As services inflation continue to hold up progress on disinflation, International Monetary Fund (IMF), in its latest World Economic Outlook (WEO) update released yesterday, said it expects global growth to remain largely unchanged this year into the next amid these and other challenges.

“Economic activity has shown resilience through early 2024, supported by robust private consumption in key economies. Despite challenges such as persistent services inflation and trade tension, the global economy is expected to grow steadily at 3.2 per cent in 2024 and 3.3 per cent in 2025 and this is consistent with our April forecast. That said, the momentum of global disinflation is slowing due to persistent services inflation,” said Jean-Marc Natal, deputy chief of the World Economic Studies Division in the Research Department of IMF.

Holding up the progress on the tapering of inflation, the normalisation of monetary policy in most countries, IMF said, continues to present some upside risks which further raises the prospect for higher and longer interest rates amid escalating trade tensions and increased policy uncertainty.

“The risk of elevated inflation has raised the prospects of higher-for-even-longer interest rates, which in turn increases external, fiscal, and financial risks. Prolonged dollar appreciation arising from rate disparities could disrupt capital flows and impede planned monetary policy easing, which could adversely impact growth. Persistently high interest rates could raise borrowing costs further and affect financial stability if fiscal improvements do not offset higher real rates amid lower potential growth,” the IMF said in its report while calling for a sequencing of the policy mix to achieve price stability and to replenish diminished buffers.

Citing services prices and wage inflation as the two main areas of concern hindering the path for disinflation, chief economist of IMF Pierre-Olivier Gourinchas said these, if not properly managed, could keep inflation higher for longer.

“Unless goods inflation declines further, rising services prices and wages may keep overall inflation higher than desired. Even absent further shocks, this is a significant risk to the soft-landing scenario,” he further noted.

Not yet in the clear, the IMF, in its outlook for the global economy, however, said that overall risks remains balanced, similar to that of the April 2024 WEO, even as near-term risks gain prominence.

In future proofing the economy, the global financial entity urged central banks to refrain from easing policies too early and to remain open in enacting further tightening should it become necessary. This, as the misuse of inward and domestically oriented policies compromise the ability to tackle global challenge such as climate change, of which multilateral cooperation and trade are vital.

“Where inflation data encouragingly signal a durable return to price stability, monetary policy easing should proceed gradually, which would simultaneously provide room for the required fiscal consolidation to take place. Fiscal slippages over the past year in some countries could require a stance significantly tighter than envisaged. As the space for fiscal manoeuvre narrows, commitments to achieving fiscal consolidation targets should be earnestly adhered to, aided by sound fiscal frameworks and resource mobilisation,” the also report outlined.