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Secretary of Treasury Janet Yellen speaks about her key priorities for the 2024 Annual Meetings of the IMF and World Bank during a press conference in Washington DC, USA, on October 22, 2024, at the Department of Treasury Headquarters.
The World Economic Outlook is rosy … on the surface at least
The International Monetary Fund and World Bank released their much-watched World Economic Outlook on Tuesday, projecting that the world economy will grow by 3.2% in 2025 as inflation cools to an average of 4.3%.
It provides a fairly rosy picture, and these two key institutions in emerging economic development are urging the governments they work with to seize the moment by loosening up interest rates and cutting down on debts and deficits. In other words: Inject more money into economies and use the resulting growth to balance national checkbooks.
That picture is based on some YUGE assumptions, though – first and foremost being policy continuity in the US. “Over coffee and in the halls of the Annual Meetings, everyone is talking about one thing,” says Eurasia Group’s Rob Kahn. “Trump.”
The World Economic Outlook hints at the problem, noting that “upgrades to the forecast for the United States [are] offsetting downgrades to those for other advanced economies” like China and the EU. If Trump carries out the major overhauls to US trade, industrial, and fiscal policy that he is promising, the assumptions that undergird global growth projections collapse, and the picture grows much darker, particularly for key middle-income economies.
“Trump’s policies would be inflationary, which creates headwinds for growth in the developing world,” Kahn explains. Countries like Brazil, Mexico, and South Africa — brimming with potential — could find themselves unable to effectively manage monetary policy and see their economies lose steam.
Representatives from vulnerable economies seem to know the risks they run in saying anything at the moment. In response to a question from GZERO about the risks of a Trump presidency for developing economies, Filipino Secretary of Finance Ralph Recto said Manila felt confident in its alliance with Washington and expected it could avoid the worst consequences through that strong relationship. Argentine Undersecretary for International Economic Affairs Candelaria Alvarez Moroni echoed Recto’s argument about political cover, while Nigerian Finance Minister Wale Edun said his country was a “bystander” to the US election.
We’ll see how their tunes might change at the Spring Meetings in Bangkok, four months into the new US administration.
Students read Koranic verses at a madrasa, or Koranic school, in Dhusamareeb, central Somalia, December 16, 2012.
IMF says economic picture is rosy, but how does it look from the bottom?
Inflation looks set to fall globally, and a global recession is unlikely in 2024, according to the IMF’s April update to the World Economic Outlook. That so-called “soft landing” is great news for those in New York or Paris, but what does the picture look like from the most vulnerable economies?
Money has been tight for developing countries in sub-Saharan Africa, in particular, with many over-indebted states are only just returning to capital markets after COVID-19’s economic knock-ons shut them out, and face dim medium-term growth prospects.
IMF Chief Economist Pierre-Olivier Gourinchas told the IMF/World Bank Spring Meetings in Washington, DC, that low-income countries should focus on structural reforms to make their economies and governments more efficient.
“This will help lower borrowing costs and reduce funding needs,” he said, adding that such countries should lean into their demographic advantages and “improve the human capital of their large, young populations, especially as the rest of the world is aging rapidly.”
That’s easier said than done, but the IMF can point to a massive success story: Somalia. In December last year, Mogadishu was able to discharge some 90% of its external debt after meeting the specifications of an IMF program called the Heavily Indebted Poor Countries Initiative. That achievement followed years of hard work by Mogadishu.
In 2012, decades of war had left Somalia’s federal government barely functional and without a proper budget. If salaries were paid, it was through unaccountable cash. But now, it has fully digitized payroll, invoice tracking systems, and cash management tools, all of which have helped Somalia massively increase social spending, from $8 per person per year a decade ago to $48 per person per year today.
Such success in a fragile country has raised hopes that the model can be exported. But Somali Finance Minister Bihi Iman Egeh cautions that his country’s program “was only successful because it reflected Somalia’s needs and priorities,” meaning other countries need to tailor the approach to suit their unique challenges.
Building broad consensus meant “the economic reform program was among the few common national priorities that was elevated above our lively national politics,” said Egeh. “It was a successful unifying national exercise.”