IMF upgrades outlook for the global economy in 2023
The outlook for the global economy is growing slightly brighter as China eases its zero-COVID policies and the world shows surprising resilience in the face of high inflation, elevated interest rates and Russia’s ongoing war against Ukraine.
That’s the view of the International Monetary Fund, IMF, which now expects the world economy to grow 2.9 per cent this year. That forecast is better than the 2.7 per cent expansion for 2023 that the IMF predicted in October, though down from the estimated 3.4 per cent growth in 2022.
The IMF, a 190-country lending organisation, foresees inflation easing this year, a result of aggressive interest rate hikes by the US Federal Reserve and other major central banks. Those rate hikes are expected to slow the consumer demand that has driven prices higher. Globally, the IMF expects consumer inflation to fall from 8.8 per cent last year to 6.6 per cent in 2023 and 4.3 per cent in 2024.
“Global conditions have improved as inflation pressures started to abate,” IMF Chief Economist Pierre-Olivier Gourinchas said at a news conference in Singapore. “The road back to a full recovery with sustainable growth, stable prices and progress for all has only started.”
A big factor in the upgrade to global growth was China’s decision late last year to lift antivirus controls that had kept millions of people at home. The IMF said China’s “recent reopening has paved the way for a faster-than-expected recovery’’.
The IMF now expects China’s economy – the world’s second-biggest, after the United States – to grow 5.2 per cent this year, up from its October forecast of 4.4 per cent. Beijing’s economy eked out growth of just 3.0 per cent in 2022, the first in more than 40 years that China has expanded more slowly than the world as a whole, the IMF noted. But the end of virus restrictions is expected to revive activity in 2023.
Together, China and India should account for half of this year’s global growth, while the United States and Europe are expected to contribute 10 per cent, according to Gourinchas.
“China’s reopening is certainly a favourable factor that’s going to lead to more activity,” Gourinchas said. “But this is in the context in which the global economy itself is slowing down.”
The IMF’s 2023 growth outlook improved for the United States (forecast to grow 1.4 per cent) as well as for the 19 countries that share the euro currency (0.7 per cent). Europe, though suffering from energy shortages and higher prices resulting from Russia’s invasion of Ukraine, proved “more resilient than expected”, the IMF said. The European economy benefited from a warmer-than-expected winter, which held down demand for natural gas,
Russia’s economy, hit by sanctions after its invasion of Ukraine, has proved sturdier than expected, too: The IMF’s forecast foresees Russia registering 0.3 per cent growth this year. That would mark an improvement from a contraction of 2.2 per cent in 2022. And it’s well above the 2.3 per cent contraction for 2023 that the IMF had forecast for Russia in October.
The United Kingdom, meanwhile, is a striking exception to the IMF’s brighter outlook for 2023. It has forecast that the UK economy will shrink 0.6 per cent in 2023; in October, the IMF had expected growth of 0.3 per cent. Higher interest rates and tighter government budgets are squeezing the British economy.
“These figures confirm we are not immune to the pressures 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 prospects – the UK outperformed many forecasts last year, and if we stick to our plan to halve inflation, the UK is still predicted to grow faster than Germany and Japan over the coming years.”
The IMF noted that the world economy still faces serous risks. They include the possibility that Russia’s war against Ukraine war will escalate, that China will suffer a sharp increase in COVID cases and that high interest rates will cause a financial crisis in debt-laden countries.
Asked about the impact of US efforts to limit Chinese access to advanced processor chip technology due to security concerns, Gourinchas cautioned that curbs on semiconductor trade and government pressure to pull back industries to within their own borders and limit reliance on foreign partners “potentially could be harmful to the global economy”.
“Diversification of supply chains is much more important in trying to improve resilience, improve growth, improve standards of living, rather than moving toward reshoring or friendshoring,” Gourinchas said.