The International Monetary Fund has cut its forecast for global inflation next year, and called on central banks to maintain tight policies until price pressures ease permanently.
The IMF has raised its forecast for global consumer price inflation to 5.8% next year, up from 5.2% forecast three months ago.
In most countries, the IMF, which is responsible for monitoring the global economy , predicts inflation will remain above target until 2025.
The forecasts are a highly anticipated event at the annual meetings of the IMF and World Bank, taking place this week in Marrakech, Morocco, as recent developments in the Middle East have highlighted growing global instability.
Central banks in major economies have been raising interest rates aggressively for more than a year to rein in inflation, with prices rising as high as 8.7% globally in 2022 - the highest since the mid-1990s.
“Monetary policy needs to be tightened in most regions until inflation falls to target on a sustained basis,” said Pierre-Olivier Gourinchas, chief economist at the IMF.
The rise in inflation was driven by factors including supply chain disruptions due to COVID-19; fiscal stimulus in response to global shutdowns; tight labor markets in the US; and food and energy disruptions due to the conflict in Ukraine.
The IMF forecasts global economic growth of 2.9% next year, down 0.1% from its July outlook and below the 3.8% average of the two decades before the pandemic. The forecast for 2023 is unchanged at 3%.
Since April, the IMF has warned that the medium-term outlook has weakened. Factors that weigh on growth include the long-term consequences of the pandemic; the conflict in Ukraine; the fragmentation of the global economy into blocs; and tightening central bank policies.
“We see the global economy limping along and not really picking up speed,” said Mr. Gourinchas.
Despite the low but still relatively stable global growth outlook, the IMF sees a high likelihood that central banks can contain inflation without tipping the world into recession.
However, the stability of the IMF's aggregate growth forecasts masked some important changes in the individual country forecasts it underpins. The United States, the world's largest economy, raised its forecast for this year to 2.1% from 1.8% in July, and its estimate for next year rose to 1.5% from 1%.
The IMF forecasts that the US unemployment rate will peak at 4% in the fourth quarter of 2024 - lower than the 5.2% forecast in April, "consistent with a softer-than-previously expected US economic landing".
Euro area growth estimates were also cut to 0.7% through 2023 from a previous estimate of 0.9% and to 1.2% in 2024 from a forecast of 1.5%.
Japan’s economic growth this year is forecast to accelerate to 2% from 1.4% previously, supported by a surge in tourism , supportive policies and a recovery in auto exports that had been hampered by supply chains.
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