World Economic Outlook April 2024: Steady Growth, Regional Divergence

The global economy is poised for continued growth, with projections indicating a steady expansion of 3.2% during both 2024 and 2025. This growth trajectory mirrors the rate observed in the preceding year, 2023. However, beneath this overall stability lie nuanced trends across different regions and economic categories.

Growth Expectations

1. Advanced Economies

Modest Acceleration Amidst Challenges

Advanced economies are expected to see a slight acceleration in growth, rising from 1.6% in 2023 to 1.7% in 2024 and further to 1.8% in 2025. This modest improvement reflects a complex interplay of factors:

• Technological Advancements: Innovation and digital transformation continue to drive productivity and growth.
• Consumer Spending: Resilient consumer demand, supported by accumulated savings during the pandemic, bolsters economic activity.
• Monetary Policy: Central banks’ efforts to stabilize prices are expected to gradually lead to a conducive environment for growth.

However, this growth is tempered by several challenges:

• Inflationary Pressures: While inflation is on a downward trajectory, the return to target levels is gradual, necessitating careful monetary policy calibration.
• Fiscal Consolidation: The need for fiscal prudence, especially in the context of high government debt, may constrain public spending and investment.
• Structural Frictions: Persistent structural issues, such as labor market rigidities and demographic shifts, continue to pose hurdles to rapid growth.

Policy Implications

Policymakers in advanced economies are encouraged to focus on:

• Supply-Enhancing Reforms: To boost productivity and growth potential.
• Investment in Innovation: To capitalize on the benefits of new technologies.
• Fiscal Responsibility: To ensure debt sustainability and economic stability.

2. Emerging Economies

Slight Deceleration with Varied Prospects

Emerging market and developing economies (EMDEs) are projected to experience a modest slowdown, with growth rates declining from 4.3% in 2023 to 4.2% in both 2024 and 2025. This deceleration is attributed to:

• External Vulnerabilities: Exposure to global financial conditions and trade disruptions.
• Domestic Constraints: Challenges in governance, infrastructure, and human capital development.
• Geopolitical Tensions: Ongoing conflicts and trade tensions that affect commodity prices and supply chains.

Despite these headwinds, EMDEs continue to be a significant driver of global growth, with their collective economic activity contributing substantially to the world economy.

Regional Variations

The growth prospects for EMDEs are not uniform, with significant regional variations:

• Asia: Led by countries like India and Southeast Asian nations, which are expected to maintain robust growth trajectories.
• Latin America: Facing mixed prospects due to political uncertainty and commodity price volatility.
• Africa: Poised for growth, albeit constrained by infrastructure deficits and governance issues.

Policy Recommendations

For EMDEs, the report emphasizes the importance of:

• Macroeconomic Stability: To attract investment and sustain growth.
• Structural Reforms: To improve governance, infrastructure, and education.
• Global Cooperation: To address challenges such as climate change and trade barriers.

The World Economic Outlook April 2024 underscores a period of steady but slow growth for the global economy. Advanced economies are set to experience a modest uptick in growth, while emerging markets face a slight deceleration. The path ahead calls for strategic policy interventions, structural reforms, and international cooperation to navigate the complexities of the global economic landscape.

Inflation Trends

The IMF’s latest projections indicate that global inflation is on a steady downward trajectory. Here are the key points:

Baseline Projections

The baseline forecast suggests that the world economy will continue growing at a rate of 3.2% during both 2024 and 2025, maintaining the same pace observed in 2023. However, beneath this overall stability lie nuanced trends across different regions and economic categories.

• Advanced Economies: These are projected to experience a slight acceleration in growth. Factors contributing to this include technological advancements, resilient consumer spending, and accommodative monetary policies.
• Emerging Markets and Developing Economies (EMDEs): EMDEs, on the other hand, may encounter a modest deceleration. Structural challenges, demographic shifts, and varying policy responses contribute to this divergence.

Inflation Trajectory

Global inflation is forecasted to decline steadily. In 2023, global inflation stood at 6.8%, by 2024, it is projected to decrease to 5.9% and further down to 4.5% in 2025. Notably, advanced economies are expected to return to their inflation targets ahead of their emerging counterparts. This divergence reflects varying economic contexts and policy approaches. Even despite significant interest rate hikes by central banks aimed at restoring price stability, the global economy has demonstrated remarkable resilience. The global economy’s resilience in the face of substantial central bank interest rate hikes is a testament to its robustness and adaptability. 

