Geopolitical tensions, trade wars and falling migration among key threats to world economy, says IMF
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The battle against inflation is almost won, chief economist of the International Monetary Fund (IMF) Pierre-Olivier Gourinchas has said, with geopolitical tensions, potential new trade wars and falling migration into developed countries now among the key risks facing the world economy.
Speaking at a press conference following the publication of the IMF's latest World Economic Report, Mr Gourinchas said risks are now tilted to the downside, with the organisation warning of lacklustre GDP growth for 2024.
The IMF said global output will expand to 3.2%, 0.1 percentage point slower than a July estimate, leaving the projection for this year unchanged at 3.2%. It added that inflation, which has largely been tamed, will slow to 4.3% next year from 5.8% in 2024.
"There is geopolitical risk, with the potential for escalation of regional conflicts,” that could affect commodity markets, Mr Gourinchas said. “There is a rise of protectionism, protectionist policies, disruptions in trade that could also affect global activity.”
While refraining from mentioning the US election explicitly, the contest continues to loom over meetings, with vows by Donald Trump to impose tariffs of up to 60% on certain imports - a move that would likely induce inflation and risk retaliation from other countries - remaining a cause of concern for policymakers.
"Not only would an intensification of protectionist policies exacerbate global trade tensions and disrupt global supply chains, but it could also weigh down medium-term growth prospects by limiting positive spillovers from innovation and technology transfer, which fueled growth in emerging market and developing economies as globalization took off," the IMF said.
The fund also flagged several concerns about global public debt, urging governments to stabilise debts amid "increasing signs of slippage."
In terms of next year’s outlook, the IMF's forecast for the euro area was downgraded to 1.2%, 0.3% lower than in July, due to persistent weakness in manufacturing in Germany and Italy.
Britain's long-suffering growth outlook got a boost of 0.4% for 2024 as falling inflation and lower interest rates are expected to stoke consumer demand.
For the US, The fund boosted this year's estimate to 2.8% and next year's to 2.2% on stronger consumption.
The IMF also applauded central banks for slowing inflation falling into a recession, which Mr Gourinchas called “a major accomplishment.”
Still, the IMF warned that the world faces risks from monetary policy hitting growth more than intended, worsening sovereign debt pressures in emerging and developing economies, and renewed spikes in food and energy prices due to climate shocks, war and geopolitical tensions.
Other risks outlined in the report included the potential for a spike in prices of oil and other commodities should conflicts in the Middle East and Ukraine widen.
Mr Gourinichas also warned against falling migration levels in developed countries, with the IMF noting that a drop across the US and euro area "permanently reduces potential output in both regions and raises inflation along the adjustment path."
Social unrest was also listed as a key risk by the IMF, noting rises in protests, riots and major demonstrations.
While they remain fewer in number than the recent peak in late 2019, the fund warned that a resurgence of social turmoil, potentially driven by higher inflation, taxes, loss of purchasing power, spillovers from conflicts and rising inequality could slow economic growth, particularly in countries with more limited scope to cushion the impact through policies.