World Economic Outlook, October 2024: Policy Pivot, Rising Threats

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Global growth is expected to remain stable yet underwhelming

World Economic Outlook, October 2024: Policy Pivot, Rising Threats

Global growth is expected to remain stable yet underwhelming. However, notable revisions have taken place beneath the surface since April 2024, with upgrades to the forecast for the United States offsetting downgrades to those for other advanced economies, in particular, the largest European countries. Likewise, in emerging market and developing economies, disruptions to production and shipping of commodities—especially oil—conflicts, civil unrest, and extreme weather events have led to downward revisions to the outlook for the Middle East and Central Asia and that for sub-Saharan Africa. These have been compensated for by upgrades to the forecast for emerging Asia, where surging demand for semiconductors and electronics, driven by significant investments in artificial intelligence, has bolstered growth, a trend supported by substantial public investment in China and India. Five years from now, global growth should reach 3.1 percent—a mediocre performance compared with the prepandemic average.

As global disinflation continues, services price inflation remains elevated in many regions, pointing to the importance of understanding sectoral dynamics and of calibrating monetary policy accordingly, as discussed in Chapter 2. With cyclical imbalances in the global economy waning, near-term policy priorities should be carefully calibrated to ensure a smooth landing. At the same time, structural reforms are necessary to lift medium-term growth prospects, while support for the most vulnerable should be maintained. Chapter 3 discusses strategies to enhance the social acceptability of these reforms—a crucial prerequisite for successful implementation.

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Projections Table

Database

Chapters in the Report

Chapter 1: Global Prospects and Policies

Global growth is expected to remain stable yet underwhelming. As disinflation continues, a smooth landing is within reach. However, the balance of risks is tilted to the downside: geopolitical tensions could flare up; sudden eruptions in financial market volatility could tighten financial conditions; problems in China’s property sector could generate global spillovers via their effect on global trade, as could rising protectionism and continued geoeconomic fragmentation; and disruptions to the disinflation process could prevent central banks from easing monetary policy, adding challenges to fiscal policy and financial stability. Amid numerous threats, it is time for a policy pivot. With monetary policy easing, shifting gears on fiscal policy to ensure sustainable debt dynamics and rebuilding of buffers is appropriate. Advancing structural reforms to boost long-term growth and accelerating the green transition remains as necessary as ever.

Chapter 2: The Great Tightening: Insights from the Recent Inflation Episode

The recent global inflationary experience was characterized by large sectoral demand shifts amid supply disruptions and unprecedented fiscal and monetary stimulus. Chapter 2 shows that the pass-through of sectoral price pressures to core inflation, and the shifting and steepening of the Phillips curve are essential to understanding the global inflation surge. This is consistent with key sectors hitting their supply bottlenecks as demand rotated across sectors and was boosted by a drawdown of savings. The chapter offers a new monetary policy lesson and confirms an old one. In extreme cases with widespread sectoral supply bottlenecks and strong demand, inflation can surge, but tighter policy can bring it down quickly with limited output costs. Outside of such cases, when supply bottlenecks are confined to specific sectors, conventional policy rules perform well.