Transcript

Transcript of World Economic Outlook October 2024 Press Briefing

October 22, 2024

Speakers:
Pierre‑Olivier Gourinchas, Director, Research Department, IMF
Petya Koeva Brooks, Deputy Director, Research Department, IMF
Jean‑Marc Natal, Division Chief, Research Department, IMF
Moderator:
Jose Luis De Haro, Communications Officer, IMF

Mr. De Haro: OK. I think we can start. First of all, welcome, everyone. Good morning for those who are joining, as online. I am Jose Luis De Haro with the Communications Department here at the IMF. And once again, we are gathered here today for the release of our new World Economic Outlook, titled Policy Pivot Raising Threats. I hope that by this time, all of you have had access to a copy of the flagship. If not, I would encourage you to go to IMF.org. There, you're going to find the document, but also, you're going to find Pierre‑Olivier's blog, the underlying data for the charts, videos, and other assets that I think are going to be very, very helpful for your reporting. And what's best, that to discuss all the details of the World Economic Outlook that, to be joined here today by Pierre‑Olivier Gourinchas, the Economic Counsellor Chief Economist and the Director of the Research Department. Next to him are Petya Koeva Brooks. She is the Deputy Director of the Research Department. And also with us, Jean‑Marc Natal, the Division Chief at the Research Department. We are going to start with some opening remarks from Pierre‑Olivier, and then we will proceed to take your questions. I want to remind everyone that this press conference is on the record and that we will also be taking questions online.

With no further ado, Pierre‑Olivier, the floor is yours.

Mr. Gourinchas: Thank you, Jose, and good morning, everyone. Let me start with the good news. The battle against inflation is almost won. After peaking at 9.4 percent year on year in the third quarter of 2022, we now project headline inflation will fall to 3.5 percent by the end of next year, and in most countries, inflation is now hovering close to central bank targets.

Now, inflation came down while the global economy remained resilient. Growth is projected to hold steady at 3.2 percent in 2024 and 2025. The United States is expected to cool down, while other advanced economies will rebound. Performance in emerging Asia remains robust, despite the slight downward revision for China to 4.8 percent in 2024. Low‑income countries have seen their growth revised downwards, some of it because of conflicts and climate shocks.

Now, the decline in inflation without a global recession is a major achievement. Much of that disinflation can be attributed to the unwinding of the unique combination of supply and demand shocks that caused the inflation in the first place, together with improvements in labor supply due to immigration in many advanced countries. But monetary policy played a decisive role, keeping inflation expectations anchored.

Now, despite the good news, on inflation, risks are now tilted to the downside. This downside risks include an escalation in regional conflicts, especially in the Middle East, which could cause serious risks for commodity markets. Policy shifts toward undesirable trade and industrial policies could also significantly lower output, a sharp reduction in migration into advanced economies, which can unwind some of the supply gains that helped ease inflation in recent quarters. This could trigger an abrupt tightening of global financial conditions that would further depress output. And together, these represent about a 1.6 percent of global output in 2026.

Now, to mitigate these downside risks and to strengthen growth, policymakers now need to shift gears and implement a policy triple pivot.

The first pivot on monetary policy is already underway. The decline in inflation paved the way for monetary easing across major central banks. This will support activity at a time when labor markets are showing signs of cooling, with rising unemployment rates. So far, however, this rise has been gradual and does not point to an imminent slowdown. Lower interest rates in major economies will also ease the pressure on emerging market economies. However, vigilance remains key. Inflation in services remains too elevated, almost double prepandemic levels, and a few emerging market economies are seeing rising price pressures, calling for higher policy rates. Furthermore, we have now entered a world dominated by supply shocks, from climate, health, and geopolitical tensions. And this makes the job of central banks harder.

