IMF Global Outlook: Rates, Growth, and Risks in 2024-2025

The tightening stance from major central banks to curb inflation is yielding results. The IMF notes that further rate increases may be needed, but warns against premature reductions that could waste the gains of the past year and a half. The policy margin remains slim.

This conclusion comes from the Global Economic Outlook report presented by the IMF in Marrakech, arriving weeks ahead of the European Central Bank’s October 26 decision and the U.S. Federal Reserve’s November 1 review.

The IMF urges a stepwise withdrawal of broad fiscal supports such as energy subsidies, favoring targeted aid for the most vulnerable groups.

The document highlights a recovery that followed the pandemic and the disruptions from the Ukraine conflict, describing growth as slow and uneven. It notes that risks to the outlook have become more balanced since six months ago, yet those risks can still tilt the balance toward a weaker horizon.

For this year, and in line with the IMF’s July projection, global growth is seen at 3 percent, with a forecast for 2024 around 2.9 percent as the trajectory remains fragile.

The IMF trims Spain’s 2024 growth forecast to 1.7 percent

The report also flags the global growth path over the medium term, projecting about 3.1 percent over five years, a pace not seen in decades. In this dim outlook, the strongest risks lie in emerging and developing economies, where recovery could stall and fragmentation could rise. The IMF cautions that the chance of a broad rise in living standards remains limited.

The conflict between Israel and the Palestinians

The Global Economic Outlook, released in Marrakech, was written before the latest hostilities erupted. The IMF’s chief economist, Pierre-Olivier Gourinchas, noted it is too soon to judge the full economic impact, expressing hope that tensions will ease. He also pointed to possible oil-price pressures if the conflict escalates, and the IMF’s early estimates suggest a 10 percent rise in oil could shave about 0.15 percentage points from global growth and push inflation up by roughly 0.4 percentage points. Still, conclusions are premature at this stage.

Rates and inflation

The IMF emphasizes that rapid rate hikes over the past 18 months were needed to counter inflation. It urges prudence to avoid premature cuts that could trigger recessions. Beyond monetary policy, the decline in inflation is also tied to softer prices for agricultural and mining commodities on international markets.

While global inflation is expected to ease further, it remains uncomfortably high in many cases and is not projected to reach target levels in most regions until 2025. Underlying pressures may warrant higher policy rates than anticipated, sustaining the need for vigilance.

Across regions, growth forecasts diverge between advanced economies and those that are developing or emerging. The report notes that new climate or geopolitical shocks could push food and energy prices higher again.

Monetary and fiscal policy coordination remains essential. The IMF urges steady buffers and careful pacing of tax measures, aiming to phase out broad subsidies while protecting vulnerable households as energy and food prices fluctuate widely.

Weak growth in Europe

Most advanced economies are expected to slow this year, while the United States shows renewed momentum. The forecasts have been raised slightly for this year and the next, but growth in the euro area remains weaker than earlier projections. In this context, 2024 growth could be revised lower by a few tenths, staying around 0.7 percent this year and edging up to about 1.2 percent in the following year.

China and climate change

The outlook faces additional risks, including a possible slowdown in China where the housing downturn could deepen. The IMF also warns that extreme heat and drought, now occurring at record levels, may challenge crops and food security worldwide, potentially lifting prices and affecting affordability in various countries.