The International Monetary Fund on Tuesday maintained its 2024 projection for the global economy as inflation continues to moderate, although a high degree of uncertainty surrounds the world outlook.
Looking beyond the one-year outlook, the global economy faces a feeble period of medium-term growth, the IMF said as it called for a slate of reforms in its latest World Economic Outlook during the annual meetings of the fund and the World Bank in Washington.
The IMF forecasts the global economy to grow by 3.2 per cent in 2024 and in 2025, unchanged from July's estimates. The IMF also raised its growth outlook for the US to 2.8 per cent this year, owing to stronger consumption and non-residential investment due to large wage gains.
In the euro area, growth is expected to pick up to 0.8 per cent due to better exports, before rising to 1.2 per cent in 2025 on stronger domestic demand. Falling interest rates are expected to spur economic growth in the UK by 1.1 per cent in 2024 and 1.5 per cent in 2025.
Intensifying conflicts have also led to “sizeable downside” revisions to low-income and developing countries, IMF director of research Pierre-Olivier Gourinchas said.
The IMF lowered its outlook for the Middle East and Central Asia – similar to the World Bank's projections for the region last week – by 0.4 per cent this year on Saudi Arabia oil production cuts and the conflict in Sudan. Growth is expected to pick up to 3.9 per cent in 2025.
At the same time, headline inflation is projected to fall to 3.5 per cent by the end of 2025, slightly below the average of 3.6 per cent over the past 20 years before the Covid-19 pandemic and well below its peak of 9.4 per cent in 2022.
“The battle against inflation is almost won,” Mr Gourinchas said during a press conference on Tuesday.
This disinflationary process has been accomplished without a global recession – known as a soft landing – which Mr Gourinchas hailed as a “major achievement”.
After years-long monetary-tightening campaign, Mr Gourinchas said inflation is now near central banks' targets. Headline inflation in the US currently sits at 2.4 per cent and1.7 per cent in the Euro area and the UK.
Most advanced economies have now begun cutting interest rates, with the Federal Reserve recently announcing its first cut this cycle, of 50 basis points in September. The European Central Bank made its third quarter-percentage-point cut of the year last week, while the UK cut rates by 25 basis points before holding steady last month.
"Despite the good news on inflation, risks are now tilted to the downside," Mr Gourinchas said.
Contributing to the heightened uncertainty are geopolitical tensions, "especially in the Middle East," he added, which could negatively impact commodity markets.
The IMF also said central banks still run the risk of tightening monetary policy for too long, which could have an adverse effect on growth.
Weak medium-term growth
Looking beyond the one-year outlook, the IMF warned of a feeble period of economic growth in the medium term.
“For many advanced and emerging market economies, the five-year-ahead forecast is weaker than the one-year-ahead forecast … suggesting that persistent headwinds to growth will remain prevalent over the medium term,” the IMF said.
The lender projects global growth to be at 3.1 per cent in five years, “the lowest in decades”.
“While much of this reflects China’s weaker outlook, medium-term prospects in other regions, including Latin America and the European Union, have also deteriorated,” it said.
China is projected to have a gradual slowdown in the coming years, with growth having “slowed only marginally” to 4.8 per cent this year.
IMF calls for policy pivot
With inflation climbing back down to most central banks' targets, the IMF argued that the latest development creates the opportunity for what it calls a “policy triple pivot”, which, the lender said, would provide significant breathing room for governments.
It said lower interest rates in major economies will ease pressure faced by emerging markets as their currencies begin to strengthen against the US dollar. The IMF also called for governments to pivot on fiscal policy and rebuild their fiscal buffers.
“While the decline in policy rates provides some scale relief by lowering funding costs, this will not be sufficient, especially as long-term real interest rates remain far above pre-pandemic levels,” it added.
The IMF recently warned about the fiscal outlook, projecting that global debt is forecast to surpass $100 trillion by the end of the year. The fund also called on nations to embrace growth-productivity reforms.
Dr Afridi's warning signs of digital addiction
Spending an excessive amount of time on the phone.
Neglecting personal, social, or academic responsibilities.
Losing interest in other activities or hobbies that were once enjoyed.
Having withdrawal symptoms like feeling anxious, restless, or upset when the technology is not available.
Experiencing sleep disturbances or changes in sleep patterns.
What are the guidelines?
Under 18 months: Avoid screen time altogether, except for video chatting with family.
Aged 18-24 months: If screens are introduced, it should be high-quality content watched with a caregiver to help the child understand what they are seeing.
Aged 2-5 years: Limit to one-hour per day of high-quality programming, with co-viewing whenever possible.
Aged 6-12 years: Set consistent limits on screen time to ensure it does not interfere with sleep, physical activity, or social interactions.
Teenagers: Encourage a balanced approach – screens should not replace sleep, exercise, or face-to-face socialisation.
Source: American Paediatric Association
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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