The International Monetary Fund (IMF) is now forecasting global GDP growth of 2.9 per cent in 2023, revised up from 2.7 per cent.
This reflects a 0.1 per cent improvement in the outlook across advanced economies — from 1.1 per cent to 1.2 per cent — and a 0.3 per cent improvement across emerging and developed markets — 3.7 per cent to 4 per cent.
The IMF’s projection for China’s GDP growth in 2023 has seen the largest revision, with the economy now tipped to grow 5.2 per cent in 2023, up from 4.4 per cent.
The rosier outlook for the Chinese economy follows Beijing’s decision to lift lockdown restrictions aimed at curbing the spread of COVID-19.
However, the IMF also attributed its general upgrade to the global economic outlook to an easing of inflationary pressures, expected to fall from 8.8 per cent in 2022 to 6.6 per cent in 2023.
“The balance of risks remains tilted to the downside, but adverse risks have moderated since the October 2022 WEO,” the IMF noted.
“On the upside, a stronger boost from pent-up demand in numerous economies or a faster fall in inflation are plausible.”
But according to Oxford Economics’ director of macro research, Ben May, the IMF’s revised outlook is “too sanguine”.
“Although, the Fund rightfully acknowledges that at the end of last year, the economic data was more resilient than widely anticipated, we think that this may be partly timing,” he said.
“Rather than economies simply shrugging off the slew of shocks of the past year or so, we think these knocks are taking time to seep through to real activity than we had envisaged previously.”
Despite brightening its outlook, the IMF listed a number of potential headwinds which could derail its central scenario, including “severe health outcomes in China”, a potential escalation in the Russia-Ukraine war, and tighter global financing costs.
Building on downside factors, Mr May added there are “clear signs” credit conditions are tightening, coinciding with GFC-like declines in property prices.
These headwinds could be further exacerbated by additional monetary policy tightening from the world’s central banks.
“What's more, any near-term economic resilience raises the risk that central banks tighten a bit further in the coming months to pull inflation down and pivot slower than markets currently envisage,” Mr May said.
“More tightening would undermine growth in the latter stages of this year.”
Looking ahead, the IMF has projected global economic growth of 3.1 per cent in 2024.