Rise in commodity prices, tightness in labor market, renewed supply chain tensions could reignite inflation, says report
The global economy appears on track for a soft landing, but activity and growth prospects remain weak, the International Monetary Fund (IMF) said Monday in a report.
“The cyclical position of G20 countries has proven stronger than previously anticipated as disinflation has so far proceeded without triggering a recession and emerging market economies have demonstrated improved resilience,” said the G20 Surveillance Note, which was published before the G20’s Finance Ministers and Central Bank Governors’ Meeting in Sao Paulo, Brazil from Feb. 28-29.
A soft landing is a situation where a central bank raises interest rates too much and too high,leading to an economic slowdown but avoiding a recession.
“Looking ahead, monetary policy is expected to loosen somewhat in 2024. However, medium-term growth prospects remain subdued reflecting secular trends and challenges including weak productivity growth, ageing, geoeconomic fragmentation and climate vulnerabilities,” said the report.
The IMF said global economic growth could be higher than expected if the pace of disinflation is faster than anticipated and brings forward easing in monetary policy.
The institution, on the other hand, warned that additional spikes in commodity prices, persistent tightness in the labor market, or renewed supply chain tensions could reignite inflationary pressures.
“An appropriate combination of fiscal and monetary policy will be critical to delivering debt, price, and financial stability,” the report said.
The IMF, in addition, said G20 policymakers must step up efforts to mitigate the threat of climate change, help unlock Africa’s growth potential, strengthen the resilience of the international monetary system, and ensure the benefits of artificial intelligence adoption.
Source: aa