World Economic Outlook 2024 PDF

INTERNATIONAL MONETARY FUND WORLD ECONOMIC OUTLOOK Steady but Slow: Resilience amid Divergence 2024 APR INTERNATIONAL MONETARY FUND WORLD ECONOMIC OUTLOOK Steady but Slow: Resilience amid Divergence 2024 APR  ©2024 International Monetary Fund...

INTERNATIONAL MONETARY FUND WORLD ECONOMIC OUTLOOK Steady but Slow: Resilience amid Divergence 2024 APR INTERNATIONAL MONETARY FUND WORLD ECONOMIC OUTLOOK Steady but Slow: Resilience amid Divergence 2024 APR  ©2024 International Monetary Fund Cover and Design: IMF CSF Creative Solutions Division Composition: Absolute Service, Inc.; and AGS, An RR Donnelley Company Cataloging-in-Publication Data IMF Library Names: International Monetary Fund. Title: World economic outlook (International Monetary Fund) Other titles: WEO | Occasional paper (International Monetary Fund) | World economic and financial surveys. Description: Washington, DC : International Monetary Fund, 1980- | Semiannual | Some issues also have thematic titles. | Began with issue for May 1980. | 1981-1984: Occasional paper / International Monetary Fund, 0251-6365 | 1986-: World economic and financial surveys, 0256-6877. Identifiers: ISSN 0256-6877 (print) | ISSN 1564-5215 (online) Subjects: LCSH: Economic development—Periodicals. | International economic relations— Periodicals. | Debts, External—Periodicals. | Balance of payments—Periodicals. | International finance—Periodicals. | Economic forecasting—Periodicals. Classification: LCC HC10.W79 HC10.80 ISBN 979-8-40025-589-2 (English Paper) 979-8-40025-613-4 (English ePub) 979-8-40025-604-2 (English Web PDF) Disclaimer: The World Economic Outlook (WEO) is a survey by the IMF staff pub- lished twice a year, in the spring and fall. The WEO is prepared by the IMF staff and has benefited from comments and suggestions by Executive Directors following their discussion of the report on April 3, 2024. The views expressed in this publication are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Directors or their national authorities. Recommended citation: International Monetary Fund. 2024. World Economic Outlook— Steady but Slow: Resilience amid Divergence. Washington, DC. April. Publication orders may be placed online, by fax, or through the mail: International Monetary Fund, Publication Services P.O. Box 92780, Washington, DC 20090, USA Tel.: (202) 623-7430 Fax: (202) 623-7201 E-mail: [email protected] www.bookstore.imf.org www.elibrary.imf.org Errata April 30, 2024 This web version of the WEO has been updated to reflect the following changes to the version published online on April 16, 2024: - On page 24, 2nd column, last sentence: “efficiency gains from loss of specialization” was corrected to “efficiency losses from declines in specialization” - On page 28, 2nd column, 1st paragraph and sentence: “25 basis points above headline” was corrected to “25 basis points above baseline” - On page 135, 1st column and line: “from 2024 onward to determine the price of oil and gas revenues but sets the benchmark” was corrected to “from 2024 onward but sets the benchmark” CONTENTS Assumptions and Conventions viii Further Information x Data xi Preface xii Foreword xiii Executive Summary xvi Chapter 1. Global Prospects and Policies 1 Disinflation amid Economic Resilience 1 The Outlook: Steady Growth and Disinflation 7 Risks to the Outlook: Broadly Balanced 16 Globally Consistent Risk Assessment of the World Economic Outlook Forecast 19 Policies: From Fighting Inflation to Restocking Fiscal Arsenals 20 Box 1.1. Fragmentation Is Already Affecting International Trade 24 Box 1.2. Risk Assessment Surrounding the World Economic Outlook’s Baseline Projections 25 Commodity Special Feature: Market Developments and the Power of Prices 29 References 41 Chapter 2. Feeling the Pinch? Tracing the Effects of Monetary Policy through Housing Markets 43 Introduction 43 Monetary Tightening and Real Estate: Context and Stylized Facts 45 The Housing Channels of Monetary Policy Transmission 47 Housing Channels Vary Significantly across Countries 49 Housing Channels May Have Weakened in Many Countries 55 Policy Implications 57 Box 2.1. Interest Rate Pass-Through in Europe 58 Box 2.2. China’s Monetary Policy and the Housing Market 60 References 61 Chapter 3. Slowdown in Global Medium-Term Growth: What Will It Take to Turn the Tide? 65 Introduction 65 Insights from Medium-Term Forecasts 67 How Did We Get Here? 68 Where Is Growth Heading? 75 Conclusions and Policy Recommendations 77 Box 3.1. Allocative Efficiency: Concept, Examples, and Measurement 79 Box 3.2. Distributional Implications of Medium-Term Growth Prospects 80 Box 3.3. The Potential Impact of Artificial Intelligence on Global Productivity and Labor Markets 82 References 84 International Monetary Fund | April 2024 iii WORLD ECONOMIC OUTLOOK—Steady but Slow: Resilience amid Divergence Chapter 4. Trading Places: Real Spillovers from G20 Emerging Markets 87 Introduction 87 G20 Emerging Markets in the Global Economy 90 Aggregate Spillovers in the Short Term 93 Spillovers from Trade and Global Value Chains 95 Can the Other G20 Emerging Markets Support Global Growth? 101 Conclusions and Policy Implications 102 Box 4.1. Industrial Policies in Emerging Markets: Old and New 104 Box 4.2. Capital Flows to G20 Emerging Markets and the Allocation Puzzle 105 Box 4.3. Spillovers from G20 Emerging Markets to Sub-Saharan Africa 106 References 107 Statistical Appendix 111 Assumptions 111 What’s New 111 Data and Conventions 112 Country Notes 113 Classification of Economies 115 General Features and Composition of Groups in the World Economic Outlook Classification 115 Table A. Classification by World Economic Outlook Groups and Their Shares in Aggregate GDP, Exports of Goods and Services, and Population, 2023 117 Table B. Advanced Economies by Subgroup 118 Table C. European Union 118 Table D. Emerging Market and Developing Economies by Region and Main Source of Export Earnings 119 Table E. Emerging Market and Developing Economies by Region, Net External Position, Heavily Indebted Poor Countries, and Per Capita Income Classification 120 Table F. Economies with Exceptional Reporting Periods 122 Table G. Key Data Documentation 123 Box A1. Economic Policy Assumptions underlying the Projections for Selected Economies 133 List of Tables 137 Output (Tables A1–A4) 138 Inflation (Tables A5–A7) 145 Financial Policies (Table A8) 150 Foreign Trade (Table A9) 151 Current Account Transactions (Tables A10–A12) 153 Balance of Payments and External Financing (Table A13) 160 Flow of Funds (Table A14) 164 Medium-Term Baseline Scenario (Table A15) 167 World Economic Outlook Selected Topics 169 IMF Executive Board Discussion of the Outlook, April 2024 179 Tables Table 1.1. Overview of the World Economic Outlook Projections 10 Table 1.2. Overview of the World Economic Outlook Projections at Market Exchange Rate Weights 12 Table 1.2.1. Fiscal Impulse Relative to Baseline 26 Table 4.1. Sectors in G20 Economies with the Largest Employment Spillovers 100 iv International Monetary Fund | April 2024  contents Annex Table 1.1.1. European Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment 35 Annex Table 1.1.2. Asian and Pacific Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment 