IMF pronounces victory over inflation while sounding debt and tariff warnings

Meanwhile, in Russia, a meeting of BRICS heads of state constituted a mostly symbolic challenge to the current world economic order
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The 2024 Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) took place in Washington D.C. from October 21 to October 26. Celebrating the 80th anniversary this year of the United Nations Monetary and Financial Conference (the “Bretton Woods Conference”) which approved the establishment of the IMF and World Bank in Washington as key elements of the post WWII world order as a component of the UN system, global financial authorities were handed a generally positive assessment of the state of the world economy after several sustained and painful waves of global pandemics and crises, albeit with numerous provisos.

The World Bank Group plays a key role in the global effort to end extreme poverty and boost shared prosperity, while the IMF focuses primarily on issues surrounding global macroeconomic and financial stability in order to enable steady growth.

World Economic Outlook

The centerpiece of the annual meetings is invariably the presentation of the newest version of the IMF’s World Economic Outlook report. Pierre‑Olivier Gourinchas, Director of the IMF’s Research Department (aka IMF Chief Economist) outlined the key conclusions in a closely watched presentation of the new report on October 22:

— The IMF believes the battle against inflation is almost won. After peaking at 9.4 percent year on year in the third quarter of 2022, the IMF now projects headline inflation will fall to 3.5 percent by the end of next year, and in most countries, the good news is that inflation is now hovering close to central bank targets (around 2.0 percent in most cases).

— The IMF observed that inflation came down while the global economy remained resilient. Global economic growth is projected to hold steady at 3.2 percent in 2024 and 2025.

— The U.S. is expected to cool down, while other advanced economies, many of which have slowed significantly, will rebound. Performance in emerging Asia remains robust, despite the slight downward revision for China to 4.8 percent in 2024. Unfortunately, low‑income countries have seen their growth revised downwards, some of it because of conflicts and climate shocks.

—  In the IMF’s view, the decline in inflation without a global recession is a major achievement. Much of that disinflation can be attributed to the unwinding of the unique combination of supply and demand shocks that caused the inflation in the first place in recent years, together with improvements in labor supply due to immigration in many advanced countries. The IMF noted that monetary policy also played a decisive role, keeping inflation expectations anchored.

—  The IMF is concerned that regardless of the good news on inflation, risks are now tilted to the downside. These risks include an escalation in regional conflicts, especially in the Middle East, which may well generate serious risks for commodity markets.

—  The IMF also warned that policy shifts toward undesirable trade and industrial policies (aka the potential for “Trump tariffs”) could also significantly lower output, as well as cause a sharp reduction in migration into advanced economies, which can unwind some of the supply gains that helped ease inflation in recent quarters. This could trigger an abrupt tightening of global financial conditions that would further depress output. And together, these represent about 1.6 percent of global output in 2026.

IMF recommending  “triple policy pivot”

— The IMF notes that the first “pivot” on monetary policy is already underway. The decline in inflation paved the way for monetary easing across major central banks which will support activity at a time when labor markets are showing signs of cooling, with rising unemployment rates. This increase has been gradual and does not point to an imminent slowdown.

— Lower interest rates in major economies will also ease the pressure on emerging market economies. However, vigilance remains key. Inflation in services remains too elevated, almost double pre-pandemic levels, and a few emerging market economies are seeing rising price pressures, calling for higher policy rates. Furthermore, the IMF believes the world is now dominated by supply shocks, from climate, health, and geopolitical tensions. And this makes the job of central banks harder.

— The second of the pivots is on fiscal policy. The IMF believes it is urgent to stabilize debt dynamics and rebuild much‑needed fiscal buffers. For the United States and China, current fiscal plans do not stabilize debt dynamics. For other countries, despite early improvements, there are increasing signs of slippage. The path is narrow.

— According to the IMF, delaying fiscal consolidation increases the risk of disorderly adjustments, while an excessively abrupt turn toward fiscal tightening could hurt economic activity. The IMF maintains that success requires implementing, where necessary, a sustained and credible multi‑year fiscal adjustment.

