Nicholas Ari Sander and Hippolyte Weneyam Balima presented and authored two thematic chapters in the World Economic Outlook (WEO), October 2024.

Nicholas Sander

Chapter 2: THE GREAT TIGHTENING: INSIGHTS FROM THE RECENT INFLATION EPISODE, World Economic Outlook, October 2024

Global growth is expected to stay steady but unimpressive. Policy makers are actively pursuing the structural reforms. Inflation rates are easing globally, but prices for services remain high in many areas. Inflation had a strong sectoral component due to sectoral shifts, energy and food price shocks. Goods price inflation began to rise in 2020 and peaked in 2022. Food and energy contributed to a large extent to inflation. Evidence shows that rising prices in specific sectors are affecting overall inflation. This connection is important for understanding why inflation has increased worldwide. The Phillips curve has steepened over the years and has shifted up across the globe. Due to the global inflationary pressures the inflation peaked around 8 percent and for lower income countries it was even higher. This shows the need for careful economic policy. Policymakers should balance short-term actions to avoid economic downturns with long-term reforms to boost growth. They also need to support the most vulnerable people in society. Post-2020 episodes were linked to a more relaxed policy approach compared to the resolved episodes of the 1970s and tightening relative to Taylor-rule-implied tightening falls between the resolved and unresolved inflation episodes of the 1970s.The inflation spiked due to shifts in demand during COVID-19 and the war in Ukraine. As demand moved from goods to services, supply chains were disrupted, causing prices to rise. Strong demand can lead to rapid inflation, but tighter policies can help control it without major economic costs. There were supply constraints after the pandemic. Supply Constraints in 2020-2023 lowered GDP & raised inflation. Policy tightening results in less output loss when supply bottlenecks are present and coordinated tightening speeds up the disinflation process. The world also saw unprecented fiscal shocks due to COVID-19.

Hippolyte Balima

Chapter 3: UNDERSTANDING THE SOCIAL ACCEPTABILITY OF STRUCTURAL REFORMS, World Economic Outlook, October 2024

The global economy has been experiencing a lengthy phase of structural weakness, and the medium-term outlook under current policies appears grim. The world faces economic challenges, aging populations, and the need for a green transition, so structural reforms are crucial. Implementing essential reforms is becoming more difficult due to low social acceptability. In this context, policymakers are encouraged to pursue structural reforms—updating the rules and policies that govern economic operations—to enhance productivity, employment, and growth. Policymakers need to promote competition and support new industries. The factors influencing public attitudes toward structural reforms require various strategies to improve the acceptability of these policy changes. It finds that resistance often goes beyond economic self-interest, deeply rooted in behavioural factors such as perceptions, misinformation, and lack of trust. Strategies aimed at raising awareness about the need for reform and correcting misinformation can significantly increase support for reforms. Effective approaches require more than just improved communication; they must be supported by a robust institutional framework that fosters trust and encourages two-way dialogue from the early stages of policy development. This chapter examines the factors influencing public attitudes toward structural reforms and evaluates the effectiveness of different strategies to enhance the social acceptability of policy changes. It concludes that resistance to reforms often goes beyond economic self-interest and is strongly tied to behavioural factors such as perceptions, misinformation, and trust issues. Strategies that improve awareness of the necessity for reform and address misconceptions can significantly increase support for reforms. It also outlines several strategies that policymakers can use to address this challenge, improve the social acceptability of their reform agendas, and increase the likelihood of successful implementation. These strategies include consultation and communication efforts, as well as measures to compensate those affected by reforms. However, whether individuals perceive themselves as winners or losers regarding potential policy changes is influenced not only by objective socioeconomic factors—like employment status, education, or income—but also by their beliefs. Key drivers of public views on policies—and consequently the social acceptability of reforms—include trust in government and institutions, concerns about distribution, and perceptions of how policies will impact themselves and their communities (such as job availability, access to essential public services, and national security). Effective reform design should include comprehensive consultation and communication. Expanding policymaking toolkits to foster a more participatory reform process not only enhances public understanding of reform proposals but also builds trust in public institutions, resulting in greater social acceptance and more successful policy implementation.