The International Monetary Fund (IMF) has slightly raised its outlook for global growth in 2023 due to “surprisingly resilient” demand in the United States and Europe and the reopening of the Chinese economy after Beijing abandoned its strategy. zero COVID strict.
The IMF has said global growth will fall further to 2.9% in 2023 from 3.4% in 2022, but its latest World Economic Outlook forecast marks an improvement from an October forecast of 2020. 7% growth this year, with warnings that the world could easily tip into recession. .
For 2024, the IMF said global growth would pick up slightly to 3.1%, but interest rate hikes by central banks around the world would dampen demand.
IMF chief economist Pierre-Olivier Gourinchas said recession risks had subsided and central banks were making progress in containing inflation, but more work was needed to rein in prices, and further disruption could come from a further escalation in the war in Ukraine and China’s battle against COVID-19.
“We kind of have to be prepared to expect the unexpected, but this could well be a turning point, with a dip in growth and then a drop in inflation,” Gourinchas told reporters of the 2023 outlook.
Strong demand
In its gross domestic product (GDP) forecast for 2023, the IMF said it now expects U.S. GDP growth of 1.4%, down from 1.0% forecast in October and after a growth of 2.0% in 2022.
The fund cited stronger-than-expected consumption and investment in the third quarter of 2022, a robust labor market and strong consumer balance sheets.
He said the eurozone had made similar gains, with growth for 2023 for the bloc now forecast at 0.7%, down from 0.5% in the October outlook, after growth of 3.5% in 2022. The IMF said Europe has adjusted to higher energy costs faster than expected, and an easing in energy prices has helped the region.
The UK was the only major advanced economy that the IMF predicted would be in recession this year.
It predicts the UK economy will contract by 0.6% this year, down from a previous forecast for growth of 0.3%. People are grappling with higher interest rates and the government’s moves to further tighten spending are also holding back growth, he said.
“These figures confirm that we are not immune to the pressures that are hitting nearly all advanced economies,” Chancellor of the Exchequer Jeremy Hunt said in response to the IMF forecast. “Short-term challenges should not obscure our long-term outlook – the UK beat many forecasts last year, and if we stick to our plan to halve inflation, the UK will UK is still expected to grow faster than Germany and Japan over the next few years.”
China reopens
The IMF has revised China’s growth outlook for 2023 up to 5.2% from 4.4% in the October forecast, after its “zero-COVID” strategy dampened the economy. China’s growth rate was 3.0% in 2022, below the global average for the first time in over 40 years.
Still, the fund added that China’s growth “will fall to 4.5% in 2024 before stabilizing below 4% over the medium term amid slowing business dynamism and slow progress on structural reforms. “.
At the same time, he maintained India’s outlook for growth to decline in 2023 to 6.1% but rebound to 6.8% in 2024, matching its performance in 2022.
Gourinchas said that together the two Asian economic powerhouses will contribute more than 50% of global growth in 2023.
He acknowledged that China’s reopening would put some upward pressure on commodity prices, but “overall, I think we see China’s reopening as a benefit to the global economy” because it will help ease production bottlenecks that have worsened inflation and creating more demand from Chinese households.
Even with China reopening, the IMF expects oil prices to fall in 2023 and 2024 due to weaker global growth compared to 2022.
Risks
The IMF said there were both upside and downside risks to the outlook, with the accumulation of savings creating the possibility of sustained demand growth, particularly for tourism, and an easing of labor market pressures in some advanced economies is helping to subside inflation, reducing the need for aggressive rate hikes.
But he detailed growing downside risks, including more widespread COVID-19 outbreaks in China and a deepening of the country’s real estate turmoil.
An escalation in the war in Ukraine could lead to another spike in energy and food prices, as could a cold winter in the north next year as Europe struggles to fill its gas reserves and competes with China for the supply of liquefied natural gas, the fund said.
Gourinchas said central banks need to remain vigilant and be more certain that inflation is on a downward trajectory, especially in countries where real interest rates remain low, such as in Europe.
“So we’re just saying, listen, at least get monetary policy slightly above neutral and keep it there. And then assess what is happening with the price dynamics and how the economy reacts, and there will be plenty of time to adjust course, to avoid excessive tightening,” Gourinchas said.