World Stock Watch

Global Economy Navigates a Delicate Balance

The world economy is walking a tightrope, having successfully tamed inflation but now facing rising geopolitical risks and sluggish long-term growth prospects. According to the International Monetary Fund (IMF), global headline inflation is expected to drop to 3.5% by the end of 2025, down from an average of 5.8% in 2024.

Inflation: A Battle Almost Won

The IMF’s World Economic Outlook reports that the global battle against inflation is nearly won, thanks to responsive monetary policy and normalized labor market conditions. However, the fund warns that services inflation remains a concern, with wages in certain countries still catching up to the increased cost of living.

Growth Prospects: Stable but Underwhelming

The IMF maintains its global growth estimate at 3.2% for 2024 and 2025, describing it as “stable yet underwhelming.” While the United States is expected to see faster growth, and emerging Asian economies are likely to experience robust expansions, other advanced economies and several emerging markets are forecast to slow down.

Risks and Challenges Ahead

The IMF identifies several downside risks, including:

• Geopolitical concerns, such as the Middle East conflict and potential spikes in commodity prices
• Market turbulence and contagion if underlying inflation remains stubborn
• A potentially deeper Chinese property market contraction
• Interest rates remaining too high for too long
• Rising protectionism in global trade

Long-Term Growth Prospects: A Murky Outlook

The IMF forecasts global growth to rise by 3.1% annually at the end of the 2020s, the lowest level in decades. Structural headwinds such as low productivity and aging populations are limiting growth prospects, and projected slowdowns in emerging markets imply a longer path to closing income gaps between poor and rich countries.

Navigating the Challenges Ahead

As the global economy navigates this delicate balance, policymakers must remain vigilant and adapt to changing circumstances. The IMF calls for a “policy triple pivot” to address interest rates, government spending, and reforms and investment to boost productivity. By working together, we can mitigate the risks and challenges ahead and promote a more sustainable and equitable economic future.