The second pivot is on fiscal policy. It is urgent to stabilize debt dynamics and rebuild much‑needed fiscal buffers. For the United States and China, current fiscal plans do not stabilize debt dynamics. For other countries, despite early improvements, there are increasing signs of slippage. The path is narrow. Delaying consolidation increases the risk of disorderly adjustments, while an excessively abrupt turn toward fiscal tightening could hurt economic activity. Success requires implementing, where necessary, and without delay, a sustained and credible multi‑year fiscal adjustment.

The third pivot and the hardest is toward growth‑enhancing reform. This is the only way we can address many of the challenges we face. Many countries are implementing industrial and trade policy measures to protect domestic workers and industries. These measures can sometimes boost investment and activity in the short run, but they often lead to retaliation and ultimately fail to deliver sustained improvements in standards of living. They should be avoided when not carefully addressing well‑identified market failures or narrowly defined national security concerns.

Economic growth must come, instead, from ambitious domestic reforms that boost innovation, increase human capital, improve competition and resource allocation. Growth‑enhancing reforms often face significant social resistance. Our report shows that information strategies can help improve support, but they only go so far. Building trust between governments and citizens and inclusion of proper compensation measures are essential features.

Building trust is an important lesson that should also resonate when thinking about ways to further improve international cooperation to address common challenges in the year that we celebrate the 80th anniversary of the Bretton Woods Institutions. Thank you.

Mr. De Haro: Thank you, Pierre‑Olivier. Before we open the floor for your questions, let's remind some ground rules. First of all, if you have any question that it is related to a country program or a country negotiation, I would recommend not to formulate that question here. Basically, those questions can be formulated in the different regional press briefings that are going to happen later this week.

Also, if you want to ask a question, just raise your hand, wait until I call you. Identify yourself and the outlet that you represent. And let's try to keep it to just one question. I know that there are going to be many, many questions. We might not be able to take all of you. So please be patient. There are going to be many other opportunities to ask questions throughout the week.

Let me start—how I am going to start. I am going to start in the center. A couple of questions here. Then I am going to go to my right, and then I am going to go there. I am going to start in the first row, the lady with the white jacket, thank you.

QUESTION: Thank you, Jose, for taking my question. I want to ask about the geopolitical tensions that was mentioned in the report. It says there are rising geopolitical tensions. So far, the impact has been limited. But further intensification of geopolitical rifts could weigh on trade, investment, and beyond. I wonder whether Pierre‑Olivier, could you talk a little bit about what are the economic impacts of growing geopolitical tensions? Thank you.

Mr. Gourinchas: Thank you. This is, of course, a very important question. This is something that we are very concerned about, the rising geoeconomic fragmentation, trade tensions between countries, measures that are disrupting trade, disrupting cross‑border investment. This is something that we have looked at in our World Economic Outlook report. In Chapter 1, we have a box that evaluates the impact of various adverse measures, measures that could be taken by policymakers or various of shocks that would impact output. And when we look at the impact that rising trade tensions could have, there are two dimensions of this. One is, of course, you are increasing tariffs, for instance, between different blocs. That would disrupt trade. That will misallocate resources. That will weigh down on economic activity. But there is also an associated layer that comes from the uncertainty that increases related to future trade policy. And that will also depress investment, depress economic activity and consumption. When we put these two together, what we find is, we find an impact on world output that is on the order of about 0.5 percent of output levels in 2026. So it's a quite sizable effect of both an increase in tariffs between different countries and an increase in trade policy uncertainty.

Mr. De Haro: OK. I'm going to continue here in the center. We're going to go to the gentleman on the third row. Yep. There. There, third row, there. Third row. Thank you.

QUESTION: Hi. Thanks very much for taking my question. I just want to ask about the inflation side of the WEO. You mentioned just now inflation, you know, the battle is almost won. I am just wondering, there's sort of a divergence between the advanced economies and emerging markets and developing economies. When do you expect inflation to sort of fall toward that 2 percent target in emerging markets and developing economies? Thanks.

