IMF warns on inflation risk, clips growth forecasts, but sees US resilience

NEW YORK (October 10) The International Monetary Fund warned Tuesday that the battle to tame global inflation has not yet been won, and urged central banks to keep interest rates elevated as price pressures impose restricts on economic growth over the coming year. In its annual World Economic Outlook report, published Tuesday ahead of its annual meeting in Marrakech, Morocco, the IMF boosted its forecast for global inflation next year to 5.8%, up from the 5.2% estimate it released earlier this summer.

The Fund also clipped growth forecasts for both Europe and China, and lowered its 2024 global GDP estimate to 2.9%, from its prior prediction of 3%, despite what it called the "remarkable strength" of the US economy." "Despite economic resilience earlier this year, with a reopening rebound and progress in reducing inflation from last year’s peaks, it is too soon to take comfort," the IMF said. "Economic activity still falls short of its pre-pandemic path, especially in emerging market and developing economies, and there are widening divergences among regions."

"Near-term inflation expectations have risen and could contribute – along with tight labor markets – to core inflation pressures persisting and requiring higher policy rates than expected," the re. More climate and geopolitical shocks could cause additional food and energy price spikes."

The IMF, in a nod to the U.S. resilience, lifted its 2024 GDP forecast for the world's biggest economy by 0.5 percentage points, to 1.5%, noting it will be the only major global market that rises past nominal levels reached prior to the Covid pandemic. The Fund did note, however, that the U.S. fiscal situation has "deteriorated substantially" this year, adding that the Biden Administration's pro-growth policies could add to further inflation pressures.

Lexington Herald Leader