“We also see some of this in Japan, and there, in fact, the attention of policymakers must be sharpened to carefully monitor where volatilities are becoming more significant. In Europe, this is not the case,” added the IMF managing director.
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The IMF and an alert for a possible negative impact on emerging markets.
In this sense, and with respect to the eurozone, Georgieva highlighted that “We are not too worried about the impact of the exchange rate”, adding that IMF analysis showed that the 50 basis point difference between the Fed’s rates and those of the European Central Bank (ECB) “is likely to lead to a minuscule change or 0.1 to 0.2% in the exchange rate”. “And that means that in Europe this is not a big problem,” she remarked.
The American channel recalls that the reference interest rates of most advanced economies have skyrocketed in recent years, when central banks tried to control inflation after the Covid-19 pandemic. These banks are now trying to lower rates as economies cool, although signs in the US suggest cuts could still be a few months away.
It is worth remembering that in the run-up to the annual meeting of the IMF and WB, Georgieva had asked central banks to carefully calibrate their decisions on rate cuts at a time when, although inflation is falling, “it is not completely defeated.”
“When necessary, policymakers should resist calls for premature interest rate cuts. Premature easing could generate new inflationary surprises that could even require a new episode of monetary tightening,” he noted at an event organized by the Atlantic Council. , prior to the presentation of the report on the organization’s World Economic Outlook.
However, there he pointed out that “delaying it too much could throw cold water on economic activity“. Therefore, he insisted that “in this final stretch, it is doubly important that central banks maintain their independence.”
Georgieva had anticipated that global growth forecasts in the medium term remained well below their historical averagejust above 3%, although the economy has held up better than expected thanks to the strength of the US.
He explained that global growth is slightly higher thanks to strong activity in the US and many emerging economies. In this he contributed the strength of household consumption and business investment, as well as mitigating supply chain problems. And inflation is falling somewhat faster than expected.
In this sense, the managing director of the IMF had highlighted that The resilience of the global economy is mainly due to solid macroeconomic fundamentals that had previously been achieved and is being aided by strong labor markets and a growing workforce.
“In general, in view of this panorama, it is tempting to breathe a sigh of relief” despite the fact that “the global environment has become more challenging. Geopolitical tensions increase the risks of fragmentation and, as we have learned in recent years, we operate in a world where we must expect the unexpected,” Georgieva said.
That is why many look at Asia. In this regard, the IMF raised its growth forecast for the region for 2024, amid optimism in India, although it stressed the need for more stimulus from China. In this way, the organization expects the Asian economy to grow 4.5% this year, 0.3 percentage points more than six months earlier. Its forecast for 2025 remained unchanged at 4.3%.
“The outlook for Asia and the Pacific in 2024 has improved: we now expect the region’s economy to slow less than we previously projected as inflationary pressures continue to dissipate,” he said. Krishna Srinivasan, Asia-Pacific director of the IMF.
Despite this, the IMF maintains that the biggest risk to the Asian economy is a prolonged correction in China’s real estate sector. Which would weaken demand and increase the chances of prolonged deflation, increasing the chances of affecting other economies through “direct trade knock-on effects.” “This means that China’s political response is important, both for itself and for the entire region,” they noted.
