Title Page
INTERNATIONAL MONETARY FUND
WORLD ECONOMIC OUTLOOK
Steady but Slow: Resilience amid Divergence
2024
APR
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©2024 International Monetary Fund
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Names: International Monetary Fund.
Title: World economic outlook (International Monetary Fund)
Other titles: WEO | Occasional paper (International Monetary Fund) | World economic and financial surveys.
Description: Washington, DC : International Monetary Fund, 1980- | Semiannual | Some issues also have thematic titles. | Began with issue for May 1980. | 1981–1984: Occasional paper / International Monetary Fund, 0251–6365 | 1986-: World economic and financial surveys, 0256–6877.
Identifiers: ISSN 0256–6877 (print) | ISSN 1564–5215 (online)
Subjects: LCSH: Economic development—Periodicals. | International economic relations— Periodicals. | Debts, External—Periodicals. | Balance of payments—Periodicals. | International finance—Periodicals. | Economic forecasting—Periodicals.
Classification: LCC HC10.W79
HC10.80
ISBN 979–8-40025–589-2 (English Paper)
979–8-40025–613-4 (English ePub)
979–8-40025–604-2 (English Web PDF)
Disclaimer: The World Economic Outlook (WEO) is a survey by the IMF staff published twice a year, in the spring and fall. The WEO is prepared by the IMF staff and has benefited from comments and suggestions by Executive Directors following their discussion of the report on April 3, 2024. The views expressed in this publication are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Directors or their national authorities.
Recommended citation: International Monetary Fund. 2024. World Economic Outlook— Steady but Slow: Resilience amid Divergence. Washington, DC. April.
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Errata
April 30, 2024
This web version of the WEO has been updated to reflect the following changes to the version published online on April 16, 2024:
- On page 24, 2nd column, last sentence: “efficiency gains from loss of specialization” was corrected to “efficiency losses from declines in specialization”
- On page 28, 2nd column, 1st paragraph and sentence: “25 basis points above headline” was corrected to “25 basis points above baseline”
- On page 135, 1st column and line: “from 2024 onward to determine the price of oil and gas revenues but sets the benchmark” was corrected to “from 2024 onward but sets the benchmark”
Contents
Assumptions and Conventions
Further Information
Data
Preface
Foreword
Executive Summary
Chapter 1. Global Prospects and Policies
Disinflation amid Economic Resilience
The Outlook: Steady Growth and Disinflation
Risks to the Outlook: Broadly Balanced
Globally Consistent Risk Assessment of the World Economic Outlook Forecast
Policies: From Fighting Inflation to Restocking Fiscal Arsenals
Box 1.1. Fragmentation Is Already Affecting International Trade
Box 1.2. Risk Assessment Surrounding the World Economic Outlook’s Baseline Projections
Commodity Special Feature: Market Developments and the Power of Prices
References
Chapter 2. Feeling the Pinch? Tracing the Effects of Monetary Policy through Housing Markets
Introduction
Monetary Tightening and Real Estate: Context and Stylized Facts
The Housing Channels of Monetary Policy Transmission
Housing Channels Vary Significantly across Countries
Housing Channels May Have Weakened in Many Countries
Policy Implications
Box 2.1. Interest Rate Pass-Through in Europe
Box 2.2. China’s Monetary Policy and the Housing Market
References
Chapter 3. Slowdown in Global Medium-Term Growth: What Will It Take to Turn the Tide?
Introduction
Insights from Medium-Term Forecasts
How Did We Get Here?
Where Is Growth Heading?
Conclusions and Policy Recommendations
Box 3.1. Allocative Efficiency: Concept, Examples, and Measurement
Box 3.2. Distributional Implications of Medium-Term Growth Prospects
Box 3.3. The Potential Impact of Artificial Intelligence on Global Productivity and Labor Markets
References
Chapter 4. Trading Places: Real Spillovers from G20 Emerging Markets
Introduction
G20 Emerging Markets in the Global Economy
Aggregate Spillovers in the Short Term
Spillovers from Trade and Global Value Chains
Can the Other G20 Emerging Markets Support Global Growth?