Mr. Gourinchas: Yes. So inflation, the progress on inflation has been more pronounced for advanced economies, and now we expect advanced economies to be back to their target sometime in 2025 for most of them. For emerging markets and developing economies, there is more variation, and we see an increase in dispersion of inflation, so a lot of countries have made a lot of progress. You look, for instance, at emerging Asia. There are inflation levels very similar to advanced economies for a number of them. You look at other regions—in the Middle East, for instance, or sub‑Saharan Africa—and you have countries that still have double‑digital inflation rates and will maybe take more time to converge back. So we see an increased divergence that reflects some of the shocks that are specific to some of these regions. Of course, conflict or climate‑related shocks can have an impact on inflation, and that's what we're seeing in these two regions I mentioned.

Mr. De Haro: OK. Now I'm going to move to my right. The first row here, the lady with the red suit.

QUESTION: Hello. Pierre, you mentioned that the geopolitical tensions could account for 0.5 percent of output if things kind of get out of hand. To what extent is this a very optimistic number here? Because we're talking about tensions not only in the Middle East. You have things going down in the Taiwan Strait. We have the Russian‑Ukraine war still ongoing. And there is a very big risk that shipping lines, straits might get disrupted. And this would affect very substantially the price of oil and other commodities. To what extent this would affect output—again, global output and inflation levels? Would inflation be a big risk again if major commodities prices increased substantially?

Mr. Gourinchas: Yes. So you are absolutely right. The scenario I was referring to earlier is a scenario where we have increased trade disruptions, tariffs, and trade policy uncertainty. But one can think also about geopolitical tensions impacting commodity market or shipping. Now, this is not something that we looked at in this report. That's something that we had looked at in our April report. And in April, when we looked at the potential for escalation in conflicts in the Middle East, the impact it could have on oil prices or on shipping costs, we found that this would very much be in the nature of adverse supply shock. It would negatively impact output, and it would increase inflation pressures. Now, the numbers we had when we did that exercise back in April, they're still very relevant for the environment we're in now. And that was one of the layers I showed today, is that it would reduce output by another about 0.4 percent by 2026 and would increase inflation by something on the order of 0.7 percent higher inflation in 2025. So this is something that is very much on top of the other tensions that I mentioned. This is why we are living in this world where there are multiple layers of risk that could be compounding each other.

Mr. De Haro: I'm going to stay here. First row, here. Thank you.

QUESTION: Thank you. I would like you to talk a little bit more about the situation in Africa. I know two years ago it was about COVID and then Ukraine. What do you see now? And what are some of the recommendations for sub‑Saharan Africa? Thank you.

Mr. Gourinchas: So sub‑Saharan African region is one that is seeing growth rates that are fairly steady this year, compared to last year, at about 3.6 percent, and then expected to increase to about 4.2 percent next year. So we're seeing some pickup in growth from this year to next year. But now, this is certainly a region that's been adversely impacted by weather shocks and, in some cases, conflict. So the growth remains subdued and somewhat uneven, and that's certainly something that we are concerned about.

Let me turn it over to my colleague Jean‑Marc Natal to add some color.

Mr. Natal: I would be happy to. Do you hear me? OK. So yes, so there has been over the last year, year and a half, there has been some progress in the region. You saw, you know, inflation stabilizing in some countries going down even. And reaching close—level close to the target. But half of them is still at distance, large distance from the target. And a third of them are still having double‑digital inflation.

In terms of growth, as Pierre‑Olivier mentioned, it's quite uneven, but it remains too low. The other issue is debt in the region. Obviously, it is still high. It has not increased. It has stopped increasing, and in some countries already starting to consolidate. But it's still too high. And the debt service is correspondingly still high in the region. So the challenges are still there. There has been some progress. So in terms of the recommendation, in countries where inflation is very high, you would recommend, you know, tight monetary policy and in some cases, when possible, helped by consolidation on the fiscal side.

