Global GDP growth approaches soft landing

The GDP growth projection is based on easing inflation, which is falling faster than expected in most regions.
Global headline inflation is expected to decrease to 5.8% in 2024 and 4.4% in 2025, with the 2025 forecast revised down.
In sub-Saharan Africa, growth is projected to increase from an estimated 3.3 percent in 2023 to 3.8% in 2024 and 4.1% in 2025.

The International Monetary Fund (IMF) projects global GDP growth at 3.1 per cent in 2024 and 3.2 per cent in 2025, with the 2024 forecast being 0.2 percentage points higher than that in October of last year.

This is due to greater-than-expected resilience in the United States and several large emerging market and developing economies, along with fiscal support in China.

However, the forecast for 2024–25 is still below the historical average (2000–19) of 3.8 percent. Elevated central bank policy rates to combat inflation, a withdrawal of fiscal support amid high debt weighing on economic activity, and low underlying productivity growth contribute to this situation.

“Inflation is falling faster than expected in most regions, amid the unwinding of supply-side issues and restrictive monetary policy,” the lender says.

Commodity price spikes

Further, stronger momentum in structural reforms could enhance productivity with positive cross-border spillovers.

On the downside, new commodity price spikes resulting from geopolitical shocks, including continued attacks in the Red Sea and supply disruptions, or more persistent underlying inflation, could prolong tight monetary conditions.

“Deepening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts could also cause growth disappointments,” it adds.

The policymakers’ near-term challenge is to successfully manage the final descent of inflation to the target, calibrating monetary policy in response to underlying inflation dynamics and adjusting to a less restrictive stance where wage and price pressures are clearly dissipating.

At the same time, in many cases, with inflation declining and economies better able to absorb the effects of fiscal tightening, a renewed focus on fiscal consolidation is needed. This is to rebuild budgetary capacity to deal with future shocks, raise revenue for new spending priorities, and curb the rise of public debt.

The lender also believes that targeted and carefully sequenced structural reforms would reinforce productivity growth and debt sustainability, accelerating convergence toward higher income levels.

“More efficient multilateral coordination is needed for, among other things, debt resolution, to avoid debt distress and create space for necessary investments, as well as to mitigate the effects of climate change.”

GDP growth outlook in Sub-Saharan Africa

In sub-Saharan Africa, growth is projected to rise from an estimated 3.3 percent in 2023 to 3.8 percent in 2024 and 4.1 percent in 2025.

This as the negative effects of earlier weather shocks subside and supply issues gradually improve.

In emerging market and developing economies, growth is expected to remain at 4.1 per cent in 2024 and to rise to 4.2 per cent in 2025. The upward revision of 0.1 percentage point for 2024 since October 2023 reflects upgrades for several regions.

As inflation declines toward target levels across regions, the near-term priority for central banks is to deliver a smooth landing, neither lowering rates prematurely nor delaying such lowering too much.

With inflation drivers and dynamics differing across economies, policy needs for ensuring price stability are increasingly differentiated.

At the same time, in many cases, amid rising debt and limited budgetary room to maneuver, and with inflation declining and economies better able to absorb effects of fiscal tightening, the lender says a renewed focus on fiscal consolidation is needed.

“Intensifying supply enhancing reforms would facilitate both inflation and debt reduction and enable a durable rise in living standards.”