Today's News
Global Growth: A Mixed Picture
The global economy is projected to grow at 3.1% in 2025, largely unchanged from the 2024 forecast. This stability, however, masks significant divergence across regions and underlying vulnerabilities. While some major economies show surprising strength, others are grappling with stagnation, creating a global aggregate that suggests resilience but feels tenuous to policymakers.
Advanced Economies: Cooling Inflation, Slowing Momentum
In most advanced economies, inflation is gradually returning to target levels, allowing central banks to pause or consider cautious easing of monetary policy. However, this disinflationary process is contributing to a broad-based slowdown in economic activity. Consumer spending is softening under the cumulative weight of past interest rate hikes, and business investment remains subdued due to uncertainty about the future path of policy and growth.
Emerging Markets: A Tale of Two Tracks
The outlook for emerging market and developing economies is highly varied. Several large emerging economies continue to demonstrate robust growth, driven by strong domestic demand. Conversely, other nations, particularly low-income countries, are under severe strain from high debt burdens, elevated food and energy prices, and limited fiscal space, threatening to reverse developmental gains.
Key Risks Clouding the Horizon
The baseline forecast is subject to an unusual degree of uncertainty, with risks tilted to the downside. The persistence of these challenges threatens to undermine the current fragile stability of the global economy.
Persistent Inflationary Pressures
While headline inflation has declined, core inflation remains stubbornly high in many countries. Potential new spikes in commodity prices, driven by geopolitical shocks or climate-related disruptions, could force central banks to tighten monetary policy further, stifling growth.
Geoeconomic Fragmentation
The ongoing reconfiguration of global trade and investment relationships continues to pose a significant threat. An escalation of trade restrictions and a retreat from global cooperation could disrupt supply chains, dampen productivity, and increase volatility in financial markets, with a particularly severe impact on open, trade-dependent economies.
Debt Distress and Fiscal Vulnerabilities
Public debt remains at historically high levels in many countries. The combination of slowing growth and high borrowing costs is squeezing government budgets, limiting the ability to respond to future shocks and support vulnerable populations. The risk of debt distress is acute for a growing number of low-income countries.
Policy Priorities for a Shaky Foundation
Navigating the current environment requires careful and well-calibrated policy measures. The overarching goal should be to restore price stability, safeguard financial sector resilience, and foster sustainable and inclusive growth.
Restoring Price Stability
Central banks must remain data-dependent in their communication and policy decisions. The priority should be to ensure that inflation durably returns to target, avoiding a premature easing that could necessitate more painful tightening later.
Rebuilding Fiscal Buffers
With growth slowing, governments need to implement credible, medium-term fiscal frameworks to rebuild buffers. This involves prioritizing spending, enhancing revenue mobilization, and ensuring that fiscal support is targeted and temporary to avoid adding to inflationary pressures.
Strengthening International Cooperation
Mitigating the costs of geoeconomic fragmentation and addressing shared challenges like climate change and debt distress requires reinforced multilateral cooperation. Resolving debt overhangs through coordinated frameworks and facilitating the green transition are critical for global economic stability.
These include ongoing supply chain disruptions, inflationary pressures, and geopolitical tensions that could potentially derail the fragile recovery.
The IMF also notes that economic growth is expected to be uneven across countries and regions, with some advanced economies experiencing stronger growth while emerging market and developing economies continue to face challenges. In particular, the report highlights the need for continued policy support to sustain the recovery and address long-term structural issues.
Overall, the IMF warns that the global economy remains at a critical juncture and calls for coordinated efforts from policymakers to address the challenges ahead. The report underscores the importance of strong and effective policy responses to ensure a more sustainable and inclusive recovery for all countries.