36 Annex Table 1.1.3. Western Hemisphere Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment 37 Annex Table 1.1.4. Middle East and Central Asia Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment 38 Annex Table 1.1.5. Sub-Saharan African Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment 39 Annex Table 1.1.6. Summary of World Real per Capita Output 40 Online Tables—Statistical Appendix Table B1. Advanced Economies: Unemployment, Employment, and Real GDP per Capita Table B2. Emerging Market and Developing Economies: Real GDP Table B3. Advanced Economies: Hourly Earnings, Productivity, and Unit Labor Costs in Manufacturing Table B4. Emerging Market and Developing Economies: Consumer Prices Table B5. Summary of Fiscal and Financial Indicators Table B6. Advanced Economies: General and Central Government Net Lending/Borrowing and General Government Net Lending/Borrowing Excluding Social Security Schemes Table B7. Advanced Economies: General Government Structural Balances Table B8. Emerging Market and Developing Economies: General Government Net Lending/Borrowing and Overall Fiscal Balance Table B9. Emerging Market and Developing Economies: General Government Net Lending/Borrowing Table B10. Selected Advanced Economies: Exchange Rates Table B11. Emerging Market and Developing Economies: Broad Money Aggregates Table B12. Advanced Economies: Export Volumes, Import Volumes, and Terms of Trade in Goods and Services Table B13. Emerging Market and Developing Economies by Region: Total Trade in Goods Table B14. Emerging Market and Developing Economies by Source of Export Earnings: Total Trade in Goods Table B15. Summary of Current Account Transactions Table B16. Emerging Market and Developing Economies: Summary of External Debt and Debt Service Table B17. Emerging Market and Developing Economies by Region: External Debt by Maturity Table B18. Emerging Market and Developing Economies by Analytical Criteria: External Debt by Maturity Table B19. Emerging Market and Developing Economies: Ratio of External Debt to GDP Table B20. Emerging Market and Developing Economies: Debt-Service Ratios Table B21. Emerging Market and Developing Economies, Medium-Term Baseline Scenario: Selected Economic Indicators Figures Figure 1.1. Global Inflation Falling as Output Grows 2 Figure 1.2. Performance in 2022–23 Compared with Projections at Time of Cost-of-Living Crisis 2 Figure 1.3. Domestic- and Foreign-Born Workers in the Labor Force 3 Figure 1.4. Supply-Chain Pressures and Red Sea Tensions 3 International Monetary Fund | April 2024 v WORLD ECONOMIC OUTLOOK—Steady but Slow: Resilience amid Divergence Figure 1.5. Global Energy Price and Oil Supply 4 Figure 1.6. Near-Term Inflation Expectations Falling 4 Figure 1.7. Labor Markets Cooling 5 Figure 1.8. Decomposition of Inflation Drivers 5 Figure 1.9. Monetary Tightening: Nominal and Real 6 Figure 1.10. Savings from the Pandemic: Declining 7 Figure 1.11. Sovereign Bond Spreads in Emerging Market and Developing Economies 7 Figure 1.12. Elevated Debt and Deficits 8 Figure 1.13. Monetary and Fiscal Policy Projections 8 Figure 1.14. Growth Outlook: Broadly Stable 9 Figure 1.15. Inflation Outlook: Falling 13 Figure 1.16. Inflation Closer to Target 14 Figure 1.17. Global Trade Outlook: Stable 14 Figure 1.18. Current Account and International Investment Positions 15 Figure 1.19. Forecasts for Global GDP and GDP per Capita 15 Figure 1.20. Geopolitical Risk and Oil Prices 16 Figure 1.21. Sharper-than-Expected Fiscal Adjustment in the Euro Area, 2010–15 17 Figure 1.22. Confidence in Government, Parliament, and Political Parties 18 Figure 1.23. AI Performance on Human Tasks 19 Figure 1.24. Medium-Term Fiscal Adjustment 21 Figure 1.25. Drivers of Sovereign Debt Ratings in Emerging Market and Developing Economies 22 Figure 1.1.1. Fragmentation Affecting Trade 24 Figure 1.2.1. Distribution of Forecast Uncertainty around Global GDP Growth and Inflation Projections 25 Figure 1.2.2. Impact of Scenarios on GDP Level and Headline Inflation 27 Figure 1.SF.1. Commodity Market Developments 29 Figure 1.SF.2. Volatility of Commodity Prices 30 Figure 1.SF.3. Herfindahl Index by Commodity, 2021 31 Figure 1.SF.4. Common versus Idiosyncratic Factors in Commodity Demand and Supply 32 Figure 1.SF.5. Cumulative Supply and Demand Responses to a 1 Percent Price Increase 33 Figure 2.1. Nominal Policy Rates in Advanced Economies and Emerging Markets 45 Figure 2.2. Nominal House Prices in Advanced Economies and Emerging Markets 46 Figure 2.3. Commercial Real Estate Prices 46 Figure 2.4. Evolution of House Prices and Consumption in the Postpandemic Tightening Cycle 47 Figure 2.5. The Housing Channels of Monetary Policy 47 Figure 2.6. Heterogeneity in Mortgage Market Characteristics 49 Figure 2.7. Differential Effects of Monetary Policy Depending on Mortgage Market Characteristics 50 Figure 2.8. Differential Effects of Monetary Policy on Consumption Depending on Shares of Fixed-Rate Mortgages 51 Figure 2.9. Effects of Monetary Policy on Consumption 52 Figure 2.10. Differential Effects of Monetary Policy Depending on Local Housing Market Characteristics 53 Figure 2.11. Differential Effects of Monetary Policy on House Prices Depending on Supply Restrictions 54 Figure 2.12. Heterogeneity in Monetary Policy Transmission 55 Figure 2.13. Changes in the Share of Fixed-Rate Mortgages 56 Figure 2.14. Changes in Monetary Policy Transmission 56 vi International Monetary Fund | April 2024  contents Figure 2.1.1. Pass-Through to Bank Interest Rates over Time 58 Figure 2.1.2. Pass-Through and Share of Households with Mortgages (2021–23) 59 Figure 2.1.3. Changes in Mortgage Service Costs after European Central Bank Hikes 59 Figure 2.2.1. China: Short-Term Market Interest Rates and House Price Growth 60 Figure 3.1. Five-Year-Ahead Real GDP Growth Projections, 2000–29 66 Figure 3.2. Five-Year-Ahead Real GDP Forecast by Country: April 2008 versus April 2024 67 Figure 3.3. Five-Year-Ahead Real GDP Forecast by Regions, 2008, 2019, and 2024 67 Figure 3.4. Contribution of Components of GDP Growth, 1995–2023 68 Figure 3.5. Slowdown in the Growth of the Working-Age Population, 2008 versus 2021 69 Figure 3.6. Breakdown of Change in Labor Force Participation Rate, 2008–21 69 Figure 3.7. Policies and Labor Force Participation by Gender and Age 70 Figure 3.8. Real Business Investment in OECD Countries 70 Figure 3.9. Net Investment Rates in Advanced and Emerging Market Economies 71 Figure 3.10. Contribution of Firm- and Macro-Level Determinants to Changes in the Investment Rate since 2008 71 Figure 3.11. Contribution of Allocative Efficiency to Annual TFP Growth, 2000–19 72 Figure 3.12. Contribution of Allocative Efficiency to Annual TFP Growth, 2000–19 73 Figure 3.13. TFP Loss from Misallocation, by Sector Type, 2019 73 Figure 3.14. Dispersion of Firm Productivity, 2000–19 74 Figure 3.15. Countries’ Structural Allocative Efficiency and Policies 74 Figure 3.16. Medium-Term Growth Projections of Potential Employment 75 Figure 3.17. Impact of Various Factors on Global Medium-Term Growth 76 Figure 3.2.1. GDP Convergence between Countries, 2000–28 80 Figure 3.2.2. Global Inequality, 1995–2028 80 Figure 3.2.3. GDP Growth and Welfare