Jakarta. The International Monetary Fund (IMF) forecasts global economic growth to reach 3.1 percent in 2024 and 3.2 percent in 2025. Meanwhile, Indonesia is expected to achieve a growth rate of 5 percent for the current year and the following year.

"Global activity proved resilient in the second half of last year, as demand and supply factors supported major economies. On the demand side, stronger private and government spending sustained activity, despite tight monetary conditions. On the supply side, increased labor force participation, mended supply chains, and cheaper energy and commodity prices helped, despite renewed geopolitical uncertainties," IMF chief economist Pierre-Olivier Gourinchas said on Thursday.

The 2024 projection is 0.2 percentage points higher than the October 2023 World Economic Outlook (WEO), but still below the historical average of 3.8 percent in the 2000-2019 period.

Indonesia is projected to maintain a 5 percent growth rate for the current and upcoming years, consistent with the growth observed in the previous year. 

In contrast, The World Bank predicts a decrease in growth, falling from 5.3 percent in 2022 to 5 percent in 2023. This downward trend extends to both 2024 and 2025, with the growth rate projected to be 4.9 percent in each of those years.

"We expect slower growth in the United States, where tight monetary policy is still working through the economy, and in China, where weaker consumption and investment continue to weigh on activity. Many other economies continue to show great resilience, with growth accelerating in Brazil, India, and Southeast Asia’s major economies," Gourinchas said.

Inflation continues to ease, with global headline inflation projected to decrease to 5.8 percent in 2024 and further to 4.4 percent in 2025. Core inflation, excluding the influence of volatile food and energy prices, is also on a downward trend. In advanced economies, both headline and core inflation are anticipated to average around 2.6 percent this year, aligning closely with the inflation targets set by central banks.

Gourinchas warned that markets may appear excessively optimistic about the prospects for early rate cuts as inflation eases. 

Most institutions are predicting a reduction of approximately 100 to 125 basis points (bps) in interest rates this year, which would result in the Federal Funds Rate hovering around 4-4.25%.

"Uncertainties remain and central banks now face two-sided risks. They must avoid premature easing that would undo many hard-earned credibility gains and lead to a rebound in inflation," he said.

However, the biggest challenge ahead is to tackle elevated fiscal risks. 

"Most countries came out of the pandemic and energy crisis with higher public debt levels and borrowing costs. Bringing down public debt and deficits will give space to deal with future shocks," he said.

According to the IMF, Indonesia's government debt ratio in 2023 is only 39 percent of the total GDP, relatively low compared to neighboring countries.

"Emerging markets have been very resilient, with stronger-than-expected growth and stable external balances, partly due to improved monetary and fiscal frameworks. Yet divergence in policy between countries may spur capital outflows and currency volatility," he said.

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