Despite gloomy predictions, the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose. The journey has been eventful, starting with supply-chain disruptions in the aftermath of the pandemic, an energy and food crisis triggered by Russia’s war on Ukraine, a considerable surge in inflation, followed by a globally synchronized monetary policy tightening.

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 World Economic Outlook projections, growth this year and next will hold steady at 3.2 percent, with median headline inflation declining from 2.8 percent at the end of 2024 to 2.4 percent at the end of 2025. Most indicators continue to point to a soft landing.
We also project less economic scarring from the crises of the past four years, although estimates vary across countries. The US economy has already surged past its prepandemic trend. But we now estimate that there will be more scarring for low-income developing countries, many of which are still struggling to turn the page from the pandemic and cost-of-living crises.

Resilient growth and rapid disinflation point toward favorable supply developments, including the fading of energy price shocks, and a striking rebound in labor supply supported by strong immigration in many advanced economies. Monetary policy actions have helped anchor inflation expectations even if its transmission may have been more muted, as fixed-rate mortgages became more prevalent.
Despite these welcome developments, numerous challenges remain, and decisive actions are needed.
Inflation risks remain
Bringing inflation back to target should remain the priority. 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. Most of the good news on inflation came from the decline in energy prices and in goods inflation. The latter has been helped by easing supply-chain frictions, as well as by the decline in Chinese export prices. But oil prices have been rising recently in part due to geopolitical tensions and services inflation remains stubbornly high. Further trade restrictions on Chinese exports could also push up goods inflation.
Economic divergences widen
The resilient global economy also masks stark divergence across countries.

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 fiscal stance, out of line with long-term fiscal sustainability, is of particular concern. It raises short-term risks to the disinflation process, as well as longer-term fiscal and financial stability risks for the global economy. Something will have to give.
Growth in the euro area will rebound but from very low levels, as past shocks, and tight monetary policy weigh on activity. Continued high wage growth and persistent services inflation could delay the return of inflation to target. However, unlike in the United States, there is little evidence of overheating, and the European Central Bank will need to carefully calibrate the pivot toward monetary easing to avoid an inflation undershoot. While labor markets appear strong, that strength could prove illusory if European firms have been hoarding labor in anticipation of a pickup in activity that does not materialize.
China’s economy remains affected by the downturn in its property sector. Credit booms and busts never resolve themselves quickly, and this one is no exception. Domestic demand will remain lackluster unless strong measures address the root cause. With depressed domestic demand, external surpluses could well rise. The risk is that this will further exacerbate trade tensions in an already fraught geopolitical environment.
Many other large emerging market economies are performing strongly, sometimes benefiting from a reconfiguration of global supply chains and rising trade tensions between China and the US. These countries’ footprint on the global economy is increasing.
Policy path
Going forward, policymakers should prioritize measures that help preserve or even enhance the resilience of the global economy.
The first such priority is to rebuild fiscal buffers. Even as inflation recedes, real interest rates remain high and sovereign debt dynamics have become less favorable. Credible fiscal consolidations can help lower funding costs, improve fiscal headroom and financial stability. Unfortunately, fiscal plans so far are insufficient and could be derailed further given the record number of elections this year.

Fiscal consolidations are never easy but it is best not to wait until markets dictate their conditions. The right approach is to start now, gradually, and credibly. Once inflation is under control, credible multiyear consolidations will help pave the way for further monetary policy easing. The successful 1993 US fiscal consolidation and monetary accommodation episode comes to mind as an example to emulate.
The second priority is to reverse the decline in medium term growth prospects. Some of that decline comes from increased misallocation of capital and labor within sectors and countries. Facilitating faster and more efficient resource allocation will boost growth. For low-income countries, structural reforms to promote domestic and foreign direct investment, and to strengthen domestic resource mobilization, will help lower borrowing costs and reduce funding needs. These countries also must improve the human capital of their large young populations, especially as the rest of the world is aging rapidly.
Artificial intelligence also gives hope for boosting productivity. It may do so, but the potential for serious disruptions in labor and financial markets is high. Harnessing the potential of AI for all will require that countries improve their digital infrastructure, invest in human capital, and coordinate on global rules of the road.
Medium-term growth prospects are also harmed by rising geoeconomic fragmentation and the surge in trade restrictive and industrial policy measures. Trade linkages are already changing as a result, with potential losses in efficiency. The net effect could well be to make the global economy less, not more, resilient. But the broader damage is to global cooperation. It is still time to reverse course.
Third, a great achievement of the past few years has been the strengthening of monetary, fiscal and financial policy frameworks especially for emerging market economies. This has helped make the global financial system more resilient and avoid a permanent resurgence of inflation. Going forward, it is essential to preserve these improvements. That includes protecting the hard-won independence of central banks.