Drivers before and after the COVID-19 Pandemic 81 Figure 3.3.1. Employment Shares by AI Exposure and Complementarity 82 Figure 3.3.2. Impact of AI on TFP and Output in the United Kingdom 83 Figure 4.1. Five-Year-Ahead GDP Growth 88 Figure 4.2. Correlation of Idiosyncratic Growth Surprises between Advanced Economies and G20 Emerging Markets 88 Figure 4.3. The Growing Footprint of G20 Emerging Markets in Trade and Investment 90 Figure 4.4. G20 Emerging Market Financial Integration 91 Figure 4.5. G20 Emerging Market Presence in Global Value Chains and Commodities Can Amplify Spillovers 92 Figure 4.6. Growth in G20 Emerging Markets Is Becoming Less Volatile and Less Driven by Foreign Shocks 93 Figure 4.7. Aggregate Spillovers from G20 Countries 94 Figure 4.8. Growth Spillovers from G20 Emerging Markets by Region 95 Figure 4.9. Firm-Level Spillovers 96 Figure 4.10. Impact of Spillovers on GDP by G20 Emerging Markets 97 Figure 4.11. Changes in Sectoral Value Added and Prices 99 Figure 4.12. What Is the Global Impact from a G20 Emerging Market Upside Scenario on Real GDP? 102 Figure 4.1.1. The Rise of Domestic Subsidies and Their Impact on Exports 104 Figure 4.2.1. Capital Flows to Emerging Markets: Revisiting the Allocation Puzzle 105 Figure 4.3.1. Role of G20 Emerging Markets in Sub-Saharan Africa 106 International Monetary Fund | April 2024 vii  ASSUMPTIONS AND CONVENTIONS A number of assumptions have been adopted for the projections presented in the World Economic Outlook (WEO). It has been assumed that real effective exchange rates remained constant at their average levels during Jan- uary 30, 2024–February 27, 2024, except for those for the currencies participating in the European exchange rate mechanism II, which are assumed to have remained constant in nominal terms relative to the euro; that estab- lished policies of national authorities will be maintained (for specific assumptions about fiscal and monetary pol- icies for selected economies, see Box A1 in the Statistical Appendix); that the average price of oil will be $78.61 a barrel in 2024 and $73.68 a barrel in 2025; that the three-month government bond yield for the United States will average 5.2 percent in 2024 and 4.1 percent in 2025, that for the euro area will average 3.5 percent in 2024 and 2.6 percent in 2025, and that for Japan will average 0.0 percent in 2024 and 0.1 percent in 2025; and that the 10-year government bond yield for the United States will average 4.1 percent in 2024 and 3.7 percent in 2025, that for the euro area will average 2.5 percent in 2024 and 2.6 percent in 2025, and that for Japan will average 1.0 percent in 2024 and 1.1 percent in 2025. These are, of course, working hypotheses rather than forecasts, and the uncertainties surrounding them add to the margin of error that would, in any event, be involved in the projections. The estimates and projections are based on statistical information available through April 1, 2024. The following conventions are used throughout the WEO:... to indicate that data are not available or not applicable; – between years or months (for example, 2023–24 or January–June) to indicate the years or months covered, including the beginning and ending years or months; and / between years or months (for example, 2023/24) to indicate a fiscal or financial year. “Billion” means a thousand million; “trillion” means a thousand billion. “Basis points” refers to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point). Data refer to calendar years, except in the case of a few countries that use fiscal years. Please refer to Table F in the Statistical Appendix, which lists the economies with exceptional reporting periods for national accounts and government finance data for each country. For some countries, the figures for 2023 and earlier are based on estimates rather than actual outturns. Please refer to Table G in the Statistical Appendix, which lists the latest actual outturns for the indicators in the national accounts, prices, government finance, and balance of payments for each country. What is new in this publication: Ecuador’s fiscal sector projections are excluded from publication for 2024–29 because of ongoing program discussions. Vietnam has been removed from the Low-Income Developing Countries (LIDCs) group and added to the Emerging Market and Middle-Income Economies (EMMIEs) group. For West Bank and Gaza, data for 2022–23 previously excluded from publication pending methodological adjust- ments to statistical series are now included. Projections for 2024–29 are excluded from publication on account of the unusually high degree of uncertainty. viii International Monetary Fund | April 2024  Assumptions and Conventions In the tables and figures, the following conventions apply: Tables and figures in this report that list their source as “IMF staff calculations” or “IMF staff estimates” draw on data from the WEO database. When countries are not listed alphabetically, they are ordered on the basis of economic size. Minor discrepancies between sums of constituent figures and totals shown reflect rounding. Composite data are provided for various groups of countries organized according to economic characteristics or region. Unless noted otherwise, country group composites represent calculations based on 90 percent or more of the weighted group data. The boundaries, colors, denominations, and any other information shown on maps do not imply, on the part of the IMF, any judgment on the legal status of any territory or any endorsement or acceptance of such boundaries. As used in this report, the terms “country” and “economy” do not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis. International Monetary Fund | April 2024 ix  FURTHER INFORMATION Corrections and Revisions The data and analysis appearing in the World Economic Outlook (WEO) are compiled by the IMF staff at the time of publication. Every effort is made to ensure their timeliness, accuracy, and completeness. When errors are discovered, corrections and revisions are incorporated into the digital editions available from the IMF website and on the IMF eLibrary (see below). All substantive changes are listed in the online table of contents. Print and Digital Editions Print Print copies of this WEO can be ordered from the IMF bookstore at imfbk.st/540746. Digital Multiple digital editions of the WEO, including ePub, enhanced PDF, and HTML, are available on the IMF eLibrary at http://www.elibrary.imf.org/APR24WEO. Download a free PDF of the report and data sets for each of the charts therein from the IMF website at www.imf.org/publications/weo or scan the QR code below to access the WEO web page directly: Copyright and Reuse Information on the terms and conditions for reusing the contents of this publication are at www.imf.org/external/ terms.htm. x International Monetary Fund | April 2024 DATA This version of the World Economic Outlook (WEO) is available in full through the IMF eLibrary (www.elibrary. imf.org) and the IMF website (www.imf.org). Accompanying the publication on the IMF website is a larger com- pilation of data from the WEO database than is included in the report itself, including files containing the series most frequently requested by