stable, but slow progress – El Financiero

Last week the annual spring meetings of the International Monetary Fund (IMF) and the World Bank (WB) were held in the city of Washington, DC, the capital of the United States. A long-awaited moment that kicks off the discussions is the publication of the 'World Economic Outlook' (WEO) document, which on this occasion the current chief economist, Pierre-Olivier Gourinchas, and the staff titled “Stable, but slow: Resilience in the midst of convergence.” In this sense, this is how the IMF's growth projections are observed. Stable because with some exceptions like Argentina, most countries are growing. Slow, because global growth is forecast to be 3.2 percent this year, 10 basis points (0.10 percentage points) above its January forecast and also 3.2 percent in 2025, which is one of the highest growth rates. casualties of history. Resilient because the economies appear not to have been greatly affected by the monetary restriction of most central banks. The IMF estimates that this is explained by both short-term factors such as high borrowing costs and the withdrawal of fiscal support, as well as the longer-term effects of the covid-19 pandemic and the Russian invasion of Ukraine, as well as such as weak productivity growth and increasing “geoeconomic fragmentation”, as the IMF has called 'deglobalization'. For its part, 'in the midst of convergence' because countries continue to observe important differences between themselves, particularly because both the effect and magnitude of fiscal and monetary stimuli was differentiated between countries and regions, as well as the vaccination process, which occurred at different moments in time. This caused growth rates to be higher in advanced economies first and this phenomenon to be observed in emerging economies, but with a lag.

So, for example, the staff The IMF anticipates that advanced economies will grow 1.7 percent this year and 1.8 percent in 2025, while in emerging economies, 4.2 percent both this year and next. It should be noted that much of this 4.2 percent growth in emerging markets is explained by the growth rates of China and India, where it is anticipated that they will grow 4.6 and 6.8 percent, respectively, this year and 4.1 and 6.5 percent in 2025. Both economies have a weight of almost 21 percent in global GDP (27 percent, adjusted for purchasing power parity). In the case of Mexico, the staff The IMF forecasts growth of 2.4 percent in 2024 and 1.4 percent in 2025, similar to the median analyst consensus.

Despite the focus on numerical forecasts, typically the topics that frame meeting discussions are risks to growth prospects going forward. According to the WEO, the balance of risks for global economic growth is balanced. On the one hand, regarding downside risks, the IMF identifies six risks: (1) Possibility of a temporary increase in inflation derived from geopolitical tensions; (2) exchange rate tension, given the divergence in disinflation speeds between the main economies; (3) monetary tightening could cool economic activity more than expected; (4) weak growth in China could hurt its trading partners. Above all, the implementation of a comprehensive policy to address the problem of the real estate sector; (5) a disruptive shift towards tax increases and spending cuts, given the high public debt in many economies. This could weaken activity, erode confidence and undermine support for reforms and spending to reduce the risks of climate change; (6) deglobalization could intensify. In this sense, greater restrictions on the flows of goods, capital and people would imply a slowdown on the supply side.

On the other hand, regarding upside risks, the staff The IMF identified three: (1) A more flexible fiscal policy than necessary could accelerate the dynamics of economic activity in the short term, although it runs the risk of making more costly policy adjustments in the future; (2) inflation could fall faster than expected amid higher gains in labor force participation, allowing central banks to advance easing plans; and (3) artificial intelligence and more significant-than-anticipated structural reforms could boost productivity.

With the balance of risks 'neutral' and with a Federal Reserve Bank of the United States (Fed) that does not know if it will be able to start a cycle of lower interest rates this year, a large number of participants, as well as Investors who attended the events of these annual meetings were left unsure of what direction international financial markets may take going forward. Thus, market participants will be looking for catalysts to find the new direction of the markets in the coming weeks.