It's complicated. In many countries, you know, there are trade‑offs, and, you know, consolidating fiscal is difficult when you also have to provide for relief, like in Nigeria, for example, due to the flooding. So targeting the support to the poor and the vulnerable is part of the package when you consolidate. I will stop here.

Mr. De Haro: OK. I am moving to my left. I am going to go to the gentleman in the first row.

QUESTION: Thank you very much. We know that the chancellor in the United Kingdom is planning on changing the fiscal rule on debt to allow for—to borrow more for investment. Pierre‑Olivier, do you support this idea? And what, in your view, are the risks? And should the U.K. government continue to target a fall in debt of some description or a rise in public sector net worth?

Mr. De Haro: Pierre‑Olivier, before you answer, are there any other questions on the U.K. in the room? I am going to take just two more from this group of U.K. reporters on my right that they are very eager. Just two questions more. We do not want to overwhelm—

QUESTION: Again, around the chancellor's upcoming budget. In your opening remarks, you referred to the possibility of abrupt changes in fiscal policy, disrupting what might happen to economies. U.K., according to your forecast, is in a quite good place in terms of growth heading upward. Do you fear that too strong a change in direction in fiscal policy in the U.K. could affect future growth?

Mr. De Haro: Just one more question.

QUESTION: You mentioned that there are some countries at risk of fiscal slippage because governments have promised to do their consolidation have struggled to execute. Is the U.K. in that group? Also, the IMF has previously recommended that countries are under fiscal strain should—can keep sort of investment flowing if they do shift to measures like public sector net worth. Is that still a recommendation that you stand by in particular relevance for the U.K.?

Mr. De Haro: And to give Pierre‑Olivier a little bit of time, I just want to remind everyone that we will have regional press briefings later this week, and some of these questions can be brought to all heads of departments that are going to be talking later on in the week. Pierre‑Olivier?

Mr. Gourinchas: First, I will make three quick remarks. We are going to wait and see at the end of this month, on October 30, the details of the budget that will be announced by the U.K. government. And at that point, we'll be able to evaluate and see the detail of the measures and how they will impact the U.K. economy.

The broader question, I think, is relevant for many countries, not just the U.K. And it goes to the second pivot I mentioned, this narrow path in terms of fiscal consolidation. I think when countries have elevated debt levels, when interest rates are high, when growth is OK but not great, there is a risk that things could escalate or get out of control quickly. And so there is a need to bring debt levels down, stabilize them when they are not stabilized and rebuild fiscal buffers. That is true for many countries around the world. And if you are not doing that—and that is getting to the question that was asked by the gentleman on the right here—if you're not doing that, that's when you find yourself potentially later on at the mercy of market pressures that will force an adjustment that is uncontrolled to a large extent. At which point you have very few degrees of freedom, so you do not want to get in that position. And I think the effort to stabilize public debt has to be seen in that context.

Now, the other side of the narrow path is, of course, if you try to do too much too quickly, you might have an adverse impact on growth. And you have to be careful there because we do have important—most countries have important needs when it comes to spending, whether it's about central services, what we think about healthcare, or if we think about public investment and climate transition. So we need to protect also the type of spending that can be good for growth. So finding ways—and this is something that our colleagues in the Fiscal Monitor report emphasize, finding ways to consolidate by reducing expenditures where it's needed. Maybe raising revenues. Often, it's a combination of both but doing so in a way that is least impactful on growth. It's country by country. There is no general formula. But that's kind of the nature of the exercise.

That pivot, that second pivot is absolutely essential. At the point we're at again precisely because we're in a world in which there will be more shocks and countries need to be prepared and need to have some room on the fiscal side to be able to build that.

Mr. De Haro: OK. Last question on this side. Then I will go online, and then I will go around the room again. The gentleman in the second row.

QUESTION: Thanks, Jose. Pierre‑Olivier, a question on Argentina. The IMF is maintaining its projections for the country for next year, improving GDP and inflation, 45 percent at the end of the year.