Conclusions and Policy Implications
Box 4.1. Industrial Policies in Emerging Markets: Old and New
Box 4.2. Capital Flows to G20 Emerging Markets and the Allocation Puzzle
Box 4.3. Spillovers from G20 Emerging Markets to Sub-Saharan Africa
References
Statistical Appendix
Assumptions
What’s New
Data and Conventions
Country Notes
Classification of Economies
General Features and Composition of Groups in the World Economic Outlook Classification
Table A. Classification by World Economic Outlook Groups and Their Shares in Aggregate GDP, Exports of Goods and Services, and Population, 2023
Table B. Advanced Economies by Subgroup
Table C. European Union
Table D. Emerging Market and Developing Economies by Region and Main Source of Export Earnings
Table E. Emerging Market and Developing Economies by Region, Net External Position, Heavily Indebted Poor Countries, and Per Capita Income Classification
Table F. Economies with Exceptional Reporting Periods
Table G. Key Data Documentation
Box A1. Economic Policy Assumptions underlying the Projections for Selected Economies
List of Tables
Output (Tables A1–A4)
Inflation (Tables A5–A7)
Financial Policies (Table A8)
Foreign Trade (Table A9)
Current Account Transactions (Tables A10–A12)
Balance of Payments and External Financing (Table A13)
Flow of Funds (Table A14)
Medium-Term Baseline Scenario (Table A15)
World Economic Outlook Selected Topics
IMF Executive Board Discussion of the Outlook, April 2024
Tables
Table 1.1. Overview of the World Economic Outlook Projections
Table 1.2. Overview of the World Economic Outlook Projections at Market Exchange Rate Weights
Table 1.2.1. Fiscal Impulse Relative to Baseline
Table 4.1. Sectors in G20 Economies with the Largest Employment Spillovers
Annex Table 1.1.1. European Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex Table 1.1.2. Asian and Pacific Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex Table 1.1.3. Western Hemisphere Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex Table 1.1.4. Middle East and Central Asia Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex Table 1.1.5. Sub-Saharan African Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex Table 1.1.6. Summary of World Real per Capita Output
Online Tables—Statistical Appendix
Table B1. Advanced Economies: Unemployment, Employment, and Real GDP per Capita
Table B2. Emerging Market and Developing Economies: Real GDP
Table B3. Advanced Economies: Hourly Earnings, Productivity, and Unit Labor Costs in Manufacturing
Table B4. Emerging Market and Developing Economies: Consumer Prices
Table B5. Summary of Fiscal and Financial Indicators
Table B6. Advanced Economies: General and Central Government Net Lending/Borrowing and General Government Net Lending/Borrowing Excluding Social Security Schemes
Table B7. Advanced Economies: General Government Structural Balances
Table B8. Emerging Market and Developing Economies: General Government Net Lending/Borrowing and Overall Fiscal Balance
Table B9. Emerging Market and Developing Economies: General Government Net Lending/Borrowing
Table B10. Selected Advanced Economies: Exchange Rates
Table B11. Emerging Market and Developing Economies: Broad Money Aggregates
Table B12. Advanced Economies: Export Volumes, Import Volumes, and Terms of Trade in Goods and Services
Table B13. Emerging Market and Developing Economies by Region: Total Trade in Goods
Table B14. Emerging Market and Developing Economies by Source of Export Earnings: Total Trade in Goods
Table B15. Summary of Current Account Transactions
Table B16. Emerging Market and Developing Economies: Summary of External Debt and Debt Service
Table B17. Emerging Market and Developing Economies by Region: External Debt by Maturity
Table B18. Emerging Market and Developing Economies by Analytical Criteria: External Debt by Maturity
Table B19. Emerging Market and Developing Economies: Ratio of External Debt to GDP
Table B20. Emerging Market and Developing Economies: Debt-Service Ratios
Table B21. Emerging Market and Developing Economies, Medium-Term Baseline Scenario: Selected Economic Indicators
Figures
Figure 1.1. Global Inflation Falling as Output Grows
Figure 1.2. Performance in 2022–23 Compared with Projections at Time of Cost-of-Living Crisis