Lastly, the green transition requires major investments. Cutting emissions is compatible with growth and activity has become much less emission-intensive in recent decades. But emissions are still rising. Much more needs to be done and done quickly. Green investment has expanded at a healthy pace in advanced economies and China. The greatest effort must now be made by other emerging market and developing economies, which must massively increase their green investment growth and reduce their fossil fuel investment. This will require technology transfer by other advanced economies and China, as well as substantial private and public financing.
On these questions, as well as on so many others, multilateral frameworks and cooperation remain essential for progress.

—This blog by Pierre-Olivier Gourinchas is based on Chapter 1 of the April 2024 World Economic Outlook.

Compliments of the IMF.The post IMF | Global Economy Remains Resilient Despite Uneven Growth, Challenges Ahead first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

This blog is based on Chapter 3 of the IMF’s April 2024 Global Financial Stability Report | Cyberattacks have more than doubled since the pandemic. While companies have historically suffered relatively modest direct losses from cyberattacks, some have experienced a much heavier toll. US credit reporting agency Equifax, for example, paid more than $1 billion in penalties after a major data breach in 2017 that affected about 150 million consumers.
As we show in a chapter of the April 2024 Global Financial Stability Report, the risk of extreme losses from cyber incidents is increasing. Such losses could potentially cause funding problems for companies and even jeopardize their solvency. The size of these extreme losses has more than quadrupled since 2017 to $2.5 billion. And indirect losses like reputational damage or security upgrades are substantially higher.
The financial sector is uniquely exposed to cyber risk. Financial firms—given the large amounts of sensitive data and transactions they handle—are often targeted by criminals seeking to steal money or disrupt economic activity. Attacks on financial firms account for nearly one-fifth of the total, of which banks are the most exposed.

Incidents in the financial sector could threaten financial and economic stability if they erode confidence in the financial system, disrupt critical services, or cause spillovers to other institutions.
For example, a severe incident at a financial institution could undermine trust and, in extreme cases, lead to market selloffs or runs on banks. Although no significant “cyber runs” have occurred thus far, our analysis suggests modest and somewhat persistent deposit outflows have occurred at smaller US banks after a cyberattack.
Cyber incidents that disrupt critical services like payment networks could also severely affect economic activity. For example, a December attack at the Central Bank of Lesotho disrupted the national payment system, preventing transactions by domestic banks.

Another consideration is that financial firms increasingly rely on third-party IT service providers, and may do so even more with the emerging role of artificial intelligence. Such external providers can improve operational resilience, but also expose the financial industry to systemwide shocks. For example, a 2023 ransomware attack on a cloud IT service provider caused simultaneous outages at 60 US credit unions.
With the global financial system facing significant and growing cyber risks from increasing digitalization and geopolitical tensions, as shown in the chapter, policies and governance frameworks at firms must keep pace.
Because private incentives may be insufficient to address cyber risks—for example, firms may not fully account for the systemwide effects of incidents—public intervention may be necessary.
However, according to an IMF survey of central banks and supervisory authorities, cybersecurity policy frameworks, especially in emerging market and developing economies, often remain insufficient. For example, only about half of countries surveyed had a national, financial sector-focused cybersecurity strategy or dedicated cybersecurity regulations.
To strengthen resilience in the financial sector, authorities should develop an adequate national cybersecurity strategy accompanied by effective regulation and supervisory capacity that should encompass:

Periodically assessing the cybersecurity landscape and identifying potential systemic risks from interconnectedness and concentrations, including from third-party service providers.
Encouraging cyber “maturity” among financial sector firms, including board-level access to cybersecurity expertise, as supported by the chapter’s analysis which suggests that better cyber-related governance may reduce cyber risk.
Improving cyber hygiene of firms—that is, their online security and system health (such as antimalware and multifactor authentication)—and training and awareness.
Prioritizing data reporting and collection of cyber incidents, and sharing information among financial sector participants to enhance their collective preparedness.

As attacks often emanate from outside a financial firm’s home country and proceeds can be routed across borders, international cooperation is imperative to address cyber risk successfully.
While cyber incidents will occur, the financial sector needs the capacity to deliver critical business services during these disruptions. To this end, financial firms should develop, and test, response and recovery procedures and national authorities should have effective response protocols and crisis management frameworks in place.

The authors:
> Fabio Natalucci, Deputy Director of the Monetary and Capital Markets Department, IMF
> Mahvash S. Qureshi, Assistant Director and Division Chief – Monetary and Capital Markets Department, IMF
> Felix Suntheim, Deputy Division Chief in the Global Financial Stability Analysis Division – Monetary and Capital Markets Department, IMF

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Blog post by Charles Cohen, Caio Ferreira, Fabio Natalucci, Nobuyasu Sugimoto |  The private credit market, in which specialized non-bank financial institutions such as investment funds lend to corporate borrowers, topped $2.1 trillion globally last year in assets and committed capital. About three-quarters of this was in the United States, where its market share is nearing that of syndicated loans and high-yield bonds.
This market emerged about three decades ago as a financing source for companies too large or risky for commercial banks and too small to raise debt in public markets. In the past few years, it has grown rapidly as features such as, speed, flexibility, and attentiveness have proved valuable to borrowers. Institutional investors such as pension funds and insurance companies have eagerly invested in funds that, though illiquid, offered higher returns and less volatility.

