Int’l Monetary Fund issues growth warning as it lowers 2023 forecast

Pierre-Olivier Gourinchas

• Predicts most countries will avoid a recession this year despite economic worries
• Global economy to grow by 2.8% in 2023, 3% in 2024
• About 90% advanced economies to experience slowing growth; India and China to account for half of Asia’s growth

AFP: The International Monetary Fund (IMF) slightly lowered its outlook for the global economy on Tuesday, while predicting that most countries will avoid a recession this year despite economic worries and geopolitical strains.

Concerns over high inflation, rising geopolitical tensions and financial stability hang over the updated forecasts, with the impact of war in Ukraine continuing to dampen growth and drive up consumer prices in many countries.
Persistent economic concerns could overshadow plans by the IMF and World Bank to promote an ambitious reform and fundraising agenda at this year’s spring meetings.

In its World Economic Outlook (WEO) report, the IMF predicts the global economy would grow by 2.8 percent this year and three percent in 2024, a decline of 0.1 percentage point from its January forecasts.

The IMF’s expectations for the United States were slightly rosier: the world’s largest economy is expected to grow by 1.6 percent in 2023, marginally higher than previously predicted.

“The global economy remains on track for a gradual recovery from the pandemic and Russia’s war in Ukraine,” IMF Chief Economist Pierre-Olivier Gourinchas told a press conference Tuesday.

He added that “the massive and synchronised tightening of monetary policy by most central banks” had begun to bring inflation lower.

But serious risks relating to financial stability have emerged, he said, referring to banking turmoil unleashed last month after the dramatic collapse of Californian lender Silicon Valley Bank.

The overall picture painted by the WEO is gloomy, with global growth forecast to slow in both the short and medium terms.

Close to 90 percent of advanced economies will experience slowing growth this year, while Asia’s emerging markets are expected to see a substantial rise in economic output -- with India and China predicted to account for half of all growth, IMF chief Kristalina Georgieva said last week.

Low-income countries, meanwhile, are expected to suffer a double shock from higher borrowing costs due to high interest rates and a decline in demand for their exports, Georgieva said. This could worsen poverty and hunger.
The IMF expects global inflation to slow to seven percent this year, down from 8.7 percent last year, according to the WEO. It is then expected to fall to 4.9 percent in 2024.

Both 2023 and 2024 inflation forecasts were revised upwards and remain significantly above the two percent target set by the US Federal Reserve and other central banks, suggesting policymakers have a long way to go before inflation is under control.

But almost all advanced economies are expected to avoid a recession this year and next.

Alongside growth in the United States, the Euro area is also forecast to expand by 0.8 percent this year and 1.4 percent next year -- led by Spain, which will see 1.5 percent growth in 2023 and two percent growth in 2024.
But the area’s biggest economy, Germany, is now expected to contract by 0.1 percent this year, joining the United Kingdom, the only other G7 country expected to enter recession in 2023.

The picture is more positive among emerging market economies, with China forecast to grow by 5.2 percent this year. But growth is predicted to slow to 4.5 percent in 2024, as the impact of its reopening from the Covid-19 
pandemic fades.

India’s forecast was downgraded from January, but it is still predicted to expand by 5.9 percent this year and 6.3 percent in 2024, providing some much-needed stimulus to the global economy.

And Russia is now expected to grow by 0.7 percent this year, up 0.3 percentage points on January’s forecast, despite its invasion of Ukraine.

The IMF raised its Russia forecast on the “very strong source of revenues” from high energy prices last year and during the first half of this year, Gourinchas said at the press conference.

Looking forward, the IMF predicts that global growth will fall to three percent in 2028, its lowest medium-term forecast since the 1990s.

Slowing population growth and the end of the era of economic catch-up by several countries, including China and South Korea, are a large part of the expected slowdown, said Daniel Leigh, who heads the World Economic Studies division in the IMF’s Research Department.

Other issues include concerns about low productivity in many countries, Leigh said.

“A lot of the low hanging fruit was picked,” he said ahead of the WEO’s publication.

“On top of that now, with the geopolitical tensions and fragmentation, this is going to also weigh on growth,” he said.