Figure 1.3. Domestic- and Foreign-Born Workers in the Labor Force
Figure 1.4. Supply-Chain Pressures and Red Sea Tensions
Figure 1.5. Global Energy Price and Oil Supply
Figure 1.6. Near-Term Inflation Expectations Falling
Figure 1.7. Labor Markets Cooling
Figure 1.8. Decomposition of Inflation Drivers
Figure 1.9. Monetary Tightening: Nominal and Real
Figure 1.10. Savings from the Pandemic: Declining
Figure 1.11. Sovereign Bond Spreads in Emerging Market and Developing Economies
Figure 1.12. Elevated Debt and Deficits
Figure 1.13. Monetary and Fiscal Policy Projections
Figure 1.14. Growth Outlook: Broadly Stable
Figure 1.15. Inflation Outlook: Falling
Figure 1.16. Inflation Closer to Target
Figure 1.17. Global Trade Outlook: Stable
Figure 1.18. Current Account and International Investment Positions
Figure 1.19. Forecasts for Global GDP and GDP per Capita
Figure 1.20. Geopolitical Risk and Oil Prices
Figure 1.21. Sharper-than-Expected Fiscal Adjustment in the Euro Area, 2010–15
Figure 1.22. Confidence in Government, Parliament, and Political Parties
Figure 1.23. AI Performance on Human Tasks
Figure 1.24. Medium-Term Fiscal Adjustment
Figure 1.25. Drivers of Sovereign Debt Ratings in Emerging Market and Developing Economies
Figure 1.1.1. Fragmentation Affecting Trade
Figure 1.2.1. Distribution of Forecast Uncertainty around Global GDP Growth and Inflation Projections
Figure 1.2.2. Impact of Scenarios on GDP Level and Headline Inflation
Figure 1.SF.1. Commodity Market Developments
Figure 1.SF.2. Volatility of Commodity Prices
Figure 1.SF.3. Herfindahl Index by Commodity, 2021
Figure 1.SF.4. Common versus Idiosyncratic Factors in Commodity Demand and Supply
Figure 1.SF.5. Cumulative Supply and Demand Responses to a 1 Percent Price Increase
Figure 2.1. Nominal Policy Rates in Advanced Economies and Emerging Markets
Figure 2.2. Nominal House Prices in Advanced Economies and Emerging Markets
Figure 2.3. Commercial Real Estate Prices
Figure 2.4. Evolution of House Prices and Consumption in the Postpandemic Tightening Cycle
Figure 2.5. The Housing Channels of Monetary Policy
Figure 2.6. Heterogeneity in Mortgage Market Characteristics
Figure 2.7. Differential Effects of Monetary Policy Depending on Mortgage Market Characteristics
Figure 2.8. Differential Effects of Monetary Policy on Consumption Depending on Shares of Fixed-Rate Mortgages
Figure 2.9. Effects of Monetary Policy on Consumption
Figure 2.10. Differential Effects of Monetary Policy Depending on Local Housing Market Characteristics
Figure 2.11. Differential Effects of Monetary Policy on House Prices Depending on Supply Restrictions
Figure 2.12. Heterogeneity in Monetary Policy Transmission
Figure 2.13. Changes in the Share of Fixed-Rate Mortgages
Figure 2.14. Changes in Monetary Policy Transmission
Figure 2.1.1. Pass-Through to Bank Interest Rates over Time
Figure 2.1.2. Pass-Through and Share of Households with Mortgages (2021–23)
Figure 2.1.3. Changes in Mortgage Service Costs after European Central Bank Hikes
Figure 2.2.1. China: Short-Term Market Interest Rates and House Price Growth
Figure 3.1. Five-Year-Ahead Real GDP Growth Projections, 2000–29
Figure 3.2. Five-Year-Ahead Real GDP Forecast by Country: April 2008 versus April 2024
Figure 3.3. Five-Year-Ahead Real GDP Forecast by Regions, 2008, 2019, and 2024
Figure 3.4. Contribution of Components of GDP Growth, 1995–2023
Figure 3.5. Slowdown in the Growth of the Working-Age Population, 2008 versus 2021
Figure 3.6. Breakdown of Change in Labor Force Participation Rate, 2008–21
Figure 3.7. Policies and Labor Force Participation by Gender and Age
Figure 3.8. Real Business Investment in OECD Countries
Figure 3.9. Net Investment Rates in Advanced and Emerging Market Economies
Figure 3.10. Contribution of Firm- and Macro-Level Determinants to Changes in the Investment Rate since 2008
Figure 3.11. Contribution of Allocative Efficiency to Annual TFP Growth, 2000–19
Figure 3.12. Contribution of Allocative Efficiency to Annual TFP Growth, 2000–19
Figure 3.13. TFP Loss from Misallocation, by Sector Type, 2019
Figure 3.14. Dispersion of Firm Productivity, 2000–19
Figure 3.15. Countries’ Structural Allocative Efficiency and Policies
Figure 3.16. Medium-Term Growth Projections of Potential Employment