A question on Argentina. The IMF is maintaining its projections for next year, but I wanted to see if you could give us a little bit more detail on, where do you see the economy going. And if it's accurate to say at this point that the worst of the crisis is in the past? Thanks.

Mr. De Haro: We have received other questions regarding Argentina online from Lilliana Franco. Basically, she wants to know what's behind our expectations for inflation for 2025. And I think that there are other Argentine reporters in the room. I see them in the back. Please, if somebody can get them the mic and we can get all the questions on Argentina and then move on to other regions. There. There. Those two, please. Try to keep it short.

QUESTION: Hi. You mentioned the need to keep going with the reforms. And the government in Argentina is implementing a series of reforms. What's the take of the IMF in terms of these? And if they are perhaps hurting the most vulnerable due to the increase of poverty numbers in Argentina in the past report?

QUESTION: Hello.  I want to know if you raised your employment projection compared to the April—compared to the July forecast.

Mr. Gourinchas: Yes. So let me first state at the outset that our projections for Argentina have not been updated since July, and the reason for this is because there are ongoing program discussions between the authorities and the Fund. And so while that process is going on, we did not update the projections for the October round.

Now, to come to the question that was asked on the left. There are two things that are relevant for Argentina, two main things. One is what's happening on the inflation side. Here, I think the progress has been very substantial. We are now seeing month‑on‑month inflation in Argentina close to 3.5 percent, and this is down from about 25 percent month on month back in December of last year. So very, very significant decline in the inflation rate. So that's something to acknowledge. And the hope is, of course, that the measures in place will continue to improve the situation on that front.

On the growth front, what we are saying is that activity has contracted substantially in the first half of the year, but there are signs that it's starting to gradually recover. Now how much again, I cannot give you an update because we do not have it as of now. But there are signs that there is a recovery in real wages and in private credit and activity.

Now, of course, this has been difficult for the Argentine economy, the decline in growth of that nature. And that's something that, again, we are engaged in discussions with the authorities on the best way forward. I cannot comment more than that.

Mr. De Haro: OK. Now I am going to get a question from our colleagues on WebEx. 

QUESTION: I have a question on China. Given China's recent implementation of various stimulus measures, such as support for the real estate—real sector and interest rate reductions and other economic incentives, we've already seen a major boost in its capital market. So how do you assess the potential impact of these developments on China's economic recovery and growth perspective?

Also, how the external effects, such as the Federal Reserve's easing monetary path, will play a role here. Thank you.

Mr. De Haro: Before you answer on the Federal Reserve, there's other questions on China of a similar nature. Recent stimulus announced by the Governor and its effects.

Mr. Gourinchas: OK. So China, as I mentioned in my opening remarks, we have a slight downward revision for its 2024 growth, compared to our July projections to 4.8 percent. And that's a revision that's coming largely due to a weaker second quarter of the year. And that weaker second quarter of the year is reflecting continued decline in confidence in the household and corporate sector and also the continued problems in the property sector in China.

Now, this is something that, of course, is a top priority to address for the Chinese authorities. And we've seen a number of measures that have been announced since the end of last month. First measures, monetary and financial measures announced by the People's Bank of China, and then some fiscal measures that were announced a few weeks ago.

These measures in general go in the right direction, from our perspective. They are trying to improve the situation in the property sector. They're trying to, for instance, lowering borrowing rates or trying to improve the balance sheet of the property developers.

In our view, in our assessment, the measures announced at the end of last month by the PBOC, although they go in the right direction, are not sufficient to lift growth in a substantially material way. And that's why our forecast is still at about 4.8 percent for 2024 and is unchanged for next year, at 4.5 percent.

The new, more recent measures announced a few weeks ago by the Ministry of Finance are not incorporated in our forecast. We are waiting to see the details. I should mention, however, that since then, there has also been a release of the Q3 growth for China, and this has also been a little bit on the disappointing side. So I would say that what we're seeing in terms of where the Chinese economy might be going is a little bit of a downward revision coming from the Q3 forecast and then potentially some measures that will help lift the economy going forward.