readers. These files may be downloaded for use in a variety of software packages. The data appearing in the WEO are compiled by the IMF staff at the time of the WEO exercises. The histor- ical data and projections are based on the information gathered by the IMF country desk officers in the context of their missions to IMF member countries and through their ongoing analysis of the evolving situation in each country. Historical data are updated on a continual basis as more information becomes available, and structural breaks in data are often adjusted to produce smooth series with the use of splicing and other techniques. IMF staff estimates continue to serve as proxies for historical series when complete information is unavailable. As a result, WEO data can differ from those in other sources with official data, including the IMF’s International Financial Statistics. The WEO data and metadata provided are “as is” and “as available,” and every effort is made to ensure their timeliness, accuracy, and completeness, but these cannot be guaranteed. When errors are discovered, there is a concerted effort to correct them as appropriate and feasible. Corrections and revisions made after publication are incorporated into the electronic editions available from the IMF eLibrary (www.elibrary.imf.org) and on the IMF website (www.imf.org). All substantive changes are listed in detail in the online tables of contents. For details on the terms and conditions for usage of the WEO database, please refer to the IMF Copyright and Usage website (www.imf.org/external/terms.htm). Inquiries about the content of the WEO and the WEO database should be sent by mail or online forum (telephone inquiries cannot be accepted): World Economic Studies Division Research Department International Monetary Fund 700 19th Street, NW Washington, DC 20431, USA Online Forum: www.imf.org/weoforum International Monetary Fund | April 2024 xi  PREFACE The analysis and projections contained in the World Economic Outlook are integral elements of the IMF’s surveillance of economic developments and policies in its member countries, of developments in international financial markets, and of the global economic system. The survey of prospects and policies is the product of a comprehensive interdepartmental review of world economic developments, which draws primarily on information the IMF staff gathers through its consultations with member countries. These consultations are carried out in particular by the IMF’s area departments—namely, the African Department, Asia and Pacific Department, European Department, Middle East and Central Asia Department, and Western Hemisphere Department— together with the Strategy, Policy, and Review Department; the Monetary and Capital Markets Department; and the Fiscal Affairs Department. The analysis in this report was coordinated in the Research Department under the general direction of Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research. The project was directed by Petya Koeva Brooks, Deputy Director, Research Department, and Daniel Leigh, Division Chief, Research Department. Aqib Aslam, Division Chief, Research Department and Head of the Spillovers Task Force, supervised Chapter 4. The primary contributors to this report are Hany Abdel-Latif, Hippolyte Balima, Nina Biljanovska, Mehdi Benatiya Andaloussi, Alessia De Stefani, Andrés Martin Fernández, Nicolas Fernandez-Arias, Ashique Habib, Toh Kuan, Nan Li, Chiara Maggi, Rui Mano, Dirk Muir, Alberto Musso, Jean Marc Natal, Diaa Noureldin, Cedric Okou, Carolina Osorio Buitron, Galip Kemal Ozhan, Andrea Pescatori, Adina Popescu, Andrea F. Presbitero, Alexandre B. Sollaci, and Robert Zymek. Other contributors include Maryam Abdou, Gavin Asdorian, Jared Bebee, Christian Bogmans, Luis Brandao-Marques, Ariadne Checo de los Santos, Yaniv Cohen, Shan Chen, Gabriela Cugat, Eduardo Espuny Diaz, Wenchuan Dong, Angela Espiritu, Rebecca Eyassu, Pedro de Barros Gagliardi, Michael Gottschalk, Ziyan Han, Carlos van Hombeeck, Keiko Honjo, Henry Hoyle, Amir Kermani, Camara Kidd, Eduard Laurito, Jungjin Lee, Weili Lin, Jesper Lindé, Barry Liu, Estelle Xue Liu, Xiaomeng Mei, Jorge Alberto Miranda Pinto, Florian Misch, Prachi Mishra, Carlos Morales, Joseph Moussa, Cynthia Nyanchama Nyakeri, Emory Oakes, Minnie Park, Manasa Patnam, Manuel Perez-Archila, Ilse Pertsegaele, Ivan Petrella, Clarita Phillips, Rafael Portillo, Ervin Prifti, Evgenia Pugacheva, Tianchu Qi, Shrihari Ramachandra, Daniela Rojas, Lorenzo Rotunno, Michele Ruta, Martin Stuermer, Marina Tavares, Nicholas Tong, Petia Topalova, Pablo Vega Olivares, Isaac Warren, Yarou Xu, Gianluca Yong, Dennis Zhao, Jiaqi Zhao, Canran Zheng, Dian Zhi, and Liangliang Zhu. Gemma Rose Diaz from the Communications Department led the editorial team for the report, with production and editorial support from Michael Harrup, and additional assistance from Lucy Scott Morales, James Unwin, Nancy Morrison, Grauel Group, and Absolute Service, Inc. The analysis has benefited from comments and suggestions by staff members from other IMF departments, as well as by Executive Directors following their discussion of the report on April 3, 2024. However, estimates, projections, and policy considerations are those of the IMF staff and should not be attributed to Executive Directors or to their national authorities. xii International Monetary Fund | April 2024 FOREWORD Global Economy Remains Resilient despite Resilient growth and faster disinflation point Uneven Growth; Challenges Lie Ahead toward favorable supply developments, including The global economy remains remarkably resil- the fading of earlier energy price shocks, the striking ient, with growth holding steady as inflation returns rebound in labor supply supported by strong immi- to target. The journey has been eventful, starting gration flows in many advanced economies. Decisive with supply-chain disruptions in the aftermath of monetary policy actions, as well as improved mone- the pandemic, a Russian-initiated war on Ukraine tary policy frameworks, especially in emerging market that triggered a global energy and food crisis, and a economies, have helped anchor inflation expecta- considerable surge in inflation, followed by a globally tions. As Chapter 2 of this report argues, however, synchronized monetary policy tightening. the transmission of monetary policy may have been Yet, despite many gloomy predictions, the world more muted this time around in countries such as the avoided a recession, the banking system proved largely United States, where an increased share of fixed-rate resilient, and major emerging market economies mortgages and lower household debt levels since the did not suffer sudden stops. Moreover, the inflation global financial crisis may have limited the drag on surge—despite its severity and the associated cost-of- aggregate demand up to now. living crisis—did not trigger uncontrolled wage-price Despite these welcome developments, numerous spirals (see October 2022 World Economic Outlook). challenges remain, and decisive actions are needed. Instead, almost as quickly as global inflation went up, First, while inflation trends are encouraging, we it has been coming down. are not there yet. Somewhat