Figure 3.17. Impact of Various Factors on Global Medium-Term Growth
Figure 3.2.1. GDP Convergence between Countries, 2000–28
Figure 3.2.2. Global Inequality, 1995–2028
Figure 3.2.3. GDP Growth and Welfare Drivers before and after the COVID-19 Pandemic
Figure 3.3.1. Employment Shares by AI Exposure and Complementarity
Figure 3.3.2. Impact of AI on TFP and Output in the United Kingdom
Figure 4.1. Five-Year-Ahead GDP Growth
Figure 4.2. Correlation of Idiosyncratic Growth Surprises between Advanced Economies and G20 Emerging Markets
Figure 4.3. The Growing Footprint of G20 Emerging Markets in Trade and Investment
Figure 4.4. G20 Emerging Market Financial Integration
Figure 4.5. G20 Emerging Market Presence in Global Value Chains and Commodities Can Amplify Spillovers
Figure 4.6. Growth in G20 Emerging Markets Is Becoming Less Volatile and Less Driven by Foreign Shocks
Figure 4.7. Aggregate Spillovers from G20 Countries
Figure 4.8. Growth Spillovers from G20 Emerging Markets by Region
Figure 4.9. Firm-Level Spillovers
Figure 4.10. Impact of Spillovers on GDP by G20 Emerging Markets
Figure 4.11. Changes in Sectoral Value Added and Prices
Figure 4.12. What Is the Global Impact from a G20 Emerging Market Upside Scenario on Real GDP?
Figure 4.1.1. The Rise of Domestic Subsidies and Their Impact on Exports
Figure 4.2.1. Capital Flows to Emerging Markets: Revisiting the Allocation Puzzle
Figure 4.3.1. Role of G20 Emerging Markets in Sub-Saharan Africa
Assumptions and Conventions
A number of assumptions have been adopted for the projections presented in the World Economic Outlook (WEO). It has been assumed that real effective exchange rates remained constant at their average levels during January 30, 2024–February 27, 2024, except for those for the currencies participating in the European exchange rate mechanism II, which are assumed to have remained constant in nominal terms relative to the euro; that established policies of national authorities will be maintained (for specific assumptions about fiscal and monetary policies for selected economies, see Box A1 in the Statistical Appendix); that the average price of oil will be $78.61 a barrel in 2024 and $73.68 a barrel in 2025; that the three-month government bond yield for the United States will average 5.2 percent in 2024 and 4.1 percent in 2025, that for the euro area will average 3.5 percent in 2024 and 2.6 percent in 2025, and that for Japan will average 0.0 percent in 2024 and 0.1 percent in 2025; and that the 10-year government bond yield for the United States will average 4.1 percent in 2024 and 3.7 percent in 2025, that for the euro area will average 2.5 percent in 2024 and 2.6 percent in 2025, and that for Japan will average 1.0 percent in 2024 and 1.1 percent in 2025. These are, of course, working hypotheses rather than forecasts, and the uncertainties surrounding them add to the margin of error that would, in any event, be involved in the projections. The estimates and projections are based on statistical information available through April 1, 2024.
The following conventions are used throughout the WEO:
. . . to indicate that data are not available or not applicable;
– between years or months (for example, 2023–24 or January–June) to indicate the years or months covered, including the beginning and ending years or months; and
/ between years or months (for example, 2023/24) to indicate a fiscal or financial year.
“Billion” means a thousand million; “trillion” means a thousand billion.
“Basis points” refers to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
Data refer to calendar years, except in the case of a few countries that use fiscal years. Please refer to Table F in the Statistical Appendix, which lists the economies with exceptional reporting periods for national accounts and government finance data for each country.
For some countries, the figures for 2023 and earlier are based on estimates rather than actual outturns. Please refer to Table G in the Statistical Appendix, which lists the latest actual outturns for the indicators in the national accounts, prices, government finance, and balance of payments for each country.
What is new in this publication:
Ecuador’s fiscal sector projections are excluded from publication for 2024–29 because of ongoing program discussions.
