucial to address various challenges.

Global Debt ‘Is Probably Worse Than It Looks’

The IMF’s latest Global Financial Stability Report highlighted the mounting government debt as a consequence of expansive fiscal policies globally.

The national debt clock at a bus station in Washington, on Aug. 6, 2024. (Madalina Vasiliu/The Epoch Times) — The national debt clock at a bus station in Washington, on Aug. 6, 2024. Madalina Vasiliu/The Epoch Times

The IMF cautioned that a sudden shift towards fiscal contraction could negatively impact economic activity.

Tobias Adrian, the IMF’s financial counselor and director of the monetary and capital markets department, mentioned that governments have room to make adjustments through spending and revenue measures.

According to the fiscal monitoring report, global government bond markets may experience volatility as central banks reduce bond holdings and governments rely on bond issuance to fund their spending.

The US Treasury Department has increased bond issuance, leading to lower short-term borrowing costs in the short run but potential higher future financing costs.

Bond yields have been rising while central banks ease interest rates. The 10-year yield surpassed 4.2 percent during a recent trading session.

Similar trends were observed in other countries like the UK, Germany, France, and Italy.

Adrian highlighted the importance of balancing sheet normalization for these institutions.

Since the Fed’s tightening campaign, the central bank’s balance sheet has decreased by nearly $2 trillion.

The IMF recently expressed concerns about global public debt reaching $100 trillion by the end of the year and absorbing a significant portion of world GDP, indicating that the situation may be more severe than currently perceived.

If public debt is underestimated, the current fiscal efforts might not be sufficient to address the challenges posed by high debt levels.

In the US, the budget deficit exceeded $1.8 trillion in fiscal year 2024, with interest costs consuming a quarter of federal revenues. The national debt is expected to surpass $36 trillion by the year’s end, driven by increasing mandatory spending and interest payments.

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