Economy

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The ECB plans to conduct a strategy review next year, and communication is set to be a key topic since the era of forward guidance is largely over and central banks are looking for better ways to signal their intentions.Some policymakers have said it is worth looking at the Fed’s dot-plot approach, where each individual policymaker makes their own policy rate projection and these are then plotted into an anonymised graph, giving the tool its name. Nagel, however, joined an already long list of policymakers arguing against the dot plot, saying it could jeopardize independence while the improvement in the bank’s signalling was not entirely clear. “I do not see a compelling case for introducing dot plots for the Eurosystem,” Nagel said in a speech at Harvard University. The argument is that once you start publishing dots, policy watchers will try to identify individual policymakers behind them and put pressure on governors to advocate their national interests over that of the 20-nation bloc.”This could potentially influence the Governing Council’s independence,” Nagel said. Instead, the ECB should refine its current signalling tools and use the upcoming review for this, Nagel argued.”One might be to enhance the communication of our existing measures of uncertainty,” Nagel said. “Another might be to develop new measures such as scenario and sensitivity analyses, as well as improved fan charts.” More

WASHINGTON (Reuters) – The International Monetary Fund on Tuesday raised its forecast for British economic growth this year, offering a small boost to finance minister Rachel Reeves who presents her first annual budget next week.The IMF said its upgrade was due to lower inflation and a cut in Bank of England interest rates though it did not revise up its outlook for 2025.The news is likely to be seized on by Conservative opponents of the new Labour Party government who dispute Reeves’ claim that they left Labour a poor economic legacy after their 14 years in power.”Growth is projected to have accelerated to 1.1% in 2024 and is expected to continue doing so to 1.5% in 2025 as falling inflation and interest rates stimulate domestic demand,” the IMF said in its quarterly global forecast update.In July, the IMF forecast Britain’s economy would grow 0.7% this year. Britain is now on track to have the joint third-fastest growth in the Group of Seven advanced economies alongside France, after being in joint fourth spot with Japan and Italy in July.The IMF’s forecast for British economic growth in 2024 is now higher than that of the country’s budget forecasters whose projections underpin government budget plans. But the IMF is less optimistic about 2025 than the Office for Budget Responsibility, limiting the upside for Reeves from higher tax revenues.Reeves welcomed the higher IMF growth forecast for 2024 and said she would press ahead with measures in her budget on Oct. 30 to shore up the public finances. “That is why the budget next week will be about fixing the foundations to deliver change, so we can protect working people, fix the NHS (National Health Service) and rebuild Britain,” she said in a statement.Reeves and Prime Minister Keir Starmer have suggested higher taxes on employers and wealthier people are likely to be among the changes announced next week. Last year Britain’s economy grew just 0.3% and suffered a shallow recession in the second half of the year, but it rebounded relatively strongly in the first six months of 2024.Inflation this year is forecast to average 2.6% – the second-highest in the G7 after the United States – before averaging 2.1% in 2025, close to the BoE’s 2% target.Inflation dropped to a three-year low of 1.7% in September and although the BoE forecasts it will pick up slightly, markets expect the central bank to cut borrowing costs again next month, after a first quarter-point rate cut to 5% in August.Adjusted for population growth, Britain’s economic performance is less impressive. The IMF estimates British GDP per head will rise by 0.6% this year and 1.1% next year – well short of Reeves’ goal to top the G7 rankings on this measure for two consecutive years. More

BERLIN (Reuters) – The German economy is expected to stagnate this year, the International Monetary Fund said on Tuesday, cutting its forecast for Europe’s biggest economy, while growth is expected in all the other G7 countries. The IMF had forecast 0.2% growth for Germany in its previous forecasts. This downward revision follows a cut in the German government’s forecasts to a 0.2% contraction in 2024 from 0.3% growth previously expected. Germany’s economy was already the weakest among its large euro zone peers and other G7 countries last year, with a 0.3% decline in gross domestic product.For 2025, the IMF forecast Germany’s economy would grow by 0.8%, having previously projected growth of 1.3% Meanwhile, the euro zone economy is expected to grow by 0.8% in 2024 and 1.2% in 2025. Persistent weakness in manufacturing looks set to weigh on growth for countries such as Germany and Italy, the IMF said in its report. Demand for German industrial goods has continued to weaken, the latest industrial orders data showed. Whereas Italy is expected to benefit from the European Union’s National Recovery and Resilience Plan, Germany is experiencing strain from fiscal consolidation and a sharp decline in real estate prices, the IMF added. Inflation in Germany is expected to fall to 2.4% this year from 6.0% last year, and decline to 2.0% in 2025. More

