by Kari Grenade, PhD, Regional Economist and Macroeconomic Advisor
On 30 January 2024, the International Monetary Fund (IMF) released an update to its economic forecasts that were published in its World Economic Outlook (WEO) in October 2023.
The WEO provides a comprehensive assessment of global economic performance and prospects covering selected macroeconomic data for major country groupings as well as for individual countries. The IMF publishes its WEO in April and October, with updates in January and July.
The salient message in the January Update is that global growth is holding steady, and inflation is falling faster than anticipated. The IMF’s projection for global growth this year is 3.1%, 0.2 percentage points higher than its October projection. The upward revision in the global growth forecast reflects relatively robust demand and supply conditions in the second half of 2023 in major Advanced Economies and large Emerging Market Economies, which the IMF expects to be carried over into 2024. On the demand side, relatively strong public and private spending helped to offset some of the dampening effects on growth from high-interest rates. While supply side factors including lower commodity prices, higher labour force participation, and less supply chain disruptions all helped to buoy growth.
Regarding the world’s 2 largest economies, the USA and China respectively, the IMF projects growth of 2.1% this year for the USA and 4.6% for China, upward revisions of 0.6 percentage points and 0.4 percentage points correspondingly relative to the October projections. Notwithstanding the slight upward revisions for both economies, the projected growth rates for 2024 are both slower than the estimated rates last year. In the case of the USA, the declaration relative to the 2023 estimate of 2.5% largely reflects the effects of tight monetary conditions (high-interest rates) that are still working their way through the economy, while China’s projected slow down relative to its estimated growth of 5.2% last year is explained by weak consumption and investment that are likely to hold back economic activity.
Overall, the global growth forecast for 2024 is 0.7 percentage points below the average of the past two decades and susceptible to acute downside risks, including renewed geopolitical uncertainties, probable hikes in commodity prices, and potential global spillovers from the challenges in China’s property market. Moreover, policy shifts that temporarily hamper economic activity can occur in the context of general elections to be held this year in over 60 countries worldwide, some of which with global economic significance such as the USA, India, South Africa, Russia, and Mexico. While general elections can pose downside risks to global growth, upside risks can also stem from looser fiscal policy in the lead-up to general elections, which can temporarily boost growth.
On inflation, global headline inflation (including food and energy prices) is receding, projected at 4.9% this year, 0.4 percentage points lower than the October projection. Core inflation (excluding food and energy prices) is also projected to decline. The IMF’s global inflation forecast excludes Argentina where inflation was estimated at 211.4% in 2023 according to the country’s statistics agency.
Importantly also, the IMF estimates that global interest rates would remain elevated at least until the second half of 2024 and growth in global trade will remain sluggish, estimated at 3.3% in 2024, well below its historical growth rates.
The Caribbean’s economic context is heavily influenced by global macroeconomic developments. Accordingly, positive (though tepid) global growth, especially in the economies of the region’s main trading partners for tourism, investment, and manufactured goods bodes well for the region’s economic prospects in 2024. Indeed, it appears that the global economy will experience a “soft landing” — a situation in which inflation is lowered without causing a spike in unemployment and a major economic downturn. This is positive news for Caribbean citizens as jobs and income levels in sectors such as tourism and travel, manufacturing, wholesale and retail trade, and real estate stand to benefit in the near term.
Additionally, the faster-than-expected decline in global inflation does not appear to be negatively impacting employment levels in Advanced Economies; considering this situation, economists have coined the new term “immaculate disinflation” — in other words, declining inflation without causing unemployment to spike. This is also a positive development for Caribbean citizens, as they are likely to benefit from decreasing price pressures (although not necessarily falling prices, but slower rate of price increases) in 2024, which should help to restore some purchasing power.
Nonetheless, the region’s economic prospects are vulnerable to many downside risks, including among several others, potential adverse effects arising from the Red Sea crisis; if the current crisis escalates and persists, the benefits of receding inflation could be short-lived. Additionally, the outcome of the general elections in the USA could also have significant implications for the Caribbean should there be major economic policy shifts.
Over the near term, policymakers must focus attention on safeguarding growth, strengthening public finances, and managing economic risks through appropriately calibrated policies. Keeping citizens informed of major economic decisions and developments through the publication of regular economic and fiscal reports is also important.
Very good article, Kari