IMF: Near Victory in Global Anti-Inflation Fight, But Rising Risks Warned
The International Monetary Fund (IMF) has stated that many countries around the world have successfully reduced inflation, achieving an economic soft landing and avoiding a recession, but they are facing rising geopolitical risks and a weaker long-term growth outlook.
In its "World Economic Outlook" released on Tuesday, the institution said that by the end of 2025, the global overall inflation rate will drop from an average of 5.8% in 2024 to 3.5%. The inflation rate reached a peak of 9.4% in the third quarter of 2022. The price increase at the end of 2025 is slightly lower than the average annual increase in the 20 years before the COVID-19 pandemic.
"The global fight against inflation is almost won," the IMF's report proclaimed, although it called for a "policy triple pivot" to address issues of interest rates, government spending, reforms, and investments to boost productivity.
IMF Chief Economist Pierre-Olivier Gourinchas said, "Despite the good news on inflation, downside risks are increasing and currently dominate the outlook." The IMF warned that since inflation is moving in the right direction, global policymakers will face new challenges from the pace of world economic growth.
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The IMF maintained its forecast for global economic growth at 3.2% for 2024 and 2025, calling it "stable but unexciting." It is predicted that the United States will grow faster, and emerging Asian economies may also achieve strong expansion due to robust investments related to artificial intelligence. However, the IMF lowered its expectations for other advanced economies (especially major European countries) and several emerging markets, attributing this to escalating global conflicts and the accompanying risks of commodity prices.
*Vigilance is required in the final stage of deflation*
The IMF, headquartered in Washington with 190 member countries, stated in its outline that proactive monetary policy is key to reducing inflation amidst normalization of labor market conditions and alleviation of supply shocks, all of which help to avoid a global recession.The report warns that central banks need to remain vigilant to comprehensively reduce inflation. It adds that due to wages in some countries continuing to catch up with the rise in the cost of living, service industry inflation remains nearly twice the level before the pandemic, leading to increased inflationary pressures in several emerging market economies such as Brazil and Mexico.
The report states: "Although inflation expectations remain stable this time, the next time may be more difficult as workers and businesses will be more vigilant in protecting their living standards and profits."
Low-income countries with a larger proportion of food and energy costs in household expenditure are also more sensitive to commodity price surges that could lead to higher inflation. Poorer countries are already under greater pressure to repay sovereign debt, which could further limit funding for public projects.
*Market volatility is one of the main downside risks*
The International Monetary Fund's report states that increased financial volatility is another threat to global economic growth. The IMF believes that the sudden market sell-off that occurred in early August is a key risk looming over the economic outlook. The IMF said that although the market has stabilized since the brief decline in August, driven by the unwinding of yen carry trades and weaker-than-expected U.S. employment market data, concerns remain.
The report states: "The financial market volatility that occurred again this summer has reignited old concerns about potential vulnerabilities. This has intensified concerns about the appropriate monetary policy stance."
In the final stage of fighting inflation, the global financial market may face more challenges. If underlying inflation remains stubborn, market turmoil and contagion will be a key risk — a key risk for low-income countries that are already under pressure from high sovereign debt and fluctuations in the foreign exchange market.
Other downside risks include geopolitical concerns, especially conflicts in the Middle East and the potential for commodity prices to soar. The IMF said that interest rates being maintained at excessively high levels for too long, as well as the rise of global trade protectionism, are other threats to prosperity.In the long term, the outlook is even more bleak. The International Monetary Fund (IMF) predicts that by the end of the 2020s, the global economy's annual growth rate will reach 3.1%, the lowest level in decades. Although the weakening economic prospects of China have affected medium-term forecasts, the deterioration of economic prospects in Latin America and Europe have also impacted medium-term predictions. Structural headwinds such as low productivity and an aging population also limit growth prospects.
"The largest emerging markets and developing economies are expected to slow down, which means that the path to narrowing the income gap between poor and rich countries will be longer. Stagnant economic growth may also further exacerbate income inequality within economies," the IMF warns.