The International Monetary Fund (IMF) this week became the latest financial institution, commentator, forecaster to predict a “soft-landing” for the global economy. It’s now almost a universal assumption among mainstream think tanks. Predictions at the beginning of the year for what conditions will be like at the end of the year have, however, particularly in recent years, proved wildly inaccurate.
Brexit, Covid-19, Russia’s war in Ukraine and the ensuing energy price hike have upended what we thought we might see.
In its latest assessment of global economic conditions, the Washington-based fund said recovery from Covid-19, Russia’s invasion of Ukraine and the cost-of-living crisis was proving “surprisingly resilient”.
So while growth in advanced economies, including the euro zone, will be slower, the IMF upped its 2024 forecast for the global economy to 3.1 per cent, citing steady growth and moderating inflation, which would boost financial conditions and permit “real incomes to recover”.
“The clouds are beginning to part. The global economy begins the final descent toward a soft landing, with inflation declining steadily and growth holding up,” said IMF chief economist Pierre-Olivier Gourinchas.
All of this should be good news only for the fact that these types of forecast narratives keep coming undone.
This time last year, we presumed the global economy was headed for a hard landing on the back of already heightened inflation and interest rate hikes but the out-turn was considerably more benign. The year before the European Central Bank’s counsel of calm about inflation went awry — and spectacularly — when Russia attacked Ukraine and gas prices spiked.
At Davos earlier this month, leaders hailed the resilience of the global economy but fretted about the worsening geopolitical threat in the Middle East. Perhaps the current geopolitical crisis will ameliorate. Perhaps the soft landing narrative will evaporate. These are fluid times. That said, the rapid and indisputable decline in inflation (in Ireland it fell to just 2.7 per cent in January, down from 3.2 per cent the previous month) is driving the more upbeat economic forecasts.
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