Last week, the 2024 IMF-World Bank Spring Meetings took place in Washington, DC. The meetings occurred at a time of heightened geopolitical tensions, with the counter-attack by Iran into Israeli territory for the first time in history taking place just before the meetings began, and the retaliatory response by Israel, with the bombing of a military base near the central city of Isfahan, carried out on Friday morning on the last day of the meetings.
On the other hot geopolitical front, the US House of Representatives has finally approved a USD 60.1bn financial and military aid to Ukraine (as part of a broader USD 95bn military aid package, which includes Israel and the Indo-Pacific) that has been blocked for months by the opposition of the Republican party. This comes at the same time as the Biden administration has proposed a compromise solution about seizing Russian assets to finance Ukraine’s resistance, as we discussed in our column last week.
During these same days, the US decided to re-impose sanctions on Venezuela, albeit with some important carve-outs, given the lack of progress, or even backtracking, of President Nicolas Maduro in organising “free and fair” elections, in which candidates of the opposition had at least the theoretical chance to win.
On the macroeconomic front, the IMF certified that the global economy is, basically, “Steady But Slow” with “Resilience Amid Divergence.” The latest edition of the World Economic Outlook (WEO) kept the forecast for global growth in 2024 unchanged at the disappointing level of 3.2%, the same as in 2023 and as expected again in 2025. The US economy is seen accelerating in 2024 to 2.7% compared to the 2023 growth rate of 2.6%. The Euro area is also seen accelerating from 0.4% in 2023 to 0.8% 2024, but this still represents less than a third of the US’ speed. Further confirming this divergence is the deceleration that the IMF sees for the largest EM economies, China (from 5.2% in 2023 to 4.6% in 2024), India (from 7.8% in 2023 to 6.8% in 2024), Brazil (from 2.9% in 2023 to 2.2% in 2024), Russia (from 3.6% in 2023 to 3.2% in 2024) and Mexico (from 3.2% in 2023 to 2.4% in 2024).
Inflation is clearly on a downward trend globally, but the recent rise in oil prices due to increased geopolitical tensions in the Middle East risks creating another bump in the descending dynamics of headline inflation. So the real question is: will central banks “look through” this potentially “temporary” increase in inflation, or will they fear that this may represent a stop in its positive trajectory? Theoretically speaking, if other shocks are not added to this one, the major central banks may conclude that a short-lived revitalisation of inflation does not fundamentally change the picture, and they may carry on with their intention of starting to reduce some of the monetary restrictions that have been introduced in the last couple of years.
Given all of this, markets may find some reason not to be too scared. Some monetary easing is on the way, although probably less than had been anticipated at the beginning of the year. Lower short- and longer-term yields should provide some relief to both fixed-income products and equity prices over the spring-summer period
