Despite a geopolitically fragmented global environment, member countries have achieved important milestones to promote progress and prosperity, International Monetary and Financial Committee chair Mohammed Aljadaan told a press briefing on Friday. 

Speaking after the 50th meeting of the IMFC in Washington, Aljadaan welcomed the recent completion of reviews of the Poverty Reduction and Growth Trust interest-free lending facility for low-income countries, and the Charges and Surcharge Policy, which will alleviate the financial cost of Fund lending for borrowing countries. Aljadaan also reaffirmed members’ commitment to a strong IMF at the center of the global financial safety net. 

Kristalina Georgieva, the IMF managing director, told the briefing that in recent months the Fund had achieved three “historic firsts”: reaching precautionary balances targets; reducing charges and surcharges to save borrowing countries $1.2 billion; and deploying net income to boost lending capacity to low-income countries. 

“When there are forces of fragmentation, bridges become even more important,” Georgieva said. “And we, the IMF, are a bridge builder.” 

Monetary Policy in a Shock-Prone World

Central banks’ credibility has paved the way for a soft landing of the global economy, allowing it to exit the high inflation period without falling into recession. That was the main takeaway of “Monetary Policy is a Shock-Prone World,” panel on Friday.   

“It was not a foregone conclusion”, said IMF First Deputy Managing Director Gita Gopinath about the win over inflation. “It is to the credit of central bankers, they have kept inflation expectations at the long run anchored and that helped bring inflation down without a big hit to activity.” Looking ahead, Gopinath sees different kinds of risks to inflation's downward trajectory. One is the expectation that fiscal deficits will be smaller both in the United States and in the Euro Area. The second is “what comes from geopolitics,” for example an increase in oil prices, or “what comes from a big round of tariff increases, which has inflation pressures.” 

François Villeroy de Galhau, governor of the French Central bank and Chair of the Board of Directors of the Bank for International Settlements, sees three main elements underscoring central banks’ credibility that allowed them to deliver lower inflation without recession: 1) central banks’ independence; 2) inflation targeting, “because the 2% objective [of the European Central Bank] is very simple and understandable by all economic agents; and 3) an existing positive record of action and communication. “Past credibility fostered present credibility.”  

Professor Ricardo Reis, from the London School of Economics, believes that inflation will be structurally higher going forward. “The world has changed since 2019 in a way that in my view leads to higher interest rates moving forward,” he said mentioning demographic trends, an increase in public investment, the fact that government debt overall has become less safe over recent decades; and the end of the “savings glut,” referred by many economists, as China and other Asian countries have much lower current account surpluses. 

Governor Rosanna Costa, from the Central Bank of Chile, pointed out to the new forms of stress that geopolitical conditions are introducing to financial markets, moving up long-term interest rates. “Long-term rates are becoming more sensitive” to short-term developments. She mentioned the IMF’s Fiscal Monitor research about how the level of debt in advanced economies is related to this new reaction of long-term yields.  

Moderator Julia Chatterley from CNN asked whether the world is in a stronger position today to deal with inflation. Villeroy de Galhau: “We should never be complacent or lazy, but I think we are in a better position, but we live in a more volatile and dangerous world.” Rosanna Costa: “We need to be prepared for volatility, we need to build resilience… we need to face the future with this very firm structure.” Ricardo Reis: “To the people that are still suffering with high prices, I would say that, by controlling inflation, we can now enter the stage where their wages and their income catch up to the loss of purchasing power they had in the last three years.” Gita Gopinath: “We are in a better place, we have better frameworks than we had in the past … Going forward we have to continue to learn, observe, adapt. This job is not done. But I have confidence that we are in the process of doing the best job possible.”   

“Confidence, humility and time will tell,” concluded Chatterley.  

This year, growth is projected at 3.6 percent, the same as last year, with some signs of a pickup to 4.2 percent next year. This pace is not sufficient to significantly reduce poverty or to recover ground lost in recent years, let alone address the substantial developmental challenges ahead, African Department Director Abebe Selassie said at a briefing. 

