Global battle against inflation ‘largely won’: IMF

Logo of the International Monetary Fund (IMF)

Pierre-Olivier Gourinchas, Chief Economist at the International Monetary Fund (IMF), said that the global battle against inflation "has largely been won".

In its latest World Economic Outlook, the IMF said that inflation will likely decline to 3.5% year-on-year by the end of 2025, which is slightly lower than the average over the two years preceding the pandemic, and compared to 9.4% during its peak in 2022.

"After years of loose fiscal policy in many countries, it is now time to stabilize debt dynamics and rebuild much-needed fiscal buffers," Gourinchas said. 

For some, including the United States and China, current fiscal plans do not stabilize debt dynamics. In many others, while early fiscal plans showed promise after the pandemic and cost-of-living crises, there are increasing signs of slippage, IMF said.

Unfortunately, growth prospects for five years from now remain lackluster, at 3.1 percent, the lowest in decades. While much of this reflects China’s weaker outlook, medium-term prospects in other regions, including Latin America and the European Union, have also deteriorated, it added.

While IMF reiterated its growth forecasts for the global economy at 3.2% for 2024, it lowered growth estimates for 2025 to 3.2%, from July forecasts of 3.3%.

Furthermore, the IMF revised upwards its expectation for the US growth to 2.8% and 2.2% for 2024 and 2025, respectively.

The IMF also lowered its forecasts for Saudi Arabia's growth to 1.5% from 1.7% for 2024 and to 4.6% from 4.7% for 2025.

It expects the Fed to lower rates to 2.9% by Q3 2026 and ECB to cut rates to 2.5% by June 2025.