IMF Sees Steady Global Growth, Warns of Slowing Disinflation Momentum
Editor
16 July 2024 22:17 WIB
INFLATION RISKS REMAIN
The IMF warned of near-term upside risks to inflation as services prices remain elevated amid wage growth in the labor-intensive sector and said renewed trade and geopolitical tensions could stoke price pressures by increasing the cost of imported goods along the supply chain.
"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," the IMF said in the report.
Gourinchas said that despite a fall in U.S. consumer prices last month, the Federal Reserve can afford to wait a bit longer to begin cutting rates to avoid any inflationary surprises.
PROTECTIONISM RISKS
The IMF also warned of potential swings in economic policy as a result of many elections this year that could have negative spillovers to the rest of the world.
"These potential shifts entail fiscal profligacy risks that will worsen debt dynamics, adversely affecting long-term yields and ratcheting up protectionism," the Fund said.
The Fund did not name U.S. Republican Party candidate Donald Trump, who has proposed to impose a 10% tariff on all U.S. imports, nor Democratic President Joe Biden, who has sharply hiked tariffs on Chinese electric vehicles, batteries, solar panels and semiconductors.
But it said that higher tariffs and a scaling up of domestic industrial policy could create "damaging cross-border spillovers, as well as trigger retaliation, resulting in a costly race to the bottom."
Instead, the IMF recommended that policymakers persevere with restoring price stability - easing monetary policy only gradually - replenish fiscal buffers drained during the pandemic and pursue policies that promote trade and increase productivity.
REUTERS
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