Vietnam has been removed from the Low-Income Developing Countries (LIDCs) group and added to the Emerging Market and Middle-Income Economies (EMMIEs) group.
For West Bank and Gaza, data for 2022–23 previously excluded from publication pending methodological adjustments to statistical series are now included. Projections for 2024–29 are excluded from publication on account of the unusually high degree of uncertainty.
In the tables and figures, the following conventions apply:
Tables and figures in this report that list their source as “IMF staff calculations” or “IMF staff estimates” draw on data from the WEO database.
When countries are not listed alphabetically, they are ordered on the basis of economic size.
Minor discrepancies between sums of constituent figures and totals shown reflect rounding.
Composite data are provided for various groups of countries organized according to economic characteristics or region. Unless noted otherwise, country group composites represent calculations based on 90 percent or more of the weighted group data.
The boundaries, colors, denominations, and any other information shown on maps do not imply, on the part of the IMF, any judgment on the legal status of any territory or any endorsement or acceptance of such boundaries.
As used in this report, the terms “country” and “economy” do not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.
Further Information
Corrections and Revisions
The data and analysis appearing in the World Economic Outlook (WEO) are compiled by the IMF staff at the time of publication. Every effort is made to ensure their timeliness, accuracy, and completeness. When errors are discovered, corrections and revisions are incorporated into the digital editions available from the IMF website and on the IMF eLibrary (see below). All substantive changes are listed in the online table of contents.
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Data
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The data appearing in the WEO are compiled by the IMF staff at the time of the WEO exercises. The historical data and projections are based on the information gathered by the IMF country desk officers in the context of their missions to IMF member countries and through their ongoing analysis of the evolving situation in each country. Historical data are updated on a continual basis as more information becomes available, and structural breaks in data are often adjusted to produce smooth series with the use of splicing and other techniques. IMF staff estimates continue to serve as proxies for historical series when complete information is unavailable. As a result, WEO data can differ from those in other sources with official data, including the IMF’s International Financial Statistics.
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Preface
The analysis and projections contained in the World Economic Outlook are integral elements of the IMF’s surveillance of economic developments and policies in its member countries, of developments in international financial markets, and of the global economic system. The survey of prospects and policies is the product of a comprehensive interdepartmental review of world economic developments, which draws primarily on information the IMF staff gathers through its consultations with member countries. These consultations are carried out in particular by the IMF’s area departments—namely, the African Department, Asia and Pacific Department, European Department, Middle East and Central Asia Department, and Western Hemisphere Department— together with the Strategy, Policy, and Review Department; the Monetary and Capital Markets Department; and the Fiscal Affairs Department.
The analysis in this report was coordinated in the Research Department under the general direction of Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research. The project was directed by Petya Koeva Brooks, Deputy Director, Research Department, and Daniel Leigh, Division Chief, Research Department. Aqib Aslam, Division Chief, Research Department and Head of the Spillovers Task Force, supervised Chapter 4.
The primary contributors to this report are Hany Abdel-Latif, Hippolyte Balima, Nina Biljanovska, Mehdi Benatiya Andaloussi, Alessia De Stefani, Andrés Martin Fernández, Nicolas Fernandez-Arias, Ashique Habib, Toh Kuan, Nan Li, Chiara Maggi, Rui Mano, Dirk Muir, Alberto Musso, Jean Marc Natal, Diaa Noureldin, Cedric Okou, Carolina Osorio Buitron, Galip Kemal Ozhan, Andrea Pescatori, Adina Popescu, Andrea F. Presbitero, Alexandre B. Sollaci, and Robert Zymek.
