According to the IMF, global inflation is much more stubborn than expected. The International Monetary Fund expects global inflation to be seven percent this year, and the International Monetary Fund expects it to drop to just under five percent next year. BNR’s in-house economist Han de Jong, however, expected a more pessimistic picture from the IMF.
IMF chief economist Pierre-Olivier Gourinchas also sees some positives. For example, the world benefits from the reopening of the Chinese economy and problems in the supply chain are reduced. According to the IMF, the increase in interest rates will decrease inflation, as expected. But as a result, it foresees growing risks for banks.
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Financial stability
De Jong: ‘Besides the problems of high inflation, the world is also facing problems in the financial sector. These are partly caused by the higher interest rate.’ Gourinchas says financial stability is more important than inflation control.
“The IMF now says that interest rate hikes can continue if the financial system remains manageable at the banks,” De Jong explains. ‘But in the unlikely event that banks fail and we continue to experience severe financial instability, interest rates cannot aim for price stability alone. So you’ll have to lower interest rates to restore financial stability as well.’
“That’s a really high probability of a very bad scenario”
Although the IMF stresses that this point is still a long way off, Gourinchas estimates the possibility of a new financial crisis at fifteen percent. “It really looks like a great opportunity,” says De Jong. “But the question is how to calculate it. And if you hear the tone of the message and compare it with that of six months ago, the picture is not very pessimistic.’ However, we shouldn’t ignore that fifteen percent possibility, stresses De Jong. ‘This is a really high probability of a very bad scenario.’
(Too) Gloomy for the Netherlands
For the Netherlands, the IMF expects inflation to be 3.9% this year and expects it to rise to 4.2% next year. “The Central Planning Bureau also assumes slightly higher inflation in 2024. In principle, the price cap for energy will no longer apply next year, so this could be a possible explanation.”
Furthermore, De Jong thinks the IMF is “very gloomy about the Dutch economy.” The IMF forecasts just 1% growth this year, while the Central Planning Bureau expects 1.6%. It seems like a small difference, but you have to realize that the Dutch economy has grown steadily over the last year. And even if our economy had stopped growing altogether since the fourth quarter of last year, you’d still end up averaging above 1% in 2023.
According to De Jong, the IMF is indeed assuming ‘a slight contraction’ of the Dutch economy, ‘but this seems too gloomy to me. So I prefer to stick with that 1.6 percent CPB.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
