Despite what it called the “remarkable strength” of the U.S. economy, the International Monetary Fund lowered its growth estimations for China and the eurozone on Tuesday and stated that overall global growth remained low and unequal. In its most recent World Economic Outlook, the IMF retained its prediction for global real GDP growth in 2023 at 3.0%, although it reduced its forecast for 2024 from 3.0% to 2.9%. In 2022, global output expanded by 3.5%.
The global economy is still recovering from COVID-19, Russia’s invasion of Ukraine, and the energy crisis of last year, according to IMF Chief Economist Pierre-Olivier Gourinchas. However, diverging growth trends indicate “mediocre” medium-term prospects.
The IMF is nonetheless concerned about risks associated with China’s housing crisis, volatile commodity prices, geopolitical fragmentation, and an upsurge in inflation, according to Gourinchas, who noted that estimates generally indicate a soft landing.
Just as representatives from 190 nations gathered in Marrakech for the IMF and World Bank annual meetings, another potential risk—the Israeli-Palestinian conflict—emerged, but it did so after the IMF’s quarterly outlook update was finalized on September 26.
“Depending on how the situation might unfold, there are many very different scenarios that we have not even yet started to explore, so we can’t make any assessment at this point yet,” says Gourinchas.
He noted that the IMF was keeping an eye on the situation and that recent increases in oil prices—around 4%—reflect concerns about the possibility of a disruption in oil production or transportation. According to IMF research, an increase in oil prices of 10% would result in a 0.2% reduction in the global output the next year and an increase in world inflation of 0.4%, he said.
The pandemic’s lingering effects, the war in Ukraine, and the country’s growing fragmentation, together with rising interest rates, extreme weather occurrences, and declining fiscal assistance, are all stifling the economy’s potential growth, according to the IMF. In 2023, the world’s total output is expected to be 3.4% lower than pre-pandemic estimates, or around $3.6 trillion.
“The global economy is showing resilience. It’s not knocked out by the big shocks it’s experienced in the last two or three years, but it’s not doing too great either. We see a global economy that is limping along and it’s not quite sprinting yet,” Gourinchas said in an interview.
Despite continuing to reduce due to lower energy and to a lesser extent lower food prices, inflation remained too high. It is anticipated that it will decrease from 8.7% in 2022 to 6.9% in 2023 and then to 5.8% in 2024. Given tight labor markets and stickier-than-expected services inflation, core inflation, which excludes food and energy, could decline more gradually – to 6.3% in 2023 from 6.4% in 2022, and to 5.3% in 2024, according to the IMF.
Although there are still more risks pointing downward than upward for 2024, the IMF indicated that uncertainty has fallen since its April forecasts. As opposed to 25% in April, the probability of growth falling below 2%—which has only happened five times since 1970—was now projected at 15%.
According to Gourinchas, the fund is also recommending nations to strengthen their already fragile fiscal buffers against upcoming shocks, saying that a significant worsening of the United States’ fiscal imbalances is “most worrying.”
- Published By Team Genuine Reporter