The International Monetary Fund (IMF) has downgraded its outlook for the global economy off the back of the latest purchasing managers index (PMI) data from the world’s 20 largest economies (G20).
The PMI seeks to gauge the sentiment of manufacturers and supply chain managers via a monthly survey, with responses combined to determine an overall score — a score of more than 50 indicates an expansion of the manufacturing sector, while a score of less than 50 indicates a decline.
According to PMI data for the month of October, several economies have recorded weakness, including Australia (down from 50.2 to 49.6).
“…Readings for a growing share of G20 countries have fallen from expansionary territory earlier this year to levels that signal contraction,” the IMF observed.
“That is true for both advanced and emerging market economies, underscoring the slowdown’s global nature.
“While gross domestic product releases for the third quarter surprised on the upside in some major economies, October PMI releases point to weakness in the fourth quarter, particularly in Europe.”
According to the IMF, PMI data, among other “high-frequency indicators”, have confirmed that the outlook is “gloomier” than initially anticipated.
This comes just weeks after the IMF released its latest World Economic Outlook report, forecasting global growth of 2.7 per cent in 2023.
Driving the broader downturn in global economic activity is a “unique mix of headwinds”, triggered by a number of factors, including Russia’s invasion of Ukraine; monetary policy tightening to curb inflation; and “lingering pandemic effects” particularly in China.
However, despite weakening conditions, the IMF has encouraged policymakers to continue prioritising efforts to “contain” inflation, which is contributing to a “cost-of-living crisis”.
“Continued fiscal and monetary tightening is likely needed in many countries to bring down inflation and address debt vulnerabilities — and we do expect further tightening in many G20 economies in the months ahead,” the IMF stated.
“Nonetheless, these actions will continue to weigh on economic activity, especially in interest-sensitive sectors such as housing.
“The challenges that the global economy is facing are immense and weakening economic indicators point to further challenges ahead.”