Other contributors include Maryam Abdou, Gavin Asdorian, Jared Bebee, Christian Bogmans, Luis Brandao-Marques, Ariadne Checo de los Santos, Yaniv Cohen, Shan Chen, Gabriela Cugat, Eduardo Espuny Diaz, Wenchuan Dong, Angela Espiritu, Rebecca Eyassu, Pedro de Barros Gagliardi, Michael Gottschalk, Ziyan Han, Carlos van Hombeeck, Keiko Honjo, Henry Hoyle, Amir Kermani, Camara Kidd, Eduard Laurito, Jungjin Lee, Weili Lin, Jesper Lindé, Barry Liu, Estelle Xue Liu, Xiaomeng Mei, Jorge Alberto Miranda Pinto, Florian Misch, Prachi Mishra, Carlos Morales, Joseph Moussa, Cynthia Nyanchama Nyakeri, Emory Oakes, Minnie Park, Manasa Patnam, Manuel Perez-Archila, Ilse Pertsegaele, Ivan Petrella, Clarita Phillips, Rafael Portillo, Ervin Prifti, Evgenia Pugacheva, Tianchu Qi, Shrihari Ramachandra, Daniela Rojas, Lorenzo Rotunno, Michele Ruta, Martin Stuermer, Marina Tavares, Nicholas Tong, Petia Topalova, Pablo Vega Olivares, Isaac Warren, Yarou Xu, Gianluca Yong, Dennis Zhao, Jiaqi Zhao, Canran Zheng, Dian Zhi, and Liangliang Zhu.
Gemma Rose Diaz from the Communications Department led the editorial team for the report, with production and editorial support from Michael Harrup, and additional assistance from Lucy Scott Morales, James Unwin, Nancy Morrison, Grauel Group, and Absolute Service, Inc.
The analysis has benefited from comments and suggestions by staff members from other IMF departments, as well as by Executive Directors following their discussion of the report on April 3, 2024. However, estimates, projections, and policy considerations are those of the IMF staff and should not be attributed to Executive Directors or to their national authorities.
Foreword
Global Economy Remains Resilient despite Uneven Growth; Challenges Lie Ahead
The global economy remains remarkably resilient, with growth holding steady as inflation returns to target. The journey has been eventful, starting with supply-chain disruptions in the aftermath of the pandemic, a Russian-initiated war on Ukraine that triggered a global energy and food crisis, and a considerable surge in inflation, followed by a globally synchronized monetary policy tightening.
Yet, despite many gloomy predictions, the world avoided a recession, the banking system proved largely resilient, and major emerging market economies did not suffer sudden stops. Moreover, the inflation surge—despite its severity and the associated cost-of-living crisis—did not trigger uncontrolled wage-price spirals (see October 2022 World Economic Outlook). Instead, almost as quickly as global inflation went up, it has been coming down.
On a year-over-year basis, global growth bottomed out at the end of 2022, at 2.3 percent, shortly after median headline inflation peaked at 9.4 percent. According to our latest projections, growth for 2024 and 2025 will hold steady around 3.2 percent, with median headline inflation declining from 2.8 percent at the end of 2024 to 2.4 percent at the end of 2025. Most indicators point to a soft landing.
Markets reacted exuberantly to the prospect of central banks exiting from tight monetary policy. Financial conditions eased, equity valuations soared, capital flows to most emerging market economies excluding China have been buoyant, and some low-income countries and frontier economies regained market access (see the April 2024 Global Financial Stability Report).
Even more encouraging, we now estimate that there will be less economic scarring from the pandemic—the projected drop in output relative to prepandemic projections—for most countries and regions, especially for emerging market economies, thanks in part to robust employment growth. Astonishingly, the US economy has already surged past its prepandemic trend.
Resilient growth and faster disinflation point toward favorable supply developments, including the fading of earlier energy price shocks, the striking rebound in labor supply supported by strong immigration flows in many advanced economies. Decisive monetary policy actions, as well as improved monetary policy frameworks, especially in emerging market economies, have helped anchor inflation expectations. As Chapter 2 of this report argues, however, the transmission of monetary policy may have been more muted this time around in countries such as the United States, where an increased share of fixed-rate mortgages and lower household debt levels since the global financial crisis may have limited the drag on aggregate demand up to now.
Despite these welcome developments, numerous challenges remain, and decisive actions are needed.
First, while inflation trends are encouraging, we are not there yet. Somewhat worryingly, the most recent median headline and core inflation numbers are pushing upward. This could be temporary, but there are reasons to remain vigilant. Most of the progress on inflation came from the decline in energy prices and goods inflation below its historical average. The latter has been helped by easing supply-chain frictions, as well as by the decline in Chinese export prices. But services inflation remains high—sometimes stubbornly so—and could derail the disinflation path. Bringing inflation down to target remains the priority.
