Global economic outlook slightly ‘less gloomy’ than expected, says IMF

The global economy will weaken this year, with rising interest rates and Russia’s war in Ukraine continuing to weigh on activity. But economists are more optimistic than they were a few months ago.

The International Monetary Fund (IMF) said on Monday (30) that it now expects global growth to slow from 3.4% in 2022 to 2.9% in 2023. That is up from the forecast of 2.7% in October .

The update to the outlook reflects China’s “sudden reopening”, which the IMF said “paves the way for a quick recovery in activity”. He also cited unexpected resilience in several economies in the second half of 2022, as well as an improvement in global financial conditions as inflation begins to ease and the US dollar falls from its highs.

“The outlook is less bleak than our October forecast and could represent a turning point, with growth bottoming out and inflation falling,” Pierre-Olivier Gourinchas, director of research at the IMF, wrote in a blog post. .

new predictions

The IMF stressed that growth this year “will remain weak by historical standards”. Between 2000 and 2019, the annual average was 3.8%.

Central banks will need to continue their aggressive campaign to bring down decades-high inflation, which will result in a slowdown in economic activity. He predicted that “nine out of ten advanced economies are likely to slow down”.

In the United States, growth is expected to slow from 2% in 2022 to 1.4% in 2023. Europe – whose economy has proved surprisingly resilient despite the region’s energy crisis, in part due to a mild winter so far – forecasts growth between the 20 countries that use the euro fall from 3.5% to 0.7%.

The United Kingdom is expected to register a contraction of 0.6%. It is the only G7 economy projected to shrink this year.

Still, the IMF sees some improvement in the outlook. One of the main reasons is China.

Beijing ended its strict “covid zero” policy at the end of last year, reopening its borders and moving away from the harsh quarantine and testing policies that have impeded growth in the world’s second-largest economy. Its 3% expansion in 2022 was one of the country’s worst performances in decades.

The IMF now predicts that growth in China will recover to 5.2% this year, notably above its previous estimate.

Inflation trends are also promising. The IMF noted that “general measures [estão] decreasing in most countries,” even though price increases for goods and services excluding food and energy have not yet peaked in many cases.

The annual US inflation reading hit an all-time high in June, while inflation in Europe has fallen since October, when it hit a record high.

The IMF forecast is that global inflation will decrease from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024. Before the pandemic, it was close to 3.5%.

Meanwhile, a pullback in US dollar strength since November has been helpful for emerging markets and developing economies. The sharp appreciation of the dollar made it more expensive to import commodities, including food and energy, and raised the cost of paying interest on some debts.

Risks to the outlook remain substantial, the IMF warned. China’s recovery could lose steam if future waves of the coronavirus keep people at home or if the vulnerable real estate sector slows sharply.

Inflation could remain elevated longer than central banks would like, requiring tighter monetary policy. The war in Ukraine remains a major source of uncertainty. An escalation could increase disruptions to food and energy markets.

For now, though, he’s feeling a little better over the next 12 months – though he stresses they won’t be easy.

“This time around, the global economic outlook has not deteriorated,” wrote Gourinchas. “That is good news, but not enough. The road back to full recovery, with sustainable growth, stable prices and progress for all, has just begun.”