• Straight Arrow News

The IMF said Tuesday that tariffs put downward pressure on global growth and harm the countries that implement them.

WASHINGTON — The global war against inflation is largely won — and at surprisingly little cost to economic growth, the International Monetary Fund declared Tuesday.

In its latest assessment of the global economy, the IMF predicted worldwide inflation will cool from 6.7% last year to 5.8% this year and to 4.3% in 2025. It estimates inflation will fall even faster in the world’s wealthy countries, from 4.6% last year to 2.6% this year and 2% — the target range for most major central banks — in 2025.

The slowdown in inflation, after years of crushing price increases in the aftermath of the COVID-19 pandemic, led the Federal Reserve and the European Central Bank to cut interest rates this year after they aggressively raised them to try to tame inflation.

“The battle against inflation is almost won,” Pierre-Olivier Gourinchas, the IMF’s chief economist, said Tuesday. “In most countries, inflation is hovering close to central bank targets.”

An Amazon worker sorts deliveries Aug. 14 on a street corner on New York's Upper West Side.

Inflation accelerated when the world economy recovered with unexpected speed from the pandemic recession, leaving factories, freight yards, ports and businesses overwhelmed with customer orders and creating shortages, delays and higher prices.

The high borrowing rates engineered by major central banks, along with the end of supply chain logjams, brought inflation dramatically down from the four-decade highs it hit in mid-2022.

To the surprise of forecasters, the economy — especially the largest, in the United States — continued to grow and employers kept hiring despite higher borrowing costs.

"The decline in inflation without a global recession is a major achievement," Gourinchas wrote in a blog post that accompanied the IMF's latest World Economic Outlook.

Treasury Secretary Janet Yellen speaks July 30 during a news conference in Philadelphia.

Treasury Secretary Janet Yellen told financial leaders the U.S. economy grew stronger because the Biden administration rejected isolationism, offering a barely veiled criticism of former President Donald Trump’s policies two weeks before the U.S. election.

Yellen opened the IMF and World Bank annual meetings by highlighting U.S. economic growth since the nation was in the grips of the pandemic. Without mentioning Trump by name, she said in a speech that the Biden administration ended a period of international isolationism that “made America and the world worse off.”

”We went from millions having lost their jobs to a historic labor market recovery,” Yellen said. She said U.S. economic growth has been “almost twice as fast as most other advanced economies this year and last, even as inflation came down sooner.”

The IMF, a 190-nation lending organization, works to promote economic growth and financial stability and reduce global poverty. On Tuesday, besides sketching a milder inflation outlook, it upgraded its economic expectations for the United States this year, while lowering its estimates for growth in Europe and China. The IMF left its forecast for global growth unchanged at a relatively lackluster 3.2% for 2024.

The IMF expects the U.S. economy to expand 2.8% this year, down slightly from 2.9% in 2023 but an improvement on the 2.6% it forecast for 2024 back in July. Growth in the United States has been led by strong consumer spending, fueled by healthy gains in inflation-adjusted wages.

Workers refurbish a pedestrian bridge Oct. 9 in Shanghai.

Next year, though, the IMF expects the U.S. economy to decelerate to 2.2% growth. With a new presidential administration and Congress in place, the IMF envisions the nation's job market losing some momentum in 2025 as the government begins seeking to curb huge budget deficits by slowing spending, raising taxes or some combination of both.

The IMF expects China's economic growth to slow from 5.2% last year to 4.8% this year and 4.5% in 2025. The world's No. 2 economy has been hobbled by a collapse in its housing market and by weak consumer confidence — problems only partly offset by strong exports.

The 20 European countries that share the euro currency are collectively expected to eke out 0.8% growth this year, twice the 2023 expansion of 0.4% but a slight downgrade from the 0.9% the IMF had forecast three months ago for 2024. The German economy, hurt by a slump in manufacturing and real estate, isn't expected to grow at all this year.

Now that interest rates are coming down and likely to aid the world's economies, the IMF warned, the need to contain enormous government deficits will likely put a brake on growth.

2024 F150 and Lightning electric pickup trucks sit at a Ford dealership on May 19 in Denver.

The overall world economy is expected to grow 3.2% in both 2024 and 2025, down a tick from 3.3% last year. That's an unimpressive standard: From 2000 through 2019, before the pandemic upended economic activity, global growth averaged 3.8% a year.

The IMF also continues to express concern that geopolitical tension, including antagonism between the United States and China, could make world trade less efficient. The concern is that more countries would increasingly do business with their allies instead of seeking the lowest-priced or best-made foreign goods.

Still, global trade, measured by volume, is expected to grow 3.1% this year and 3.4% in 2025, improving on 2023's anemic 0.8% increase.

Become a #ThisIsTucson member! Your contribution helps our team bring you stories that keep you connected to the community. Become a member today.