The International Monetary Fund (IMF) has downgraded its forecast for global economic growth due to ongoing threats from higher interest rates, the war in Ukraine, and the recent violence in the Middle East. This could make a struggling Caribbean region face higher fuel and food prices.
The IMF predicts that global gross domestic product will grow just 2.9% in 2024, which represents a 0.1% decline from its previous forecast in July. Inflation remains a concern, with the IMF projecting that global headline inflation will increase to 5.8% in 2024.
The IMF warns that monetary policy needs to remain tight in most places until inflation is durably coming down towards targets.
A 10% spike in oil prices would reduce global economic growth by 0.15% and increase global inflation by 0.4%. Despite the headwinds, the IMF said the world economy has displayed remarkable resilience.
What are the potential risks to the global economy from the Israel-Gaza war?
According to the IMF Chief Economist Pierre-Olivier Gourinchas, it is “too early” to assess the long-term economic impact from the days-old war between Israel and the Palestinian militant group Hamas.
However, Gourinchas noted that oil prices have surged by about 4% over the past several days, and a 10% spike in oil prices would reduce global economic growth by 0.15% and increase global inflation by 0.4%. This reflects the potential risk that there could be disruption either in production or transport of oil in the region. Therefore, the IMF is monitoring the situation closely.
How is inflation affecting the global economy and what is the IMF’s recommendation for monetary policy?
According to the IMF’s latest World Economic Outlook, inflation has been steadily declining since mid-2022 in the face of tighter monetary policy, but price pressures remain elevated, leaving household budgets strained.
The IMF projected that global headline inflation will increase to 5.8% in 2024, up from the 5.2% the institution estimated just a few months ago. The IMF recommends that monetary policy needs to remain tight in most places until inflation is durably coming down towards targets.
The IMF Chief Economist Pierre-Olivier Gourinchas said, “We’re not quite there.” Returning inflation to target levels is expected to take until 2025 in most cases.