worryingly, the most On a year-over-year basis, global growth bottomed recent median headline and core inflation numbers are out at the end of 2022, at 2.3 percent, shortly after pushing upward. This could be temporary, but there median headline inflation peaked at 9.4 percent. are reasons to remain vigilant. Most of the progress on According to our latest projections, growth for 2024 inflation came from the decline in energy prices and and 2025 will hold steady around 3.2 percent, with goods inflation below its historical average. The latter median headline inflation declining from 2.8 percent has been helped by easing supply-chain frictions, as at the end of 2024 to 2.4 percent at the end of 2025. well as by the decline in Chinese export prices. But Most indicators point to a soft landing. services inflation remains high—sometimes stubbornly Markets reacted exuberantly to the prospect of cen- so—and could derail the disinflation path. Bringing tral banks exiting from tight monetary policy. Financial inflation down to target remains the priority. conditions eased, equity valuations soared, capital flows Second, the global view can mask stark divergence to most emerging market economies excluding China across countries. The exceptional recent performance have been buoyant, and some low-income countries of the United States is certainly impressive and a major and frontier economies regained market access (see the driver of global growth, but it reflects strong demand April 2024 Global Financial Stability Report). factors as well, including a fiscal stance that is out of Even more encouraging, we now estimate that line with long-term fiscal sustainability (see April 2024 there will be less economic scarring from the Fiscal Monitor). This raises short-term risks to the pandemic—the projected drop in output relative disinflation process, as well as longer-term fiscal and to prepandemic projections—for most countries financial stability risks for the global economy since it and regions, especially for emerging market econo- risks pushing up global funding costs. Something will mies, thanks in part to robust employment growth. have to give. Astonishingly, the US economy has already surged In the euro area, growth will pick up this year, but past its prepandemic trend. from very low levels, as the trailing effects of tight International Monetary Fund | April 2024 xiii WORLD ECONOMIC OUTLOOK—Steady but Slow: Resilience amid Divergence monetary policy and past energy costs, as well as Third, even as inflation recedes, real interest rates planned fiscal consolidation, weigh on activity. Contin- have increased, and sovereign debt dynamics have ued high wage growth and persistent services inflation become less favorable in particular for highly indebted could delay the return of inflation to target. However, emerging markets. Countries should turn their sights unlike in the United States, there is scant evidence of toward rebuilding fiscal buffers. Credible fiscal consoli- overheating and the European Central Bank will also dations help lower funding costs and improve financial need to carefully calibrate the pivot toward monetary stability. In a world with more frequent adverse supply easing to avoid an excessive growth slowdown and shocks and growing fiscal needs for safety nets, climate inflation undershoot. While labor markets appear adaptation, digital transformation, energy security, strong, that strength could prove illusory if European and defense, this should be a policy priority. Yet this is firms have been hoarding labor in anticipation of a never easy, as the April 2023 World Economic Outlook pickup in activity that does not materialize. documented: fiscal consolidations are more likely to China’s economy is affected by the enduring down- succeed when credible and when implemented while turn in its property sector. Credit booms and busts the economy is growing, rather than when markets never resolve themselves quickly, and this one is no dictate their conditions. In countries where inflation is exception. Domestic demand will remain lackluster under control, and that engage in a credible multiyear for some time unless strong measures and reforms effort to rebuild fiscal buffers, monetary policy can address the root cause. Public debt dynamics are also help support activity. The successful 1993 US fiscal of concern, especially if the property crisis morphs into consolidation and monetary accommodation episode a local public finance crisis. With depressed domestic comes to mind as an example to emulate. demand, external surpluses could rise. The risk is that Fourth, medium-term growth prospects remain this will further exacerbate trade tensions in an already historically weak. Chapter 3 of this report takes an fraught geopolitical environment. in-depth dive into the different drivers of the slow- At the same time, many other large emerging down. The main culprit is lower total factor pro- market economies are performing strongly, sometimes ductivity growth. A significant part of the decline even benefiting from a reconfiguration of global supply comes from increased misallocation of capital and chains and rising trade tensions between China and the labor within sectors and countries. Facilitating faster United States. As Chapter 4 of this report documents, and more efficient resource allocation can help boost these countries’ footprint on the global economy is growth. Much hope rests on artificial intelligence (AI) increasing, and they will play an ever larger role in delivering strong productivity gains in the medium supporting global growth in years to come. term. It may do so, but the potential for serious A troubling development is the widening divergence disruptions in labor and financial markets is high. between many low-income developing countries and Harnessing the potential of AI for all will require that the rest of the world. For these economies, growth countries improve their digital infrastructure, invest is revised downward, whereas inflation is revised up. in human capital, and coordinate on global rules of Worse, in contrast with most other regions, scarring the road. Medium-term growth prospects are also estimates for low-income developing countries, includ- harmed by rising geoeconomic fragmentation and the ing some large ones, have been revised up, suggesting surge in trade restrictive and industrial policy mea- that the poorest countries are still unable to turn the sures since 2019. Global trade linkages are already page from the pandemic and cost-of-living crises. In changing as a result, with potential losses in efficiency. addition, conflicts continue to result in loss of human But the broader damage is to global cooperation and lives and raise uncertainty. For these countries, invest- multilateralism. ing in structural reforms to promote growth-enhancing Finally, huge global investments are needed for a domestic and foreign direct investment, and strength- green and climate-resilient future. Cutting emissions ening domestic resource mobilization, can help is compatible with growth, as is seen in recent decades manage borrowing costs and reduce funding needs during which growth has become much less