The International Monetary Fund on Tuesday said the world economy is slowing amid ongoing threats from higher interest rates and the war in Ukraine and warned the tepid recovery faces fresh risks from the eruption of violence in the Middle East.
In its latest World Economic Outlook, the IMF predicted global gross domestic product will grow just 2.9% in 2024, which represents a 0.1% decline from its previous forecast in July – after rising 3% this year. By comparison, world output grew by 3.5% in 2022.
The downgrade comes as the global economy continues to recover from the COVID-19 pandemic, the Russian invasion of Ukraine and the inflation crisis that sent food and gasoline prices skyrocketing.
"The global economy is limping along, not sprinting," IMF Chief Economist Pierre-Olivier Gourinchas said during a press conference at the group's annual meeting.
Gourinchas said it is "too early" to assess the long-term economic impact from the days-old war between Israel and the Palestinian militant group Hamas, according to The Associated Press. The IMF is "monitoring the situation closely," though Gourinchas noted oil prices have surged by about 4% over the past several days.
A 10% spike in oil prices would reduce global economic growth by 0.15% and increase global inflation by 0.4%, he said.
"We’ve seen that in previous crises and previous conflicts," Gourinchas said. "And, of course, this reflects the potential risk that there could be disruption either in production or transport of oil in the region."
Despite the headwinds, the IMF said the world economy has displayed remarkable resilience, even as the Federal Reserve and other global central banks aggressively hike interest rates to combat inflation.
The U.S. economy is likely to grow 2.1% this year and 1.5% next year, according to the IMF, a slight improvement from the July projections.
Inflation has been steadily declining since mid-2022 in the face of tighter monetary policy, but price pressures remain elevated, leaving household budgets strained. The IMF projected that global headline inflation will increase to 5.8% in 2024, up from the 5.2% the institution estimated just a few months ago.
"Monetary policy needs to remain tight in most places until inflation is durably coming down towards targets," Gourinchas said. "We’re not quite there."
Returning inflation to target levels is expected to take until 2025 in most cases.