Second, the global view can mask stark divergence across countries. The exceptional recent performance of the United States is certainly impressive and a major driver of global growth, but it reflects strong demand factors as well, including a fiscal stance that is out of line with long-term fiscal sustainability (see April 2024 Fiscal Monitor). This raises short-term risks to the disinflation process, as well as longer-term fiscal and financial stability risks for the global economy since it risks pushing up global funding costs. Something will have to give.
In the euro area, growth will pick up this year, but from very low levels, as the trailing effects of tight monetary policy and past energy costs, as well as planned fiscal consolidation, weigh on activity. Continued high wage growth and persistent services inflation could delay the return of inflation to target. However, unlike in the United States, there is scant evidence of overheating and the European Central Bank will also need to carefully calibrate the pivot toward monetary easing to avoid an excessive growth slowdown and inflation undershoot. While labor markets appear strong, that strength could prove illusory if European firms have been hoarding labor in anticipation of a pickup in activity that does not materialize.
China’s economy is affected by the enduring downturn in its property sector. Credit booms and busts never resolve themselves quickly, and this one is no exception. Domestic demand will remain lackluster for some time unless strong measures and reforms address the root cause. Public debt dynamics are also of concern, especially if the property crisis morphs into a local public finance crisis. With depressed domestic demand, external surpluses could rise. The risk is that this will further exacerbate trade tensions in an already fraught geopolitical environment.
At the same time, many other large emerging market economies are performing strongly, sometimes even benefiting from a reconfiguration of global supply chains and rising trade tensions between China and the United States. As Chapter 4 of this report documents, these countries’ footprint on the global economy is increasing, and they will play an ever larger role in supporting global growth in years to come.
A troubling development is the widening divergence between many low-income developing countries and the rest of the world. For these economies, growth is revised downward, whereas inflation is revised up. Worse, in contrast with most other regions, scarring estimates for low-income developing countries, including some large ones, have been revised up, suggesting that the poorest countries are still unable to turn the page from the pandemic and cost-of-living crises. In addition, conflicts continue to result in loss of human lives and raise uncertainty. For these countries, investing in structural reforms to promote growth-enhancing domestic and foreign direct investment, and strengthening domestic resource mobilization, can help manage borrowing costs and reduce funding needs while achieving development goals. Efforts must also be made to improve the human capital of their large young populations.
Third, even as inflation recedes, real interest rates have increased, and sovereign debt dynamics have become less favorable in particular for highly indebted emerging markets. Countries should turn their sights toward rebuilding fiscal buffers. Credible fiscal consolidations help lower funding costs and improve financial stability. In a world with more frequent adverse supply shocks and growing fiscal needs for safety nets, climate adaptation, digital transformation, energy security, and defense, this should be a policy priority. Yet this is never easy, as the April 2023 World Economic Outlook documented: fiscal consolidations are more likely to succeed when credible and when implemented while the economy is growing, rather than when markets dictate their conditions. In countries where inflation is under control, and that engage in a credible multiyear effort to rebuild fiscal buffers, monetary policy can help support activity. The successful 1993 US fiscal consolidation and monetary accommodation episode comes to mind as an example to emulate.
Fourth, medium-term growth prospects remain historically weak. Chapter 3 of this report takes an in-depth dive into the different drivers of the slowdown. The main culprit is lower total factor productivity growth. A significant part of the decline comes from increased misallocation of capital and labor within sectors and countries. Facilitating faster and more efficient resource allocation can help boost growth. Much hope rests on artificial intelligence (AI) delivering strong productivity gains in the medium term. It may do so, but the potential for serious disruptions in labor and financial markets is high. Harnessing the potential of AI for all will require that countries improve their digital infrastructure, invest in human capital, and coordinate on global rules of the road. Medium-term growth prospects are also harmed by rising geoeconomic fragmentation and the surge in trade restrictive and industrial policy measures since 2019. Global trade linkages are already changing as a result, with potential losses in efficiency. But the broader damage is to global cooperation and multilateralism.
Finally, huge global investments are needed for a green and climate-resilient future. Cutting emissions is compatible with growth, as is seen in recent decades during which growth has become much less emissions intensive. Nevertheless, emissions are still rising. A lot more needs to be done and done quickly. Green investment has expanded at a healthy pace in advanced economies and China. Cutting harmful fossil fuel subsidies can help create the necessary fiscal room for further green investments. The greatest effort must be made by other emerging market and developing economies, which need to massively increase their green investment growth and reduce their fossil fuel investment. This will require technology transfer by other advanced economies and China, as well as substantial financing, much of it from the private sector, but some of it concessional.