In July, the IMF lowered its GDP projections for Saudi Arabia’s 2024 GDP by nearly a percentage point from its April estimates to 1.7%.Growth for the Middle East and Central Asia region is forecast at 2.4% in 2024, and projected to increase to 3.9% next year as temporary disruptions to oil production and shipping are expected to fade away, the IMF said.”Compared with that in April, the projection has been revised downward by 0.4 percentage point for 2024, mainly the result of the extension of oil production cuts in Saudi Arabia and ongoing conflict in Sudan taking a large toll,” Tuesday’s report said.The kingdom is the world’s top oil exporter and its public finances remain largely reliant on revenue from hydrocarbons although it has accelerated efforts to bolster non-oil growth and develop new income streams. The IMF projects oil prices will rise by 0.9% in 2024 to about $81 a barrel. It has previously said Saudi Arabia needs prices at close to $100 per barrel to balance its budget. More

The International Monetary Fund projects global headline inflation will fall to 3.5% year-over-year by the end of 2025 from 5.8% in 2024
Rising market volatility was among the risks the agency highlighted to global growth
A spike in commodity prices would especially hurt lower-income nations, the IMF added

A man walks past signage for the the 2024 IMF/World Bank Annual Meetings outside of the headquarters of the International Monetary Fund in Washington, DC on October 18, 2024. 
Daniel Slim | AFP | Getty Images

Much of the world has managed to successfully lower inflation and engineer an economic soft landing, avoiding recession, but faces rising geopolitical risks and weaker long-term growth prospects, according to the International Monetary Fund. 
Global headline inflation will fall to 3.5% on an annual basis by the end of 2025, from an average 5.8% in 2024, the agency said in its World Economic Outlook released on Tuesday. Inflation peaked at a year-over-year rate of 9.4% in the third quarter of 2022. The yearend 2025 rate is slightly below the average annual rise in prices in the two decades before the Covid-19 pandemic. 

“The global battle against inflation is almost won,” the IMF report trumpeted, even as it called for “a policy triple pivot” to address interest rates, government spending and reforms and investment to boost productivity.
“Despite the good news on inflation, downside risks are increasing and now dominate the outlook,” said IMF chief economist Pierre-Olivier Gourinchas. Now that inflation is headed in the right direction, global policymarkers face a new challenge stemming from the rate of growth in the world economy, the IMF warned.
The fund kept its global growth estimate at 3.2% for 2024 and 2025 — which it called “stable yet underwhelming.” The United States is now forecast to see faster growth, and strong expansions are also likely in emerging Asian economies as a result of robust artificial intelligence-related investments. But the IMF lowered its outlook for other advanced economies — notably the largest European nations — as well as several emerging markets, blaming intensifying global conflicts and ensuing risk to commodity prices. 
Vigilance needed in final stretch of disinflation 
The Washington-based IMF, with 190 member countries, said in its overview that responsive monetary policy was key to bringing down inflation while labor market conditions normalized and supply shocks unwound, all of which helped avoid a global recession. 
Central banks will need to remain vigilant in fully bringing down inflation, the report warned. It added that services inflation still remains nearly double pre-pandemic levels as wages in certain countries continue catching up to an increase in the cost of living, leading several emerging market economies such as Brazil and Mexico to see an uptick in inflationary pressures. 

“While inflation expectations have remained well anchored this time around, it may be harder next time, as workers and firms will be more vigilant in protecting their standards of living and profits going forward,” the report stated.
Lower-income countries, where food and energy costs account for a greater share of household expenses, are also more sensitive to spikes in commodity prices that could lead to higher inflation. Poorer countries are already under greater stress from sovereign debt repayments, which could further limit funding for public programs. 
Market volatility among key downside risks 
Heightened financial volatility is another threat to global growth, the IMF report said. Sudden market sell-offs, such as occurred in early August, were cited by the IMF as a key risk that clouds the economic outlook. Although markets have steadied since the brief August’s slump, fueled by an unwinding of the yen carry trade and weaker-than-expected U.S. labor market data, worries remain, according to the fund. 
“The return of financial market volatility over the summer has stirred old fears about hidden vulnerabilities. This has heightened anxiety over the appropriate monetary policy stance,” the report said. 
Further challenges to global financial markets could come in the final stretch of the fight against inflation. Market turbulence and contagion is a key risk if underlying inflation remains stubborn — a key risk to low-income countries that are already under stress from high sovereign debt and currency market volatility. 
Other downside risks include geopolitical concerns, notably the Middle East conflict and potential spikes in commodity prices. A potentially deeper Chinese property market contraction, interest rates remaining too high for too long and rising protectionism in global trade are other threats to prosperity, the IMF said.  
The outlook is murkier longer term. The IMF forecasts global growth will rise 3.1% annually at the end of the 2020s, the lowest level in decades. While China’s weaker outlook has weighed on medium-term projections, but so does a deteriorating outlook in Latin America and Europe. Structural headwinds such as low productivity and aging populations are also limiting growth prospects. 
“Projected slowdowns in the largest emerging market and developing economies imply a longer path to close the income gaps between poor and rich countries. Having growth stuck in low gear could also further exacerbate income inequality within economies,” the IMF warned. More