Mr. De Haro: OK. So we have an additional question online. Basically, it comes from a reporter in Israel who wants to know how the current conflict is affecting the region and the global economy. Also, if there's any other questions regarding the ongoing conflict, we can go here in the first row, please.

QUESTION: Hi. With the GCC countries increasingly focusing and diversifying their economies away from oil now, how the IMF sees the progress and how you assess that with geopolitical tensions that may affect the attraction of the investment?

Mr. Gourinchas: OK. So on the impact of the conflict in the Middle East on the countries in the region, and more broadly, let me ask my colleague Petya Koeva Brooks to come in.

Ms. Koeva Brooks: Sure. Indeed, the conflict has inflicted a heavy toll on the region, and our hearts go to all who have been affected by it. We are monitoring the situation very closely. And what we could say at this stage is apart from the enormous uncertainty that we see is that the fallout has been the hardest in the countries in the region, at the epicenter of the conflict. We've seen significant declines in output in West Bank, in Gaza. Lebanon has also been hard hit. Now, we've also seen impact in the—on the economy in Israel, although there, I think the—so far at least, the impact has been smaller.

Now, beyond that, there has also been an impact on commodity prices, on oil prices. We've seen quite a lot of volatility, though, as other factors have also come in, such as the concerns about global demand kind of have pushed prices in the opposite direction.

Now, beyond that, when it comes to specific countries in the GCC region, when it comes to, for instance, Saudi Arabia, we've seen there, actually the non‑oil output has done very well, and we do have a small downward revision in the overall growth rate, but that is pretty much because of the voluntary oil cuts that have now been extended through November. Let me stop here. Thank you.

Mr. De Haro: OK. We are coming here to the center of the room. I'm going to go way back. The gentleman in the blue shirt that I think is the third row from the back. Yep. There. He has—there, there, there. A little bit. Can you stand up? Yep. Perfect. And then I will go with you, with the lady.

QUESTION: Thank you for doing this. Your alternative scenario about the trade war does not seem so far from reality. Indeed, especially if Trump wins the elections. So could you augment about that? Thank you.

Mr. De Haro: We have a couple of questions similar to that nature.

Mr. Gourinchas: Yes. So, I mean, of course, I will first preface by saying we are not commenting on elections or potential platforms here at the IMF. What we are seeing and when we're looking at the world economy goes beyond what might be happening in a single country. This is why the scenario that we are looking at in Box 1.2 of our World Economic Outlook is one that focuses on, if you want, an escalation of trade tensions between different regions—whether the U.S., the European Union, or China. And the numbers I quoted earlier are reflecting our model estimates of the cumulative impact of this increase in tensions. So I think that this is something that we are very concerned about. We've seen a very sharp increase in a number of trade‑distorting measures implemented by countries since 2019, roughly. They've gone from 1,000 to 3,000, so tripling of trade‑distorting measures implemented by countries, and 2019 was not a low point. That was already something that was above what we were seeing in the 2010s. So there is definitely, you know, a direction of travel here that we are very concerned about because a lot of these trade‑distorting measures could reflect decisions by countries that are self‑centered but could be ultimately harmful not just to the global economy, but this is the benefits of doing a scenario analysis like the one we did. They are also hurtful for the countries that want to implement them, as well, because the impact on global trade also makes the residents of a country poorer.

Mr. De Haro: OK. I'm going to take a question from WebEx and then I'm going to go to you. I think that we have a question on the U.S. Please go ahead.

QUESTION: My question would be regarding the U.S. resilience toward inflation shock. I remember talks about this during the April meetings and the April report. And I wanted to ask you whether you're still committed to this forecast of the U.S. resiliency, and whether we can still see the risk of recession in the U.S. since recent talks about the unemployment data, it has not always come to the expectations of what the bond market or the stock exchange thinks. So is the U.S. still as resilient as you saw it in April this year?