emis- while achieving development goals. Efforts must also sions intensive. Nevertheless, emissions are still rising. be made to improve the human capital of their large A lot more needs to be done and done quickly. Green young populations. investment has expanded at a healthy pace in advanced xiv International Monetary Fund | April 2024  FOREWORD economies and China. Cutting harmful fossil fuel financing, much of it from the private sector, but some subsidies can help create the necessary fiscal room for of it concessional. further green investments. The greatest effort must be On these questions, as well as on so many others, made by other emerging market and developing econo- there is little hope for progress outside multilateral mies, which need to massively increase their green frameworks and cooperation. investment growth and reduce their fossil fuel invest- ment. This will require technology transfer by other Pierre-Olivier Gourinchas advanced economies and China, as well as substantial Economic Counsellor International Monetary Fund | April 2024 xv  EXECUTIVE SUMMARY Economic activity was surprisingly resilient through countries has slowed, implying a persistence in global the global disinflation of 2022–23. As global inflation economic disparities. As Chapter 3 explains, the descended from its mid-2022 peak, economic activity relatively weak medium-term outlook reflects lower grew steadily, defying warnings of stagflation and global growth in GDP per person stemming, notably, from recession. Growth in employment and incomes held persistent structural frictions preventing capital and steady, reflecting supportive demand developments–– labor from moving to productive firms. Chapter 4 including greater-than-expected government spending indicates how dimmer prospects for growth in China and household consumption—and a supply-side expan- and other large emerging market economies, given sion amid, notably, an unanticipated boost to labor their increasing share of the global economy, will weigh force participation. The unexpected economic resilience, on the prospects of trading partners. despite significant central bank interest rate hikes aimed Risks to the global outlook are now broadly bal- at restoring price stability, also reflects the ability of anced. On the downside, new price spikes stemming households in major advanced economies to draw on from geopolitical tensions, including those from the substantial savings accumulated during the pandemic. war in Ukraine and the conflict in Gaza and Israel, In addition, as Chapter 2 explains, changes in mortgage could, along with persistent core inflation where labor and housing markets over the prepandemic decade of markets are still tight, raise interest rate expectations low interest rates moderated the near-term impact of and reduce asset prices. A divergence in disinflation policy rate hikes. As inflation converges toward target speeds among major economies could also cause levels and central banks pivot toward policy easing in currency movements that put financial sectors under many economies, a tightening of fiscal policies aimed at pressure. High interest rates could have greater cooling curbing high government debt, with higher taxes and effects than envisaged as fixed-rate mortgages reset and lower government spending, is expected to weigh on households contend with high debt, causing financial growth. stress. In China, without a comprehensive response Global growth, estimated at 3.2 percent in 2023, to the troubled property sector, growth could falter, is projected to continue at the same pace in 2024 and hurting trading partners. Amid high government debt 2025. The forecast for 2024 is revised up by 0.1 per- in many economies, a disruptive turn to tax hikes and centage point from the January 2024 World Economic spending cuts could weaken activity, erode confidence, Outlook (WEO) Update, and by 0.3 percentage point and sap support for reform and spending to reduce from the October 2023 WEO. The pace of expansion risks from climate change. Geoeconomic fragmenta- is low by historical standards, owing to both near-term tion could intensify, with higher barriers to the flow factors, such as still-high borrowing costs and with- of goods, capital, and people implying a supply-side drawal of fiscal support, and longer-term effects from slowdown. On the upside, looser fiscal policy than nec- the COVID-19 pandemic and Russia’s invasion of essary and assumed in projections could raise economic Ukraine; weak growth in productivity; and increasing activity in the short term, although risking more costly geoeconomic fragmentation. Global headline inflation policy adjustment later on. Inflation could fall faster is expected to fall from an annual average of 6.8 per- than expected amid further gains in labor force partic- cent in 2023 to 5.9 percent in 2024 and 4.5 percent ipation, allowing central banks to bring easing plans in 2025, with advanced economies returning to their forward. Artificial intelligence and stronger structural inflation targets sooner than emerging market and reforms than anticipated could spur productivity. developing economies. The latest forecast for global As the global economy approaches a soft landing, growth five years from now––at 3.1 percent––is at its the near-term priority for central banks is to ensure lowest in decades. The pace of convergence toward that inflation touches down smoothly, by neither higher living standards for middle- and lower-income easing policies prematurely nor delaying too long xvi International Monetary Fund | April 2024  Executive Summary and causing target undershoots. At the same time, as reforms would facilitate inflation and debt reduction, central banks take a less restrictive stance, a renewed allow economies to increase growth toward the higher focus on implementing medium-term fiscal consoli- prepandemic era average, and accelerate convergence dation to rebuild room for budgetary maneuver and toward higher income levels. Multilateral cooperation priority investments, and to ensure debt sustainability, is needed to limit the costs and risks of geoeconomic is in order. Cross-country differences call for tailored fragmentation and climate change, speed the transition policy responses. Intensifying supply-enhancing to green energy, and facilitate debt restructuring. International Monetary Fund | April 2024 xvii  1 CHAPTER GLOBAL PROSPECTS AND POLICIES Disinflation amid Economic Resilience still-tight––though easing––labor markets. Households in advanced economies supported their spending by Economic activity was surprisingly resilient during drawing down accumulated pandemic-era savings. the global disinflation of 2022–23. Growth in employ- Larger-than-expected government spending further ment and incomes has held steady as favorable demand supported the expansion of aggregate demand in most and supply developments have supported major regions. The overall budgetary stance––measured by economies, despite rising central bank interest rates the structural fiscal balance––was more expansionary aimed at restoring price stability. As inflation converges than expected, on average. Among large economies, toward target