The World Economic Outlook April 2024 underscores the importance of monitoring inflation trends, implementing prudent policies, and fostering global cooperation to sustain economic resilience and growth. The path forward requires strategic responses to both short-term challenges and long-term structural frictions.

Medium-Term Growth Outlook

In the World Economic Outlook released in April 2024, the International Monetary Fund (IMF) presents an analysis of the global economy’s trajectory over the medium term. The report projects a consistent growth rate of 3.2% for the years 2024 and 2025, which aligns with the growth observed in 2023. This projection, however, is below the historical annual average of 3.8% from 2000 to 2019.

The IMF attributes this moderated growth outlook to a combination of factors, including restrictive monetary policies, the withdrawal of fiscal support, and a plateau in underlying productivity growth. Despite these headwinds, the global economy has shown a surprising level of resilience, supported by favorable supply developments and a return of inflation to target levels.

The report also sheds light on the balanced distribution of risks around the baseline projection for global growth. This marks a shift from the previous year, where risks were predominantly downside. The IMF’s chief economist, Pierre-Olivier Gourinchas, notes that while there are potential downside risks such as geopolitical tensions and persistent core inflation, there are also upside possibilities. These include more expansionary fiscal policies than currently anticipated, faster-than-expected disinflation, and productivity boosts from advances in artificial intelligence and timely structural reforms.

The IMF advises that monetary policy should be carefully calibrated to individual countries’ circumstances to ensure a smooth convergence of inflation to target levels. Additionally, heightened attention is now required for rebuilding fiscal buffers to guard against future shocks, making room for priority investments, and ensuring debt sustainability. Intensifying supply-enhancing reforms is also recommended to facilitate inflation and debt reduction and allow economies to increase growth towards higher pre-pandemic averages.

Furthermore, the IMF underscores the importance of strengthening multilateral cooperation to make progress on common goals such as climate change and to mitigate the costs of geoeconomic fragmentation.

In essence, the WEO April 2024 offers a cautious yet hopeful outlook for the medium-term global economy, emphasizing the need for strategic policy adjustments and international collaboration to navigate the challenges ahead and harness potential growth opportunities.

Recommendations for Policymakers

The WEO outlines a series of policy recommendations aimed at ensuring steady growth and addressing the challenges faced by the global economy. These recommendations are centered around the following key areas:

• Monetary Policy Adjustments: Policymakers are advised to ensure that inflation “touches down smoothly,” indicating a gradual approach to achieving price stability without disrupting economic growth. This involves a careful calibration of interest rates and other monetary tools to avoid sudden shocks to the financial system.

• Fiscal Consolidation: A renewed focus on fiscal consolidation is necessary to rebuild room for budgetary maneuver and priority investments. This entails prudent management of public finances to ensure long-term debt sustainability and create fiscal space for future economic stimulus if needed.

• Supply-Enhancing Reforms: Intensifying supply-enhancing reforms is crucial to increase growth towards the higher pre-pandemic era average and accelerate income convergence. These reforms include measures to improve productivity, encourage innovation, and facilitate resource allocation to productive sectors.

• Multilateral Cooperation: The WEO emphasizes the need for multilateral cooperation to limit the costs and risks associated with geoeconomic fragmentation and climate change. This includes efforts to speed up the transition to green energy and facilitate debt restructuring among nations.

• Global Disinflation and Economic Resilience: The report reflects on the global disinflation of 2022–23 and the surprising resilience of economic activity during this period. It suggests that with inflationary pressures abating more swiftly than expected in many countries, risks to the global outlook are now broadly balanced compared with last year.

• Addressing Global Disparities: The pace of expansion is expected to be low by historical standards, and the speed of convergence toward higher living standards for middle- and lower-income countries has slowed. This implies persistent global disparities that policymakers must address through targeted interventions.

The policy recommendations provided in the WEO April 2024 are designed to guide policymakers through the current economic challenges and towards a path of sustainable growth. By focusing on monetary policy adjustments, fiscal consolidation, supply-enhancing reforms, and multilateral cooperation, policymakers can help ensure a stable and prosperous global economy.

Thanks for Reading 🙏

Connect with the Author on LinkedIn 

Source: IMF Report

Follow FinGlimpse on Twitter, Instagram, LinkedIn, Flipboard, WhatsApp, Telegram