— The third pivot and the hardest in the IMF’s view is toward growth‑enhancing reform. This is the only way to address many of the challenges the world is currently facing, the IMF believes. Many countries are implementing industrial and trade policy measures to protect domestic workers and industries. While these measures can sometimes boost investment and activity in the short run, they often lead to retaliation and ultimately fail to deliver sustained improvements in standards of living. The IMF recommends such measures be avoided when not carefully addressing well‑identified market failures or narrowly defined national security concerns.

— The IMF believes economic growth must come, instead, from ambitious domestic reforms that boost innovation, increase human capital, improve competition and resource allocation. Growth‑enhancing reforms often face significant social resistance. The IMF’s latest World Economic Outlook (above) report shows that information strategies can help improve support, but they only go so far. Building trust between governments and citizens and inclusion of proper compensation measures are essential features. Building trust is an important lesson that should also resonate when thinking about ways to further improve international cooperation to address shared challenges.

Meanwhile in Russia, a symbolic show of BRICS defiance

Meeting in Kazan, Russia over the period October 22-24, President Vladimir Putin hosted 20 heads of state from BRICS countries and observers (BRICS stands for the organization’s five founding members – Brazil, Russia, India, China, and South Africa). Delegations from a total of 32 BRICS supporting countries/organizations were in attendance, Russia claims.

There is no evidence that Putin scheduled the BRICS Summit intentionally to conflict with the IMF Washington meetings, although he was able to attract a few heads of state from former UK colonies that would otherwise have been in Samoa for the Commonwealth Heads of Government meeting (CHOGM).

Formed in 2009, BRICS currently has nine full members. Membership is somewhat fluid. On 1 January 2024, Egypt, Ethiopia, Iran, and the United Arab Emirates officially joined the bloc. Turkey submitted a membership application in September 2024, while Saudi Arabia is considering joining the group but is not fully committed. Over the course of 2024, Argentina and Algeria have withdrawn their membership applications. Accordingly, it cannot be said that BRICS actually represents the “Global South” as is sometimes claimed.

Also in attendance at Kazan, not without significant controversy, was UN Secretary General Antonio Guterres, although some observers mused this visit might have some as yet unrevealed connection to a peace proposal for Ukraine.  Turkey’s President Recep Tayyip Erdogan also made it to Kazan, generating negative commentary from some of Turkey’s NATO allies, but left early in response to a terrorist attack in Ankara.

Thanks to China and India, the current BRICS members account for about 37 percent of world GDP, making the Kazan meetings, and relevant multilateral economic discussions, substantially less significant than other global fora such as the UN General Assembly, where many of the same issues are routinely raised by larger groups of developing countries. BRICS should not be considered as an economic counterweight to the G7, although numerous BRICS supporters and some western conspiracy theorists will attempt to suggest that one key BRICS objective, that of “De-dollarization” is gathering steam.

Officials, including Russia’s President Vladimir Putin, China’s President Xi Jinping and India’s Prime Minister Narendra Modi attend a plenary session at the BRICS summit in Kazan, Russia. Photo; BRICS

Massively distorted from the original purpose of the BRICS organization which was to promote a non-western dominated (anti-U.S.) world economic order, this year’s session seems to have been hijacked primarily to serve Russia’s foreign policy and strategic interests, although that particular approach is not uncommon when a country hosts a major event.

Russian officials have already claimed that the Kazan meeting is “the largest foreign policy event ever held” on Russian soil, downplaying the diversity and downright hostility among a number of BRICS members.

Sanctions what sanctions?

Few western observers are fooled by the massive effort Putin has applied to demonstrate to the world during the BRICS Summit that Russia is not financially isolated by western sanctions enacted since the Ukraine war began in 2022. BRICS visitors quickly found they were unable to use their credit cards to pay for their expenses in Kazan, and the promised BRICS pay system, which at least has a real website,  has not surfaced to replace them.

The world awaits fresh Russian media releases proving convincingly that the BRICS countries have developed effective new financial mechanisms which can circumvent the western dominated global financial system. It will likely have an exceedingly long wait.

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CEO/Editor-in-Chief.  Former US diplomat with previous assignments in Eastern Europe, the UN, SE Asia, Greece, across the Balkans, as well as Washington DC.

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