levels and central banks pivot toward the additional budgetary support, compared with policy easing, a tightening of fiscal policies aimed at October 2022 WEO forecasts, was estimated at 2 per- curbing high government debt levels, with higher taxes cent of GDP in the United States and 0.2 percent of and lower government spending, is expected to weigh GDP in the euro area, whereas in China,1 the fiscal on growth. The pace of expansion is also expected stance was mildly tighter than expected, by 0.7 per- to remain low by historical standards as a result of cent of GDP. The euro area also displayed the smallest factors including the long-term consequences of the upside growth surprise, reflecting weak consumer sen- COVID-19 pandemic, Russia’s invasion of Ukraine, timent and the lingering effects of high energy prices. weak growth in productivity, and increasing geoeco- In parallel, global headline inflation declined broadly nomic fragmentation. in line with expectations, averaging just 0.1 percentage In late 2023, headline inflation neared its point more than predicted in the October 2022 WEO prepandemic level in most economies for the first for 2022 and 2023. However, in lower-income coun- time since the start of the global inflation surge tries, inflation was on average higher than expected, (Figure 1.1). In the last quarter of 2023, headline reflecting cases in which pass-through into domestic inflation for advanced economies was 2.3 percent on prices from international food, fuel, and fertilizer costs, a quarter-over-quarter annualized basis, down from a as well as from currency depreciation, was greater peak of 9.5 percent in the second quarter of 2022. For than expected. Price pressures in some lower-income emerging market and developing economies, inflation countries were significant. These factors also caused was 9.9 percent in the last quarter of 2023, down from these economies to grow more slowly than expected, a peak of 13.7 percent in the first quarter of 2022, suggesting a negative supply shock. In China, inflation but this average was driven by high inflation in a few fell unexpectedly, with the decrease reflecting sharply countries; for the median emerging market and devel- lower domestic food prices and pass-through effects on oping economy, inflation declined to 3.9 percent. This underlying (core) inflation. progress notwithstanding, inflation is not yet at target The resilience in global economic activity was com- in most economies. patible with falling inflation thanks to a postpandemic As global inflation descended from its peak, expansion on the supply side. A greater-than-expected economic activity grew steadily, defying warnings rise in the labor force amid robust employment of stagflation and global recession. During 2022 growth supported activity and disinflation in advanced and 2023, global real GDP rose by a cumulative economies and several large emerging market and 6.7 percent. That is 0.8 percentage point higher middle-income economies. The labor force expansion than the forecasts made at the time of the October reflected, in some economies, increased inflows of 2022 World Economic Outlook (WEO) (Figure 1.2). The United States and several large emerging market 1China’s deficit and public debt numbers cover a narrower and middle-income economies displayed the greatest perimeter of the general government than the IMF staff ’s estimates overperformance, with aggregate demand supported in China Article IV reports (see IMF 2024 for a reconciliation of the by stronger-than-expected private consumption amid two estimates). International Monetary Fund | April 2024 1  WORLD ECONOMIC OUTLOOK—Steady but Slow: Resilience amid Divergence Figure 1.1. Global Inflation Falling as Output Grows Figure 1.2. Performance in 2022–23 Compared with Projections at Time of Cost-of-Living Crisis World AEs EMDEs (Percent deviation from October 2022 WEO projection, unless noted otherwise) 16 1. Headline Inflation (Percent, month-over-month, SAAR) 2 1. Cumulative GDP Growth 2. Inflation Rate 3 12 (Percentage points) 2 8 1 1 4 0 0 0 –1 –4 Jan. Jan. Jan. Jan. Jan. Jan. Jan. –1 –2 2018 19 20 21 22 23 24 US EMxCHN World AEs China LIDCs US EMxCHN World AEs China LIDCs EA EA 16 2. Core Inflation (Percent, month-over-month, SAAR) 12 8 3. Government and Private 4. Fixed Capital Formation 3 Consumption 6 2 8 1 4 4 0 2 –1 0 0 –2 –4 Government –2 –3 Jan. Jan. Jan. Jan. Jan. Jan. Jan. Private 2018 19 20 21 22 23 24 –4 –4 US EMxCHN World AEs China LIDCs US EMxCHN World AEs China LIDCs EA EA 115 3. Real GDP (Index, 2020:Q4 = 100) 110 5 5. Employment 6. Labor Force and 2 105 Participation Rate 4 100 1 3 95 0 2 90 1 –1 85 0 2018: 19: 20: 21: 22: 23: 23: Labor force –2 Q1 Q1 Q1 Q1 Q1 Q1 Q4 –1 Participation rate –2 –3 Sources: Haver Analytics; and IMF staff calculations. US EMxCHN World AEs China LIDCs US EMxCHN World AEs China LIDCs EA EA Note: Panels 1 and 2 plot the median of a sample of 57 economies that accounts for 78 percent of World Economic Outlook world GDP (in weighted purchasing- power-parity terms) in 2023. Vertical axes are cut off at –4 percent and 16 percent. Panel 3 plots the median of a sample of 44 economies. The bands Source: IMF staff calculations. depict the 25th to 75th percentiles of data across economies. “Core inflation” is Note: Figure reports latest estimates for cumulative growth in 2022 and 2023 in the percent change in the consumer price index for goods and services, excluding deviation from October 2022 WEO forecast in all panels except panel 2, which food and energy (or the closest available measure). AEs = advanced economies; reports the difference between average inflation in 2022 and 2023 and the EMDEs = emerging market and developing economies; SAAR = seasonally corresponding October 2022 WEO forecasts. Panel 6 does not include India due to adjusted annual rate. missing data. AEs = advanced economies; EA = euro area; EMxCHN = emerging market and middle-income economies excluding China; LIDCs = low-income developing countries; WEO = World Economic Outlook. 2 International Monetary Fund | April 2024  CHAPTER 1 GLOBAL PROSPECTS AND POLICIES Figure 1.3. Domestic- and Foreign-Born Workers in the Labor Figure 1.4. Supply-Chain Pressures and Red Sea Tensions Force (Index, January 2019 = 100) 8 1. Supply-Chain Pressures and Shipping Costs 16 (Standard deviation from average value; thousands of US 125 1. North America 6 dollars a 40-foot container, right scale) 12 US: Foreign born 120 US: Domestic born 4 8 115 Canada: Foreign born Canada: Domestic born 110 2 4 105 0 0 Global supply-chain pressure index 100 World container index (right scale) –2 –4 95 Jan. Jan. Jan. Jan. Feb. 2020 21 22 23 24 90 Jan. Jan. Jan. Jan. Jan. Jan. 2019 20 21 22 23 24 100 2. Transit Trade Volume (Percent, year-over-year change using monthly averages) 125 2. Europe 75 UK: Foreign born Suez Canal Cape of Good Hope 120 50 UK: Domestic born 115 Euro area: Foreign born 25 Euro area: Domestic born 110 0 105 –25 100 –50 95 Jan. Jan. Jan. Jan. Jan. 2020 21 22 23 24 90 Jan. Jan. Jan. Jan. Jan. Jan. 2019 20 21 22 23 24 Sources: Federal Reserve Bank of New York; Haver Analytics; IMF, PortWatch; and IMF staff calculations. Sources: Eurostat; Haver