IMF celebrates progress but warns of risks
The IMF’s latest World Economic Outlook indicated significant progress in the global fight against inflation, forecasting a drop in global headline inflation to 3.5% by the end of 2025, but Kiwibank economists warned that rising downside risks now dominate the economic landscape.
“The global battle against inflation is almost won,” the IMF said, reflecting on the resilience of the global economy throughout the disinflation process.
Despite avoiding a global recession, the IMF highlighted concerns over geopolitical tensions and a slowdown in China.
“Downside risks are rising and now dominate the outlook,” said Kiwibank’s Jarrod Kerr, Mary Jo Vergara, and Sabrina Delgado (pictured above, from left to right), pointing to potential impacts on trade stemming from China's economic challenges.
IMF has kept its global growth forecasts stable at 3.2% for this year and next, labeling this growth as “stable yet underwhelming.”
The US stands out with an upgraded growth outlook due to strong consumer spending.
“The so-called ‘soft landing’ sought by the US Federal Reserve has largely been achieved,” the Kiwibank economists said.
However, growth projections for China have been downgraded, with a slowdown affecting global trade dynamics.
As for Aotearoa, IMF’s outlook indicated economic growth of around 2% in 2025, although the starting point has softened, with flat growth predicted for 2024.
“Aggressive monetary policy tightening has driven our economy into recession,” Kerr, Vergara, and Delgado said.
Nevertheless, with RBNZ closing the chapter on rate hikes, the outlook is beginning to improve.
“Inflation is back within the band, and rate cuts are coming through thick and fast,” Kiwibank analysts said, while RBNZ Governor Adrian Orr has indicated that further moves will be “incremental,” suggesting a cautious path forward.
Kiwibank on financial markets
Kiwibank traders commented on a tense atmosphere leading up to the upcoming US election.
“The Kiwi rates market is in a nervous phase as uncertainty mounts,” said Ross Weston, head of balance sheet at the Treasury. “The outlook is less certain, and the only certainty is uncertainty.”
In the currency markets, the Kiwi dollar has slipped to the 0.5900 levels as the US dollar strengthens.
“With the US dollar staging a comeback as a safe haven, the Kiwi has traded down to a low of 0.5958,” said Mieneke Perniskie, a trader at Financial Markets.
The week ahead
- Key domestic data releases are anticipated, including the September filled jobs number and the ANZ business confidence survey for October.
- Across the Tasman, the September quarter inflation report is expected to show a slowdown in CPI inflation.
- In the US, the GDP growth rate for the September quarter is projected to rise by 3%, driven by consumer spending and business investment.
