IMF predicts global Inflation to fall to 4.2% in 2025

The International Monetary Fund has predicted a decline in global inflation to 4.2 per cent in 2025, as the world recovers from the economic disruptions caused by the COVID-19 pandemic and the war in Ukraine.

After hitting four-decade highs due to supply chain disruptions and rising energy prices, inflation is expected to continue its downward trend.

In a blog post on Friday, the IMF outlined its projections, emphasising a return to stable inflation levels as central banks normalise monetary policies and restore economic equilibrium.

“We project global growth will remain steady at 3.3 per cent this year and next, broadly aligned with potential growth that has substantially weakened since before the pandemic. Inflation is declining, to 4.2 per cent this year and 3.5 per cent next year, in a return to central bank targets that will allow further normalisation of monetary policy,” the blog post read.

It noted that this reduction will mark the end of the global economic challenges brought on by the pandemic and geopolitical conflicts.

While global inflation is slowing, the IMF highlighted growing economic divergences across countries. These divergences are particularly evident between advanced and emerging markets.

The United States is expected to see stronger-than-anticipated growth, with projections for 2025 revised upward to 2.7 per cent. This growth is attributed to resilient domestic demand and a favourable business environment, particularly in the technology sector.

Conversely, the Euro area’s growth remains modest, projected at just 1 per cent due to weak consumer confidence and high energy prices.

In emerging markets, growth is expected to be broadly stable, with a forecast of 4.2 per cent for 2025, despite ongoing challenges related to trade and policy uncertainties.

However, as these uncertainties ease, economic activity is expected to pick up, it projected.

The Fund said China’s growth forecast has been revised to 4.5 per cent, signalling a recovery as trade and policy uncertainties begin to ease.

The IMF cautioned that policy shifts, particularly in the United States, could affect the 2025 inflation prediction and global economic outlook.

Fiscal measures, for instance, may push inflation higher in the short term, which could disrupt the current path toward stability.

However, overall, the global economy is on a path to stability, with inflation gradually stabilising and economic activity steadily improving across most regions.