Private corporate credit has created significant economic benefits by providing long-term financing to corporate borrowers. However, the migration of this lending from regulated banks and more transparent public markets to the more opaque world of private credit creates potential risks. Valuation is infrequent, credit quality isn’t always clear or easy to assess, and it’s hard to understand how systemic risks may be building given the less than clear interconnections between private credit funds, private equity firms, commercial banks, and investors.
Today, immediate financial stability risks from private credit appear to be limited. However, given that this ecosystem is opaque and highly interconnected, and if fast growth continues with limited oversight, existing vulnerabilities could become a systemic risk for the broader financial system.
We identify a number of fragilities in our April 2024 Global Financial Stability Report.
First, companies that tap the private credit market tend to be smaller and carry more debt than their counterparts with leveraged loans or public bonds. This makes them more vulnerable to rising rates and economic downturns. With the recent rise in benchmark interest rates, our analysis indicates that more than one-third of borrowers now have interest costs exceeding their current earnings.
The rapid growth of private credit has recently spurred increased competition from banks on large transactions. This in turn has put pressure on private credit providers to deploy capital, leading to weaker underwriting standards and looser loan covenants—some signs of which have already been noted by supervisory authorities.

Second, private market loans rarely trade, and therefore can’t be valued using market prices. Instead, they are often marked only quarterly using risk models, and may suffer from stale and subjective valuations across funds. Our analysis comparing private credit to leveraged loans (which trade regularly in a more liquid and transparent market) shows that, despite having lower credit quality, private credit assets tend to have smaller markdowns during times of stress.

Third, while private credit fund leverage appears to be low, the potential for multiple layers of hidden leverage within the private credit ecosystem does raise concerns given the lack of data. Leverage is deployed also by investors in these funds and by the borrowers themselves. This layering of leverage makes it difficult to assess potential systemic vulnerabilities of this market.
Fourth, there appears to be a significant degree of interconnectedness in the private credit ecosystem. While banks do not seem to have a material exposure to private credit in aggregate—the Federal Reserve has estimated that US private credit borrowing amounted to less than about $200 billion, less than 1 percent of US bank assets—some banks may have concentrated exposures to the sector. In addition, a select group of pension funds and insurers are diving deeper into private credit waters, significantly upping their share of these less-liquid assets. This includes private-equity-influenced life insurance companies, as we discussed in a recent report.
Finally, though liquidity risks appear limited today, a growing retail presence may alter this assessment. Private credit funds use long-term capital lockups and impose constraints on investor redemptions to align the investment horizon with the underlying illiquid assets. But new funds targeted at individual investors may have higher redemption risks. Although these risks are mitigated by liquidity management tools (such as gates and fixed redemption periods), they have not been tested in a severe runoff scenario.
Overall, although these vulnerabilities currently they do not pose a systemic risk to the broader financial sector, they may continue to build, with implications for the economy. In a severe downturn, credit quality could deteriorate sharply, spurring defaults and significant losses. Opacity could make these losses hard to assess. Banks could curb lending to private credit funds, retail funds could face large redemptions, and private credit funds and their institutional investors could experience liquidity strains. Significant interconnectedness could affect public markets, as insurance companies and pension funds may be forced to sell more liquid assets.
The cumulative effect of these links may have significant economic implications should stress in private credit markets result in a pullback from lending to companies. Severe data gaps make monitoring these vulnerabilities across financial markets and institutions more difficult and may delay proper risk assessment by policymakers and investors.
Policy implications
It is imperative to adopt a more vigilant regulatory and supervisory posture to monitor and assess risks in this market.

Authorities should consider a more active supervisory and regulatory approach to private credit, focusing on monitoring and risk management, leverage, interconnectedness, and concentration of exposures.
Authorities should enhance cooperation across industries and national borders to address data gaps and make risk assessments more consistent across financial sectors.
Regulators should improve reporting standards and data collection to better monitor private credit’s growth and its implications for financial stability.
Securities regulators should pay close attention to liquidity and conduct risk in private credit funds, especially retail, that may face higher redemption risks. Regulators should implement recommendations on product design and liquidity management from the Financial Stability Board and the International Organization of Securities Commissions.

—This blog is based on Chapter 2 of the April 2024 Global Financial Stability Report: “The Rise and Risks of Private Credit.”

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