Mr. Gourinchas: Yes. So, I mean, the news on the U.S. is good in a sense. We have had an upgrade in growth forecasts for 2024 and 2025. The historical numbers have also been revised, so even upgraded 2023, that is already sort of behind us. But the numbers came in, and they were stronger than what was realized. And that strong growth performance has been happening in a context of a continued disinflation. There have been some bumps in the road. The disinflation may not have been proceeding, especially earlier in the year, as quickly as was projected, but lately it has been quite substantial.

So what accounts for this is two things that are really important there. One is, there is strong productivity growth that we see when we look at the U.S. That's somewhat unlike other advanced economies, in fact. When we look around the world. And the second is also a very significant role that immigration has played, the increase in foreign‑born workers in the U.S. that have been integrated fairly quickly into the labor force. Now, the increase in unemployment that we've seen recently—I just showed it in my opening remarks—reflects to a large extent the fact that you have this increase in foreign‑born workers. And it takes—they have been integrated quickly in the labor force, but still there was an influx of them or there was an influx of them, and it's taken a little bit of time to absorb them. And that's what is reflected in the increased unemployment rate. So the labor market picture remains one that is fairly, fairly robust, even though it has cooled off but from very, very tight levels. Growth is solid. So I think the answer to the question that was posed, I think a risk of a recession in the U.S. in the absence of a very sharp shock would be somewhat diminished.

Now, that is really what paved the way when you think about what the Federal Reserve is doing, seeing this inflation coming down a lot but noticing the increase in unemployment, pivoting away from just fighting inflation, that fight is almost done, and now being more concerned about, maybe what might be happening going forward with the labor market and wanting to make sure that that cooling off of the labor market does not turn into something that is more negative.

Mr. De Haro: OK. The clock here says that I have seven minutes that I can push a little bit, but we go there. Then we will go to this side. And come back here and maybe end around here.

QUESTION: Thank you very much. So I am right here in this room, in April, you projected the Nigeria economy to grow by 3.3 percent, and you cited improved oil sector, security, and then agriculture. So I want to understand, what has changed since then in terms of Nigeria's growth and the factors you mentioned? Thank you.

Mr. Gourinchas: Thank you. Jean‑Marc, do you want to comment on Nigeria?

Mr. Natal: Yes. Rightly so. We revised growth for Nigeria in 2024 by .2 down. And, you know, things are volatile, I suppose, because the reason for the revision is precisely issues in agriculture related to flooding. And also issues in the production of oil related to security issues, and also maintenance issues that have pushed down the production of oil. So these two factors have played a role.

Mr. De Haro: OK. We go to this side. I'm going to go to the front row, the lady with the white jacket. Thank you.

QUESTION: Thank you. So this is still a follow‑up question since you just answered on Nigeria. What's the IMF's projection for the social impacts on full subsidy removal, especially when you—full subsidy removal and forex unification in terms of poverty, inequality, and food insecurity? And also, can give us your medium‑term projections for Nigeria's growth? Thank you.

Mr. Gourinchas: So I am afraid on this one I will have to go back and check because I do not have the number ready on the impact of the removal of the fuel subsidies specifically that you asked about. I do not know if my colleagues—

Mr. De Haro: And I would encourage you to formulate this question in the press briefing for the regional outlook for the African Department. Probably there, you will get your answer, but reach out to us bilaterally and then we will get you the question.

We are going to stay—we're going to go to the gentleman in the back.

QUESTION: Thanks very much. There seems to be a strange sort of divergence in the euro zone economy in which Spain—you have revised upwards Spain's GDP growth forecast a whole point, percentage point, whilst Germany is languishing. Could I ask you, is Spain's performance sustainable? And Germany's in a recession?

Also, one other question. You seem in your box on inflation and wage share and profit share, wage share you seem to be suggesting if there's any danger of increasing inflation in the future, it's more an excessive profit share than exactly wage? Could you tell me if that's a correct interpretation? Thanks.

