IMF cautions about inflation risks, trims growth predictions, yet remains optimistic about US resilience

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The International Monetary Fund issued a warning on Tuesday, emphasizing that the fight against global inflation remains ongoing and urged central banks to maintain high interest rates due to the constraints imposed by price pressures on economic growth in the upcoming year.

In its annual World Economic Outlook report, released ahead of its annual meeting in Marrakech, Morocco, the IMF raised its projection for global inflation next year to 5.8%, compared to the earlier estimate of 5.2% released earlier this summer.

The organization also revised down its growth forecasts for Europe and China, while lowering its 2024 global GDP estimate to 2.9% from the previously predicted 3%, despite acknowledging the “remarkable strength” of the US economy.

Despite some economic resilience earlier in the year, characterized by a rebound in reopening and progress in reducing inflation from the previous year’s peaks, the IMF cautioned against premature complacency. It highlighted that economic activity still lags behind its pre-pandemic trajectory, especially in emerging market and developing economies, with significant divergences emerging among different regions.

The report mentioned that near-term inflation expectations have surged and could contribute, along with tight labor markets, to the persistence of core inflation pressures, necessitating higher policy rates than initially anticipated. The IMF also warned about the potential impact of additional climate and geopolitical shocks, which could lead to further spikes in food and energy prices.

Acknowledging the resilience of the U.S. economy, the IMF upgraded its 2024 GDP forecast for the largest economy globally by 0.5 percentage points to 1.5%, projecting it to surpass the pre-Covid nominal levels, unlike other major global markets.

However, the IMF also cautioned that the U.S. fiscal situation has significantly deteriorated this year, further adding that the pro-growth policies of the Biden Administration might contribute to additional inflationary pressures.