The Bureau conversation discussed the IMF World Economic Outlook released on October 22. In a nutshell, the global battle against inflation appears to have largely been won, while global growth is expected to remain stable yet underwhelming ,with the global projection for GDP growth hovering at about 3 percent, both in the short and the medium term.
However, notable revisions have taken place beneath the surface since April 2024, with upgrades to the forecast for the United States offsetting downgrades to those for other advanced economies, particularly the largest European countries. Likewise, in emerging market and developing economies, disruptions to production and shipping of commodities—especially oil—conflicts, civil unrest, and extreme weather events have led to downward revisions to the outlook for the Middle East and Central Asia and that for sub-Saharan Africa. These have been compensated for by upgrades to the forecast for emerging Asia, where surging demand for semiconductors and electronics, driven by significant investments in artificial intelligence, has bolstered growth, a trend supported by substantial public investment in China and India. Five years from now, global growth should reach 3.1 percent—a mediocre performance compared with the pre-pandemic average.
Participants strongly felt that – as acknowledged by the IMF itself - risks to the global outlook are tilted to the downside amid elevated policy uncertainty, not least with respect to the outcome of the US presidential elections. An intensification of protectionist policies would exacerbate trade tensions, reduce market efficiency, and further disrupt supply chains. Some of the larger euro area countries, particularly Germany, already plagued by persistent weakness in manufacturing could be especially vulnerable to tariff escalations. Disruptions to the disinflation process, potentially triggered by new spikes in commodity prices amid persistent geopolitical tensions, could prevent central banks from easing monetary policy, which would pose significant challenges to fiscal policy and financial stability. Sudden eruptions in financial market volatility—as experienced in early August—could tighten financial conditions and weigh on investment and growth, especially in developing economies in which large near-term external financing needs may trigger capital outflows and debt distress. Deeper- or longer-than-expected contraction in China’s property sector, especially if it leads to financial instability, could weaken consumer sentiment and generate negative global spill overs given China’s large footprint in global trade. Rising social tensions could prompt social unrest, hurting consumer and investor confidence and potentially delaying the passage and implementation of necessary structural reforms. Zooming in on the euro area, participants called for carefully calibrated monetary and fiscal policies, but it was generally acknowledged that the room for manouvre is fairly limited. Summarising, the lead speaker concluded that “the outlook materialising is probably the best we can hope for”.
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