There are considerable differences across countries in the region, with diversified economies experiencing strong growth while growth is anemic for many resource intensive countries, Selassie continued. However, inflation continues to decline, budget deficits have begun to narrow, and debt-to-GDP ratios are stabilizing albeit at high levels.  

Policymakers face a tough balancing act in implementing much-needed reforms against the backdrop of a challenging political and social environment. This involves pursuing macroeconomic stability while meeting development needs and designing reforms that are socially and politically acceptable. 

Economic growth in Asia and the Pacific was stronger than previously estimated in the first half of this year, resulting in regional growth projections increasing to 4.6 percent this year and 4.4 percent next year. Both forecasts were raised by 0.1 percentage points. 

The region remains the world’s engine of growth, Asia-Pacific Department Director Krishna Srinivasan said at a briefing, citing its contribution of 60 percent of global economic growth that’s far more than its 40 percent share of global economic output. 

Domestic demand is likely to strengthen in Asia’s advanced economies as the impact of past monetary tightening fades, Srinivasan told reporters Thursday. Growth in China and India will remain resilient, though both economies are forecast to slow slightly next year.  

Asia also brought inflation down to low and stable rates faster than other regions, and the disinflation process is essentially complete in emerging Asia, Srinivasan said. 

“Europe has the means to lift growth to its full potential,” said the IMF’s European department director, Alfred Kammer, in a press briefing on Thursday. Releasing its new Regional Economic Outlook for Europe, Kammer emphasized how the continent needs to take action to increase its growth potential and productivity. “Europe has an underwhelming potential growth rate, Kammer said. “Compared to the US, income per capita is a stunning 30% lower… At the turn of the [21st] century, that gap did not exist,” he added. 

The Regional Economic Outlook outlines key policy priorities for the European Union: open the energy, telecommunications and financial services sectors, to bring in more private sector investment, dynamism and innovation. Advance the capital markets union to direct savings to the most productive firms and startups. Make a real effort to ease administrative barriers to firms entering markets, especially in the service sector and improve infrastructure, institutions, and governance in CESEE countries. “Europe can close the gap with the global frontier if it builds on its most important asset … and that is the EU single market,” Kammer said. 

“This year has been challenging with conflicts causing devastating human suffering and economic damage” for the Middle East and North Africa (MENA), said Jihad Azour, director of the IMF’s Middle East and Central Asia Department, at a press briefing.  

Growth in the MENA region is projected at 2.1 percent this year, a downward revision of 0.6% from the April forecast, largely due to the impact of the conflict and prolonged OPEC+ production costs.  

The IMF expects growth to rise to 4% next year; however, “uncertainty about when these factors will ease is still very high,” Azour added.  

High debt levels are also a major concern for many countries across the MENA region. The overall financing needs for 2024 will be $286 billion, almost $6 billion higher than last year for the entire region.  

Growth in Central Asia and the Caucasus, on the other hand, remains robust. Projections were revised upwards to 4.3% in 2024 and 4.5 percent for 2025, according to the department’s latest Regional Economic Outlook. 

Latin America Needs to Press Ahead with Reforms to Boost Growth

“Over the last few years, the region has successfully weathered major global economic shocks and most economies are operating back near their potential,” Rodrigo Valdes, director of the IMF’s Western Hemisphere Department, told a press briefing on Friday.  

Growth in most countries is expected to return to its low historical average, falling from 2.6% this year to 2.2% in 2025. This is concerning “because it will not help with the region’s macroeconomic, fiscal, and social challenges,” Valdes said.  Inflation has fallen since its peak in 2002 and is near the target in most countries; however, “the last mile of this inflation has been rather long,” he added.  

Valdes further emphasized the importance of rebalancing macroeconomic policies in the region and pressing on with structural reforms to boost potential output growth.