On these questions, as well as on so many others, there is little hope for progress outside multilateral frameworks and cooperation.
Pierre-Olivier Gourinchas
Economic Counsellor
Executive Summary
Economic activity was surprisingly resilient through the global disinflation of 2022–23. As global inflation descended from its mid-2022 peak, economic activity grew steadily, defying warnings of stagflation and global recession. Growth in employment and incomes held steady, reflecting supportive demand developments–– including greater-than-expected government spending and household consumption—and a supply-side expansion amid, notably, an unanticipated boost to labor force participation. The unexpected economic resilience, despite significant central bank interest rate hikes aimed at restoring price stability, also reflects the ability of households in major advanced economies to draw on substantial savings accumulated during the pandemic. In addition, as Chapter 2 explains, changes in mortgage and housing markets over the prepandemic decade of low interest rates moderated the near-term impact of policy rate hikes. As inflation converges toward target levels and central banks pivot toward policy easing in many economies, a tightening of fiscal policies aimed at curbing high government debt, with higher taxes and lower government spending, is expected to weigh on growth.
Global growth, estimated at 3.2 percent in 2023, is projected to continue at the same pace in 2024 and 2025. The forecast for 2024 is revised up by 0.1 percentage point from the January 2024 World Economic Outlook (WEO) Update, and by 0.3 percentage point from the October 2023 WEO. The pace of expansion is low by historical standards, owing to both near-term factors, such as still-high borrowing costs and withdrawal of fiscal support, and longer-term effects from the COVID-19 pandemic and Russia’s invasion of Ukraine; weak growth in productivity; and increasing geoeconomic fragmentation. Global headline inflation is expected to fall from an annual average of 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies. The latest forecast for global growth five years from now––at 3.1 percent––is at its lowest in decades. The pace of convergence toward higher living standards for middle- and lower-income countries has slowed, implying a persistence in global economic disparities. As Chapter 3 explains, the relatively weak medium-term outlook reflects lower growth in GDP per person stemming, notably, from persistent structural frictions preventing capital and labor from moving to productive firms. Chapter 4 indicates how dimmer prospects for growth in China and other large emerging market economies, given their increasing share of the global economy, will weigh on the prospects of trading partners.
Risks to the global outlook are now broadly balanced. On the downside, new price spikes stemming from geopolitical tensions, including those from the war in Ukraine and the conflict in Gaza and Israel, could, along with persistent core inflation where labor markets are still tight, raise interest rate expectations and reduce asset prices. A divergence in disinflation speeds among major economies could also cause currency movements that put financial sectors under pressure. High interest rates could have greater cooling effects than envisaged as fixed-rate mortgages reset and households contend with high debt, causing financial stress. In China, without a comprehensive response to the troubled property sector, growth could falter, hurting trading partners. Amid high government debt in many economies, a disruptive turn to tax hikes and spending cuts could weaken activity, erode confidence, and sap support for reform and spending to reduce risks from climate change. Geoeconomic fragmentation could intensify, with higher barriers to the flow of goods, capital, and people implying a supply-side slowdown. On the upside, looser fiscal policy than necessary and assumed in projections could raise economic activity in the short term, although risking more costly policy adjustment later on. Inflation could fall faster than expected amid further gains in labor force participation, allowing central banks to bring easing plans forward. Artificial intelligence and stronger structural reforms than anticipated could spur productivity.
As the global economy approaches a soft landing, the near-term priority for central banks is to ensure that inflation touches down smoothly, by neither easing policies prematurely nor delaying too long and causing target undershoots. At the same time, as central banks take a less restrictive stance, a renewed focus on implementing medium-term fiscal consolidation to rebuild room for budgetary maneuver and priority investments, and to ensure debt sustainability, is in order. Cross-country differences call for tailored policy responses. Intensifying supply-enhancing reforms would facilitate inflation and debt reduction, allow economies to increase growth toward the higher prepandemic era average, and accelerate convergence toward higher income levels. Multilateral cooperation is needed to limit the costs and risks of geoeconomic fragmentation and climate change, speed the transition to green energy, and facilitate debt restructuring.
