By Joke Kujenya
THE GLOBAL economy is projected to grow by 3.2% in 2024, maintaining the forecast from the April 2024 World Economic Outlook (WEO) report.
JKNewsMedia reports that the growth rate is expected to slightly increase to 3.3% in 2025.
This stability comes despite initial year activities narrowing the output divergence among various economies as cyclical factors wane and activities align more closely with their potential.
Services inflation continues to hinder disinflation efforts, posing a significant challenge for monetary policy normalization, the WEO report, notes.
Higher-than-average price increases in the services sector, combined with strong nominal wage growth, have complicated efforts to stabilize prices and replenish economic buffers.
The risks of inflation remain high, driven by the persistent lack of progress in reducing services inflation.
Increased price pressures from renewed trade and geopolitical tensions further exacerbate the situation.
High nominal wage growth without corresponding productivity gains could lead to stubborn wage and price inflation, making it more difficult to control.
In response to these inflation risks, interest rates may remain elevated for an extended period.
Prolonged dollar appreciation and potential policy shifts due to upcoming elections could disrupt capital flows, impeding planned monetary policy easing and adversely affecting economic growth.
Higher interest rates could also lead to increased borrowing costs and impact financial stability if fiscal improvements do not offset higher real rates amid lower potential growth.
