Global growth is expected to slow to 3.0 per cent in 2023, according to the latest forecasts from the International Monetary Fund (IMF), down from 3.5 per cent in 2022 but slightly above the IMF’s April projection for 2.8 per cent growth this year.
In an update to its World Economic Outlook report released this week, the IMF highlighted the ongoing recovery from the impacts of the pandemic and Russia’s invasion of Ukraine.
However, despite its “modest” upward revision for growth this year, IMF chief economist Pierre-Olivier Gourinchas warned that the global economy was “not out of the woods yet”.
“Now, stronger growth and lower inflation than expected are welcome news suggesting the global economy is headed in the right direction,” he said.
“Yet growth remains low by historical standards, and while some adverse risks have moderated, the balance remains tilted to the downside and it is too early to celebrate, there are growing signs that global activity is losing momentum.”
Mr Gourinchas said that, while inflation is generally in decline, it is still sitting at a high level and is continuing to erode household purchasing power.
The IMF has forecast that global headline inflation will fall from 8.7 per cent in 2022 to 6.8 per cent in 2023 and 5.2 per cent in 2024. Meanwhile, underlying inflation is expected to fall more gradually, from 6.5 per cent in 2022 to 6.0 per cent in 2023 and 4.7 per cent in 2024.
Alongside the persistent challenge of inflation, Mr Gourinchas also noted that monetary policy tightening had raised the cost of borrowing and constrained economic activity. He indicated that the IMF was still concerned about medium-term growth prospects globally.
“Overall, the outlook shows some improvement since April, and this is worth noting and some of the more extreme risks have declined,” said Mr Gourinchas.
“For instance, quick and strong action by authorities helped contain banking sector turmoil and reduced the risk of an immediate and broader financial crisis but the balance of risks remains tilted downward.”
Among the risks identified by the IMF are that inflation could remain high or even increase, potentially prompting more interest rate hikes and another bout of financial market volatility. A further slowdown in China and geoeconomic fragmentation were also identified as risks.
“On the upside, core inflation could fall faster than expected, reducing the need for monetary policy tightening, and allowing for a softer landing,” Mr Gourinchas added.
The IMF’s report concluded that achieving sustained disinflation while ensuring financial stability should remain the priority for most economies around the world.
As a result, Mr Gourinchas said that monetary policy must remain restrictive “until there are clear signs that underlying inflation is cooling”.
“In many countries, fiscal policy should tighten to rebuild fiscal buffers and to reinforce the overall credibility of disinflation strategies, with the composition of fiscal adjustment ensuring targeted support for the most vulnerable,” he said.
“Improvements to the supply side of the economy would facilitate fiscal consolidation and a smoother decline of inflation toward target levels. Finally, urgent action is needed to strengthen global cooperation on climate policies, international trade, or debt restructuring, to address common challenges.”
