The Global Economic Outlook was released at the Annual Meetings of the IMF and World Bank from Monday to Saturday in Washington, DC. The event brings together the world's leading economic and financial experts to discuss the global economy.

Inflation continues to decline

At the opening of the IMF-WB meetings, IMF Managing Director Kristalina Georgieva said that one of the most encouraging signs for the global economy is positive results in fighting inflation in many major economies.

According to IMF data, the US’s annual rate of inflation was 2.4% in September, the lowest since February, 2021. In the Eurozone, inflation in September fell to 1.8%, lower than the 2% target set by the European Central Bank. The UK’s inflation rate dropped to 1.7%. I

“The battle against inflation is almost won.  After peaking at 9.4% year on year in the third quarter of 2022,  we now project headline inflation will fall to 3.5% by the end of next year.  In most countries, inflation is now hovering close to central bank targets. Inflation came down while the global economy remained resilient,” MF Chief Economist Pierre-Olivier Gourinchas said.

Positivity in fighting inflation does not go hand in hand with economic growth outlook. The IMF kept its global economic growth projection for this year at 3.2% as in the July forecast, but lowered the forecast for next year to 3.2%, 0.1 percentage points lower than the previous forecast, mainly due to the weakness of the Eurozone economies and Chinese economic uncertainties. The medium-term prospect is an average of 3.1% in the next five years, much lower the pre-COVID-19 growth rate.

“Medium-term growth is forecast to be lackluster, not sharply lower than pre-pandemic, but far from good enough. Not enough to eradicate world poverty, nor to create the number of jobs we require, nor to generate the tax revenues that governments  need to service heavy debt loads, while attending to vast investment needs, including for the green transition,” IMF Managing Director Georgieva said.

Geopolitical risks and trade disruption

IMF economists fear a possible price hike for oil and other commodities if the conflicts in the Middle East and Ukraine spread. Ms. Georgieva said the IMF’s warnings in 2019 of global trade disruption are becoming a reality, making trade no longer the growth driver it was before.

“The main downside risks that we see are this year’s escalation of geopolitical conflicts or a ratcheting up of trade protectionism or we see more weakening in labor markets than what we expect in the baseline or that we see a renewed bound of financial market turbulence,” Petya Koeva-Brooks, Deputy Director of the IMF’s Research Department, said.

A shortage of capital has been a big threat to global economic growth since fighting began in Ukraine in February, 2022, and in Gaza in October, 2023. IMF experts are wary of trade wars when big economies increase import and export tariffs and take retaliatory measures. The IMF says that if the Eurozone and China impose an additional tariff of 10% on each other and the US applies a 10% “universal” tariff on all US imports, it may further reduce the global GDP forecast by 0.8% in 2025 and 1.3% in 2026.

Trade tension between the EU and China has intensified recently around Chinese electric vehicles and the imposition of retaliatory tariffs on each other. The US presidential election in November is expected to heavily impact the global economy, as both Democratic candidate Kamala Harris and Republican candidate Donald Trump have pledged to make many changes in US policies.

However IMF Managing Director Kristalina Georgieva said the US administration will pursue practical policies. No matter who wins, the next President will not ignore the current global economic situation.