In its bi-annual World Economic Outlook released on Tuesday, the International Monetary Fund (IMF) said the spectre of inflation had been receding, but could still haunt the global economic recovery.

“Almost as quickly as global inflation went up, it has been coming down,” the report said.

“On a year-over-year basis, global growth bottomed out at the end of 2022, at 2.3 percent, shortly after median headline inflation peaked at 9.4 percent. According to our latest projections, growth for 2024 and 2025 will hold steady at around 3.2 percent.”

But the Washington-based lender said this did not mean that policymakers should be complacent. 

“While inflation trends are encouraging, we are not there yet. Somewhat worryingly, progress toward inflation targets has somewhat stalled since the beginning of the year. This could be a temporary setback, but there are reasons to remain vigilant,” IMF chief economist Pierre-Olivier Gourinchas wrote in a blog post accompanying the report.

Gourinchas noted that global inflation had mostly slowed because of a fall in energy prices and goods inflation. But geopolitical tensions have been stoking oil prices and services inflation remains stubbornly high. 

He also pointedly drew attention to the robust economic performance of the US, where the IMF raised its economic growth forecast for 2024 to 2.7% — 0.6 percentage points higher than its previous forecast. 

“The strong recent performance of the United States reflects robust productivity and employment growth, but also strong demand in an economy that remains overheated. This calls for a cautious and gradual approach to easing by the Federal Reserve.”

The Federal Reserve does not march to the beat of the IMF, but that doesn’t mean that it does not weigh up its advice when making policy decisions. 

Prospects of imminent US rate cuts have repeatedly faded this year in the face of the resilience of its economy and the inflationary pressures it is generating. 

This has implications for South Africa — the South African Reserve Bank is widely seen as unlikely to start trimming before the Fed does so as the rate differential is one of the props for the rand, which in recent days has come under renewed pressure. 

The rand is back over 19/dlr after reaching its highest level this year a week ago at nearly 18.40/dlr. Its initial slide was triggered by news that an opinion poll gave former president Jacob Zuma’s MK party 13% support, while dimming hopes of imminent US rate cuts have added to the gloomy sentiment around the currency. 

Read more in Daily Maverick: Rand plunges after poll shows surge in support for Zuma’s MK party 

The IMF’s view on the pace of US rate cuts will add to this bearishness at a time when the SA Reserve Bank is also concerned about domestic inflation, which accelerated in February to 5.6% from 5.3% in January, near the top of the central bank’s 3% to 6% target range. The read on this front for March will be released by Statistics South Africa on Wednesday.   

The Washington-based lender also cut its South African economic growth forecast for 2024 by 0.1 percentage point to a paltry 0.9%, while it raised its estimate for global growth by 0.1 percentage point to 3.2%. When it comes to economic growth, South Africa remains a laggard, and high domestic interest rates for longer won’t help that cause. DM