Analytics; US Bureau of Labor Statistics; and IMF staff calculations. but remained well below their 2021–22 levels and have migrants, with faster growth in the foreign-born than in recently declined. The price of energy fell faster than the domestic-born labor force since 2021 (Figure 1.3), expected from its peak (Figure 1.5), in part as a result as well as higher labor force participation rates. Excep- of increased non-OPEC (Organization of the Petroleum tions to this pattern include China, where labor market Exporting Countries) oil production and increased natu- weakness, in the context of subdued demand, was ral gas output, most notably in the United States. Rising broad based across sectors, and lower-income countries, exports of Russian oil on account of the expanding where supply-side challenges held job creation back. non-Western-aligned oil tanker fleet carrying Russian Greater-than-expected additions to the stock of phys- oil and Russia’s setting up its own maritime insurance ical capital, with business investment responding to added further to the world energy supply. the strength in product demand, further bolstered the supply side in most regions, with exceptions including the euro area, where interest-rate-sensitive business Inflation (and Expectations) in Decline investment, particularly in manufacturing, was subdued. The fall in headline inflation since 2022 reflects A resolution of pandemic-era supply-chain problems the fading of relative price shocks––notably those to allowed delivery times to decline and transportation energy prices—as well as lower core inflation. The costs to decrease (Figure 1.4). After attacks on commer- decline in energy prices reflects not only increased cial shipping in the Red Sea––through which 11 per- global energy supply, but also the effects of tight cent of global trade flows––global transportation costs monetary policies. The monetary tightening by central increased, reflecting the rerouting of cargo from the Suez banks in major advanced economies during 2022–23 Canal to the Cape of Good Hope and continued trade may have contributed strongly to lowering energy disruptions from climate extremes in the Panama Canal, prices owing to its high degree of synchronization and International Monetary Fund | April 2024 3  WORLD ECONOMIC OUTLOOK—Steady but Slow: Resilience amid Divergence Figure 1.5. Global Energy Price and Oil Supply Figure 1.6. Near-Term Inflation Expectations Falling (Percent) 400 1. Energy Price (Index, 2016 = 100) 8 AEs 12 months ahead 300 AEs long term EMDEs 12 months ahead 6 EMDEs long term 200 100 Actual 4 October 2022 WEO forecast 0 2019:Q4 20:Q4 21:Q4 22:Q4 23: 2 Q4 105 2. World Oil Supply (Million barrels a day) 0 Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. 2017 18 19 20 21 22 23 24 100 Sources: Consensus Economics; and IMF staff calculations. Note: The figure shows median inflation expectations, computed based on Consensus Forecast surveys of professional forecasters, for respective groups of 95 economies. The 12-month-ahead inflation expectations are constructed as the Actual weighted sum of forecasts for the current and next calendar year (see Buono and October 2022 IEA forecast Formai 2018). “Long term” denotes 10-year-ahead expectations. AEs = advanced economies; EMDEs = emerging market and developing economies. 90 2019:Q4 20:Q4 21:Q4 22:Q4 23: Q4 central banks safeguarding the credibility of their infla- Sources: International Energy Agency (IEA); and IMF staff calculations. Note: Forecasts for the energy price index and oil supply come from the October tion targets––and contributed little to recent movements 2022 World Economic Outlook (WEO) and October 2022 IEA Oil Market Report, in core inflation. Labor markets remain tight, especially respectively. in the United States, but the recent decline in the ratio of vacancies to the number of unemployed people amid a rise in unemployment rates suggests an easing across the associated effect on curbing world energy demand several economies (Figure 1.7). Nominal wage growth (as in the analysis of Auclert and others 2023). has generally remained contained in advanced econo- Core inflation has declined as a result of the fading mies since 2022, especially in the euro area, implying of effects of pass-through from past shocks to headline a moderation in real (inflation-adjusted) wages. Real inflation, as well as because labor market pressures wages are now close to or slightly below the level they have eased. Pass-through effects include the effects of were on before the pandemic in these economies. past relative price shocks—notably those to the price Wage-price spirals—in which prices and wages acceler- of energy and supply shifts in various industries— ate together for a sustained period—have generally not on prices and costs in other industries through taken hold. Nevertheless, wages at the bottom of the supply-chain inputs and wage demands. Near-term wage distribution have risen faster than the average since inflation expectations are an important pass-through the start of the pandemic, compressing the distribution. channel because of their implications for both wage The roles of these factors in reducing core infla- and price setting (see Chapter 2 of the October 2023 tion have diverged across major economies. IMF staff WEO) and have declined toward target levels in analysis (Figure 1.8) suggests that the rapid fading of both advanced economies and emerging market and pass-through from past relative price movements––in developing economies (Figure 1.6), although mea- particular from energy price shocks––has played a larger sures of financial-market-based inflation expectations role in the euro area and the United Kingdom than have recently shown signs of a pickup in the US. in the United States in reducing core inflation (the Longer-term inflation expectations have remained staff ’s methodology was the same as that used in Dao anchored, despite the string of large shocks since and others 2023). In the United States, labor market 2020––with decisive communication and action by tightness and, more broadly, strong macroeconomic 4 International Monetary Fund | April 2024  CHAPTER 1 GLOBAL PROSPECTS AND POLICIES Figure 1.7. Labor Markets Cooling Figure 1.8. Decomposition of Inflation Drivers (Percentage point deviation from December 2019; three-month average 10 1. Unemployment Rates inflation, annualized) (Percent) 8 Latest Lowest point Pass-through effects Headline inflation shocks Longer-term expectations Underlying (core) inflation Labor market tightness 6 Residual 4 8 1. United States 8 2 4 4 0 AUS CAN JPN KOR GBR HUN IND MEX POL TUR EA USA BRA 0 0 2.5 2. Vacancy-to-Unemployment Ratios (Percent) –4 –4 2.0 Latest Peak –8 –8 1.5 Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. 2020 21 22 23 24 2020 21 22 23 24 1.0 12 2. Euro Area 12 0.5 8 8 0.0 AUS CAN GBR USA Europe 4 4 120 3. Real Wage (Index, 2017:Q1 = 100) 0 0 115 AEs US Euro area –4 –4 Jan. Jan. Jan. Jan. Dec. Jan. Jan. Jan. Jan. Dec. 110 2020 21 22 23 23 2020 21 22 23 23 105 16 3. United Kingdom 16 12 12 100 2017:Q1 18:Q1 19:Q1 20:Q1 21:Q1 22:Q1 23:Q1 23: Q3 8 8 Sources: Haver Analytics; International Labour Organization; Organisation for