Inflation is falling faster than expected but has not been completely defeated, International Monetary Fund chief Kristalina Georgieva said on Thursday, urging central bankers to carefully calibrate their decisions on interest rate cuts based on the data they receive.
Georgieva said headline inflation for advanced economies was 2.3% in the final quarter of 2023, down from 9.5% just 18 months ago, and the downward trend is expected to continue into 2024.
That would create the conditions for central banks in major advanced economies to start cutting rates in the second half of the year, although the pace and timing could vary, he said at an event organized by the Atlantic Council think tank.
“In this final stretch, it is doubly important that central banks maintain their independence,” Georgieva said, urging authorities to resist calls for early rate cuts when necessary.
“Premature easing could cause new inflation surprises, which could even require a new wave of monetary tightening. On the other hand, delaying too much could cool economic activity,” he said.
Georgieva said next week’s World Economic Outlook report will show global growth is slightly stronger, thanks to robust activity in the United States and many emerging market economies, but she made no new specific forecasts.
He said the resilience of the global economy has been helped by strong labor markets and an expanding workforce, strong domestic consumption and reduced supply chain problems, but said there are still “many things to worry about.”
“The global environment has become more challenging. Geopolitical tensions increase the risks of fragmentation… and, as we have learned in recent years, we operate in a world where we must expect the unexpected,” Georgieva said.
He said global activity is weak by historical standards and that growth prospects have been declining since the 2008-2009 global financial crisis. The global output loss since the start of the Covid-19 pandemic in 2020 has been $3.3 trillion, disproportionately affecting the most vulnerable countries.
Georgieva said the United States had seen the strongest recovery among advanced economies, helped by rising productivity growth. Eurozone activity was recovering more gradually, due to the persistent impact of high energy prices and weaker productivity growth.
Among emerging market economies, countries like Indonesia and India have fared best, but low-income countries have borne the biggest scars.
Source: Terra
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