IMF predicts 3.2% growth for Pakistan, inflation dropping to 9.5%

October 23, 2024 (MLN): The International Monetary Fund (IMF) has projected Pakistan’s economy to expand by 3.2% in the current fiscal year, surpassing forecasts from two other prominent global institutions but falling short of the government's budget target, according to the IMF’s World Economic Outlook (WEO) report released on Tuesday. 

This economic growth is expected to be accompanied by a single-digit inflation rate of 9.5%, with the current account deficit projected to hover around 1%.

Globally, the IMF anticipates economic growth to stabilize at 3.2%, crediting the gradual victory over inflation.

However, the outlook remains cautious due to persistent risks such as regional conflicts, China’s economic slowdown, and the lingering impact of tight monetary policies and financial market turbulence.

The document also forecasted Pakistan's inflation, measured by the Consumer Price Index, to drop to 9.5% in 2025, down from 23.4% in 2024, and further decrease to 6.5% by 2029.

The current account deficit is expected to remain steady at 0.9% of GDP through 2025 and 2029, compared to 0.2% last year.

The IMF also projects a decline in the unemployment rate, from 8% this year to 7.5% in 2025.

Global growth is expected to remain stable yet underwhelming. At 3.2% in 2024 and 2025, the growth projection is virtually unchanged from those in both the July 2024 World Economic Outlook Update and the April 2024 World Economic Outlook.

However, notable revisions have taken place beneath the surface, with upgrades to the forecast for the United States offsetting downgrades to those for other advanced economies—in particular, the largest European countries.

Likewise, in emerging market and developing economies, disruptions to production and shipping of commodities—especially oil—conflicts, civil unrest, and extreme weather events have led to downward revisions to the outlook for the Middle East and Central Asia and that for sub-Saharan Africa.

These have been compensated for by upgrades to the forecast for emerging Asia, where surging demand for semiconductors and electronics, driven by significant investments in artificial intelligence, has bolstered growth. The latest forecast for global growth five years from now––at 3.1%—remains mediocre compared with the prepandemic average.

Persistent structural headwinds—such as population aging and weak productivity—are holding back potential growth in many economies.

The report also noted that cyclical imbalances have eased since the beginning of the year, leading to a better alignment of economic activity with potential output in major economies.

This adjustment is bringing inflation rates across countries closer together and on balance has contributed to lower global inflation.

Global headline inflation is expected to fall from an annual average of 6.7% in 2023 to 5.8% in 2024 and 4.3% in 2025, with advanced economies returning to their inflation targets sooner than emerging markets and developing economies.

As global disinflation continues to progress, broadly in line with the baseline, bumps on the road to price stability are still possible.

Goods prices have stabilized, but services price inflation remains elevated in many regions, pointing to the importance of understanding sectoral dynamics and calibrating monetary policy accordingly.

Risks to the global outlook are tilted to the downside amid elevated policy uncertainty.

Sudden eruptions in financial market volatility—as experienced in early August—could tighten financial conditions and weigh on investment and growth, especially in developing economies in which large near-term external financing needs may trigger capital outflows and debt distress.

Further disruptions to the disinflation process, potentially triggered by new spikes in commodity prices amid persistent geopolitical tensions, could prevent central banks from easing monetary policy, which would pose significant challenges to fiscal policy and financial stability.

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