IMF warns on ‘stalling’ progress to reduce inflation

The International Monetary Fund has declared the global economy remains ‘remarkably resilient’, even as it warned that rapid progress on inflation over the past year had stalled at the start of 2024.

Jim Chalmers will attend the World Bank and IMF spring meetings in Washington this week. Picture: AFP

The International Monetary Fund has declared the global economy remains “remarkably resilient”, even as it warned that rapid progress on inflation over the past year had stalled at the start of 2024.

As Jim Chalmers prepared to travel to Washington DC for a ­series of meetings with G20 counterparts and World Bank officials, the IMF’s latest World Economic Outlook expressed optimism that central banks would manage to orchestrate a “soft landing” for economies around the world, saying that while the global economy remained weak, the outlook had become less gloomy over the past six months.

Global growth would be steady at 3.2 per cent in this year and the next, the IMF said, although the horizon remained clouded by risks associated with China’s slow-motion property crash and the threat of escalating conflicts in the Middle East and Europe.

Attending the spring meetings of the IMF and World Bank in the American capital, the Treasurer will have his opportunity to spruik Labor’s recently announced Future Made in Australia Act, which has brought Australia into line with a new era of interventionist industrial policies among advanced countries aimed at boosting domestic manufacturing capacity and reaching net-zero goals.

“While in Washington, I will meet with my counterparts from the United States, the United Kingdom, Canada, New Zealand, Spain and Ukraine, with a strong focus on identifying shared economic challenges and opportunities in the future as we seek to manage this new era of fragmentation,” Dr Chalmers said.

“I’ll take part in a series of discussions about the global economy, climate finance and strengthening our economic institutions, and will raise the importance of working together to ensure more reliable and sustainable supply chains for critical minerals,” he said.

The IMF in its new report nudged up Australia’s projected growth rate to a still weak 1.5 per cent for this year, while real GDP growth for 2025 was lowered marginally to 2 per cent in 2025, versus the most recent January forecast.

Global growth would be steady but soft at 3.2 per cent in this year and the next, the IMF economists said, while inflation would continue to track lower to 2.8 per cent by the end of 2024, and to 2.4 per cent a year later.

Consumer price growth in Australia will only reach the top of the Reserve Bank’s 2-3 per cent target range by the end of next year, according to the IMF estimates.

A recent acceleration in US inflation has triggered a major reassessment among analysts of when the Federal Reserve will be able to deliver interest rate cuts. Financial markets have now pushed back the first Reserve Bank rate cut to December, with a small chance rates relief could be delayed until 2025.

IMF chief economist Pierre-Olivier Gourinchas said “most of the good news on inflation came from the decline in energy prices and in goods inflation”.

This welcome progress was now threatened by the impact on oil prices from the escalating Middle East conflict, while further trade restrictions on Chinese exports could increase costs for consumers and firms around the world.

“Bringing inflation back to target should remain the priority,” Mr Gourinchas said.