The October 2024 update of the World Economic Outlook was launched during the IMF/World Bank annual meetings.

The report notes that global growth is expected to remain stable but at relatively low levels. The growth projection of 3.2% in 2024 and 2025 is almost unchanged from projections earlier this year; but includes an upgrade to the forecast for the US and downgrades to forecasts for the largest European countries.

In emerging market and developing economies, there have been downgrades to the forecasts for the Middle East, Central Asia and sub-Saharan Africa. These are due to disruptions to the production and shipping of commodities, especially oil, together with conflicts, civil unrest and extreme weather events. There have been upgrades to the forecast for the emerging countries of Asia, where growth has been strengthened by the rising demand for semiconductors and electronics, driven by significant investments in artificial intelligence.

The forecast for global growth five years from now is 3.1%, which is still lower than the pre-pandemic average. Structural problems including population ageing and weak productivity are slowing potential growth in many countries. Inflation rates across countries are coming closer together and global inflation has decreased. Global headline inflation is projected to decrease from an annual average of 6.7% in 2023 to 5.8% in 2024 and 4.3% in 2025. Developed countries will return to their inflation targets sooner than emerging market and developing economies. Goods prices have stabilized, but services price inflation remains high in many regions.

Various inflation stabilization policies have been implemented in the post-pandemic recovery. During the pandemic, most governments subsidized fuel and electricity and reduced value-added taxes, sales taxes, and excises on essential goods. However, subsidies have substantial fiscal costs, often fail to target the vulnerable and are not aligned with climate-change goals. They also distort relative prices which can lead to overconsumption of the subsidized goods, fuelling further price rises.

After the pandemic, many emerging markets and low-income countries reduced import taxes and imposed export restrictions to stabilize domestic prices. Import tax reduction lowers the price of imported goods and increases the domestic supply of the goods, whereas export restrictions can reduce domestic inflationary pressures. However, both policies cause adverse international effects by reducing global supply or increasing global demand, which can contribute to further price increases.

Price and wage freezes have been used to some extent since the pandemic, particularly in emerging markets and low-income countries. Their use has mostly been in relation to essential food items. These controls can often lead to unfavourable outcomes, such as the emergence of black markets and shortages.

Currently the risks to the global outlook are on the downside with increasing policy uncertainty. Sudden increases in financial market volatility could tighten financial conditions, affecting investment and growth, especially in developing economies where near-term external financing needs may trigger capital outflows. Further spikes in commodity prices due to persistent geopolitical tensions could prevent central banks from easing monetary policy, and this would give rise to challenges for fiscal policy and financial stability. A longer contraction in China’s property sector could weaken consumer confidence and cause negative global spillovers.

An intensification of protectionist policies would exacerbate trade tensions, reduce market efficiency, and further disrupt supply chains. Rising social tensions could prompt social unrest, hurting consumer and investor confidence and potentially delaying the passage and implementation of necessary structural reforms. As cyclical imbalances in the global economy wane, near-term policy priorities should be carefully calibrated to ensure a smooth landing. In many countries, shifting gears on fiscal policy is urgently needed to ensure that public debt is on a sustainable path and to rebuild fiscal buffers; the pace of adjustment should be tailored to country-specific circumstances.

Structural reforms are necessary to lift medium-term growth prospects, but support for the most vulnerable should be maintained. Multilateral cooperation is needed more than ever to accelerate the green transition and to support debt-restructuring efforts. Mitigating the risks of geoeconomic fragmentation and strengthening rules-based multilateral frameworks will be essential to ensure that all economies can reap the benefits of future growth.