The IMF updates its outlook for the world economy in 2023
WASHINGTON — The outlook for the global economy is improving slightly as China eases its zero COVID policy and the world shows surprising resilience in the face of high inflation, high interest rates and the ongoing war of Russia against Ukraine.
This is the view of the International Monetary Fund, which now expects the global economy to grow by 2.9% this year. This forecast is better than the 2.7% expansion for 2023 predicted by the IMF in October, although down from the estimated 3.4% growth in 2022.
The IMF, a lending agency for 190 countries, expects inflation to decline this year, following aggressive interest rate hikes by the Federal Reserve and other major central banks. These rate hikes are expected to dampen consumer demand that has driven prices higher. Globally, the IMF expects consumer inflation to rise from 8.8% last year to 6.6% in 2023 and 4.3% in 2024.
“Global conditions have improved as inflationary pressures have started to ease,” IMF chief economist Pierre-Olivier Gourinchas told a news conference in Singapore. “The road back to a full recovery with sustainable growth, stable prices and progress for all has only just begun.”
A major factor in the upgrade to global growth was China’s decision late last year to lift anti-virus 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 largest after the United States – to grow 5.2% this year, up from its October forecast of 4.4% . Beijing’s economy grew by just 3% in 2022 – the first year in more than 40 years, the IMF noted, that China has grown more slowly than the world as a whole. But the end of virus restrictions should revive activity in 2023.
Together, China and India are expected to account for half of global growth this year, while the United States and Europe contribute 10%, according to Gourinchas.
“The reopening of China is definitely a favorable factor that will lead to more activity,” Gourinchas said. “But that’s against the backdrop of the global economy itself slowing down.”
The IMF’s growth outlook for 2023 has improved for the United States (expected growth of 1.4%) as well as for the 19 countries that share the euro currency (0.7%). Europe, though suffering from energy shortages and higher prices resulting from Russia’s invasion of Ukraine, has proven “more resilient than expected”, the IMF said. The European economy benefited from a warmer-than-expected winter, which dampened demand for natural gas,
Russia’s economy, hit by sanctions after its invasion of Ukraine, has also proved stronger than expected: IMF forecasts predict that Russia will register growth of 0.3% this year. That would mark an improvement from a 2.2% contraction in 2022. And that’s well above the 2.3% contraction for 2023 that the IMF predicted for Russia in October.
The UK is a stark exception to the IMF’s more optimistic outlook for 2023. It has projected its economy to contract by 0.6% in 2023; in October, the IMF was counting on growth of 0.3%. Higher interest rates and tighter government budgets squeeze the UK economy.
“These figures confirm that we are not immune to the pressures that are 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 outlook – the UK beat many forecasts last year, and if we stick to our plan to halve inflation, the UK will UK is still expected to grow faster than Germany and Japan over the next few years.”
The IMF noted that the global economy still faces serious risks. They include the possibility that Russia’s war on Ukraine will escalate, that China will suffer a sharp rise in COVID cases, and that high interest rates will cause a financial crisis in indebted countries.
Asked about the impact of US efforts to limit Chinese access to advanced processor chip technology due to security concerns, Gourinchas warned that restrictions on semiconductor trade and government pressure to bring back the industries within their own borders and limiting reliance on foreign partners “could potentially be harmful to the global economy.
“Diversifying supply chains is much more important in trying to improve resilience, improve growth, improve living standards, rather than moving to relocation or ‘friend shoring’ “, said Gourinchas.
The global outlook has been shrouded in uncertainty since the coronavirus pandemic hit in early 2020. Forecasters have repeatedly been thrown off balance by events: a severe but brief recession in early 2020; an expected strong recovery triggered by extensive government stimulus assistance; then a surge in inflation, which worsened when Russia’s invasion of Ukraine nearly a year ago disrupted global trade in energy and food.
Three weeks ago, the IMF’s sister agency, the World Bank, released a more optimistic outlook for the global economy. The World Bank slashed its forecast for international growth nearly in half this year – to 1.7% – and warned that the global economy would come “dangerously close” to recession.
— AP Business Writer Joe McDonald in Beijing and AP Writer Danica Kirka in London contributed to this report.
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