IMF Spring 2023 Meetings Takeaways

April 2023

 
There was a lot of wishful thinking among policy makers and market participants at the recent IMF Spring meetings. The IMF's April World Economic Outlook paints a picture of still high global inflation in 2023 of 7% that will only converge to inflation targets in most countries by 2025. The disinflation process is driven by tight monetary policy and a high unemployment rate but also by lower oil prices. These 3 assumptions are all wishful thinking.
There was a lot of wishful thinking among policy makers and market participants at the recent IMF Spring meetings. The IMF’s April World Economic Outlook paints a picture of still high global inflation in 2023 of 7% that will only converge to inflation targets in most countries by 2025. The disinflation process is driven by tight monetary policy and a high unemployment rate but also by lower oil prices. These 3 assumptions are all wishful thinking.

Monetary policy in developed markets is hardly tight with ex-post real rates negative and ex-ante real rates barely positive. Additionally, developed market monetary policy is being effectively neutered by the extraordinary actions of central banks to shield both markets and the real economy from any pain. Labor markets remain extremely tight not only due to strong demand but also by a shortage of labor supply. Oil prices are buoyed by strong global demand aided by robust tourism from China and an OPEC that is assertive in its desire to keep oil markets tight.

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