Mr. Gourinchas: Yes. So just a few words on the euro area in general. And then I will let my colleague Petya come in on Spain. We do see some divergence across the different countries of the euro area. And one of the drivers is how reliant they are on manufacturing, as one of the key sectors in domestic production. And what you are seeing is, there is a general weakness in manufacturing and that's heating countries like Germany. While countries that are maybe a bit more reliant on services, including tourism—and Spain is one of them—are seeing a better performance.

Now, on the second part of your question, and I will turn it over to Petya, on the profit share and wages. We're seeing now wage growth that is in excess of inflation. And sometimes people say, well, that's a problem because that means, you know, maybe that cannot be sustained and therefore there will be more inflation. Well, not quite. That's not the view we have here at the Fund. A lot of the increase in wages in excess of inflation right now—so that's an improvement in real wages in standards of living—is reflecting a catchup phenomenon. It's after years during which inflation was higher than wage inflation, wage increase. So real wages are catching up. They are covering lost ground.

Now, during those years when inflation was higher than wages, profit margins somewhere were higher in the economy. And that is the profit margin that is being eroded back. So it's not that we're squeezing profits inordinately right now. It's just they're coming back more toward their historical level as real wages are catching up, and that's not necessarily a concern in terms of inflation dynamics going forward. With this, let me turn it over to Petya.

Ms. Koeva Brooks: Thank you. Indeed Spain does stand out as one of the countries with a substantial upward revision for this year. We're now projecting growth to be 2.9, after last year, when it was 2.7. So what's behind this revision is the positive surprises that we've already seen, especially in the second quarter, as well as some of the revisions to the back data.

And then when we look at the composition of these surprises, again, it was net exports and the receipts from tourism that were a substantial contributor. But also, private consumption and investment also played a role, which may imply that some of the impact of the national recovery plan and the EU funds that are being used could—we could already be seeing the impact of that. And then when we move forward, we are expecting a slowdown in growth next year, but, again, if these—if this investment continues, of course, that would be a very positive factor behind the recovery. Thanks.

Mr. De Haro: OK. I have time for just one question because literally, we have 15 seconds. So I'm going to go with the gentleman here.

QUESTION: Thank you. Mr. Gourinchas, in April you said likely we will see one rate cut in the United States. We've seen it. The data, as you just said, is very good. Would further rate cuts be counterproductive?

Mr. Gourinchas: Well, in our projections, of course, we need to make some assumptions about what central banks, and this round of projection is no exception. So in our projections just released today, we're assuming that there will be two more rate cuts by the Fed in 2024 and then four additional rate cuts in 2025. And that would bring the policy rate towards the terminal rate that is around 2.75, 3. Why do we see the additional rate cuts? Well, in part it's the progress on inflation. And then as I mentioned earlier, as an answer to an earlier question, the fact that we're seeing the labor markets cooling and therefore the concern for the Fed is now to make sure that that last part of the disinflation process is not one that is going to hit activity. In the Chapter 2 of our report, we describe how that last mile could be somewhat more costly because, as the supply constraints have eased and moved away, it becomes harder to bring down inflation in that last mile without hurting economic activity, so it's important to also adjust the policy rate path in a direction of a little bit more easing, as the economy is smooth landing.

Mr. De Haro: OK. As in life, all good things have to come to an end. But before that, I want to thank you all, on behalf of Pierre‑Olivier, Petya, and Jean‑Marc. Also, on behalf of the Communications Department and a couple of reminders for all of you, the Global Financial Stability Report press briefing is going to happen in this same room at around 10:15 a.m. Tomorrow morning, you have the press briefing for the Fiscal Monitor, and later on in the week, you will have the Managing Director's press briefing and all the regional press briefings that we've been talking about. I want to encourage you to go to IMF.org, download the flagships, the World Economic Outlook, and if you have any questions, comments, feedback, everything to media at IMF.org. So have a great day.