The International Monetary Fund (IMF) has declared that the global war against inflation has largely been won, with a predicted slowdown in inflation from 6.7% last year to 5.8% this year and 4.3% in 2025. This decrease in inflation has led major central banks like the Federal Reserve and the European Central Bank to cut interest rates after aggressively raising them to combat inflation. The IMF’s chief economist, Pierre-Olivier Gourinchas, stated that the battle against inflation is almost won, with most countries close to central bank targets.
Inflation had accelerated as the world economy recovered from the COVID-19 recession, causing shortages, delays, and higher prices. However, the high borrowing rates implemented by major central banks, along with the resolution of supply chain challenges, led to a significant decrease in inflation from the highs of mid-2022. Surprisingly, the economy, especially in the United States, continued to grow and employers kept hiring despite higher borrowing costs.
The IMF upgraded its economic expectations for the United States, predicting a 2.8% expansion this year fueled by strong consumer spending and inflation-adjusted wage gains. The growth is an improvement from previous forecasts and is expected to slow down slightly in 2025 as the government seeks to curb budget deficits through spending cuts or tax increases. China’s economic growth is projected to slow from 5.2% to 4.5% in 2025 due to challenges in the housing market and weak consumer confidence.
European countries using the euro currency are expected to have modest growth, with Germany facing stagnant growth this year. As interest rates come down and government deficits need to be contained, the IMF warns that growth may be hindered. The global economy is expected to grow by 3.2% in both 2024 and 2025, a decrease from pre-pandemic levels. Geopolitical tensions, particularly between the United States and China, may impact world trade efficiency, although global trade volume is expected to increase in the coming years.
The IMF also highlighted potential risks to economic growth, including reduced immigration affecting labor shortages and armed conflicts in regions like Ukraine and the Middle East. India’s economy is expected to slow down slightly, while Japan’s growth is forecasted to be meager due to production issues in the auto industry. The United Kingdom is expected to see an increase in growth driven by falling interest rates stimulating consumer spending.
Overall, the IMF’s assessment of the global economy points to a successful battle against inflation with minimal impact on economic growth. As countries navigate challenges like geopolitical tensions and potential conflicts, the focus will be on sustaining growth through policy measures and addressing key economic indicators to ensure stability and progress in the years ahead.
