However, notable revisions have taken place underneath, with upgrades to the forecast for the United States offsetting downgrades to those for other advanced economies—in particular, the largest European countries.

Disruptions to production and shipping of commodities—especially oil, conflicts, civil unrest, and extreme weather events in emerging market and developing economies 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 growth has been bolstered.

The latest forecast for global growth five years from now––at 3.1 per cent—remains mediocre compared to the pre-pandemic average. Persistent structural headwinds like population aging and weak productivity are holding back potential growth in many economies. 

Cyclical imbalances have eased since the beginning of the year, leading to a better alignment of economic activity with potential output in major economies, the IMF said in the WEO’s executive summary.

This adjustment is bringing inflation rates across countries closer together and on balance has contributed to lower global inflation.

Global headline inflation is expected to fall from an annual average of 6.7 per cent in 2023 to 5.8 per cent in 2024 and 4.3 per cent in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies. Goods prices have stabilised.

Risks to the global outlook are tilted to the downside amid elevated policy uncertainty. Sudden eruptions in financial market volatility—as experienced in early August this year—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, the IMF noted.

Further disruptions to the disinflation process could prevent central banks from easing monetary policy, and that may pose significant challenges to fiscal policy and financial stability, it said.

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 spillovers given China’s large footprint in global trade.

A rise in protectionist policies would aggravate trade tensions, reduce market efficiency and further disrupt supply chains, the IMF document added.

Fibre2Fashion News Desk (DS)