IMF Chief Economist Pierre-Olivier Gourinchas sits down with Yahoo Finance Senior Reporter Jennifer Schonberger to explain his new outlook for global economic growth in the coming years.
"On the demand side, what we saw is countries like the US, for instance, we saw very resilient consumption. and we saw, also, a little bit of support for aggregated demand coming from government spending and fiscal policy," Gourinchas states. "The other side of the story is on the supply side... what we've seen is very robust labor markets increased and labor force participation."
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JENNIFER SCHONBERGER: International Monetary Fund raised its outlook for global growth this year. In a new report, the IMF estimates the global economy grew at 3.1% last year and is expected to grow at the same clip this year. That's 2/10 of a percentage point higher than what the IMF forecast back in the fall.
For more on what's driving this forecast and this brand new world economic outlook report, I want to welcome into the program IMF Chief Economist Pierre-Olivier Gourinchas. Pierre, thanks so much for joining me all the way from Johannesburg. It's great to see you.
PIERRE-OLIVIER GOURINCHAS: Thank you, Jennifer. It's great to be with you.
JENNIFER SCHONBERGER: So you have raised your outlook for global growth. You see a soft landing this year as global central banks are set to potentially cut rates?
PIERRE-OLIVIER GOURINCHAS: Yes, we see the news are good on two fronts. First, we had a little bit more growth as you pointed out. 3.1% last year, 3.1% expected for this year, and 3.2% in 2025.
And at the same time, we are seeing inflation coming down faster than expected. Headline inflation, core inflation, so meaning excluding food and energy prices also coming down faster. So a little bit more growth, a little bit less inflation, and the result is that we are now expecting that a soft landing is more likely.
JENNIFER SCHONBERGER: Everyone thought in order to get inflation back under control, we needed to have a recession yet to your point, inflation globally is falling faster than expected. Certainly here in the United States, based on a six-month annualized measure, inflation is back to the Fed's 2% target and growth has been surprising to the upside. So how do you explain this and can this continue?
PIERRE-OLIVIER GOURINCHAS: Well, so to answer your question I need to get a little bit into what's behind our revision in growth and inflation. And there are both-- you can think of what happens on the demand side and what happened on the supply side. So on the demand side, what we saw is countries like the US, for instance, we saw very resilient consumption. And we saw also a little bit of support for aggregate demand coming from government spending and overall fiscal policy.
But the other side of the story is on the supply side-- on the supply side, what we've seen is very robust labor markets increased in labor force participation. We've seen unwinding of supply chain blockages and we've seen energy and commodity prices coming down. And these supply forces seem to be sort of the driving force behind what we're seeing right now. So this is why we have inflation coming down. And at the same time, we're not seeing a recession.
JENNIFER SCHONBERGER: Do you think, Pierre, that productivity could actually play into this? I know you say in your report that while you expect more resilient growth, growth is going to be below historical average levels because of what you say in part is low productivity. But I wonder, given that the data is notoriously difficult to measure and we only generally see it in hindsight, if that can also be sort of a missing piece of this puzzle as growth is continuing to surprise and inflation continues to come down?
PIERRE-OLIVIER GOURINCHAS: Well, first the supply-side story I was just telling, it has sort of a productivity component to it for some aspects. So for instance, the unwinding of the supply shocks, the coming down of energy prices, this is sort of all supporting activity for a given level of employment, if you want. And that's going in the right direction.
And we've seen in the US, for instance, we've seen in the recent quarters, we've seen productivity sort of rebounding from where it was earlier in 2023. We see more growth and sort of the labor market is cooling off a little bit. The result is consistent with faster productivity growth.
But we don't see that across all countries and in all places. For instance in the euro area, we're seeing that their economy is suffering a little bit more. Growth is not as strong yet they are creating a lot of jobs.
This has been sort of an employment-rich environment even though output growth has not been as strong. And so productivity has not been part of the story there. But in the US, it's been a little bit more part of the story. Now, if we take a step back and look at the medium term, we're still concerned that the growth outlook when we look three, four, five years out is still not as strong as it was maybe 10, 15, 20 years ago. And so in that sense, yes, there is a little bit of a cyclical adjustment on the productivity side, but the underlying more structural drivers are still a reason for concern.
