The International Monetary Fund (IMF) has revised down its growth forecasts for China and the euro zone, while highlighting the diverging trends and risks faced by the global economy. The IMF stated that global growth remains low and uneven, despite the remarkable strength seen in the US economy.
In its latest World Economic Outlook, the IMF maintained its forecast for global real GDP growth in 2023 at 3.0%, but lowered its 2024 forecast to 2.9% from the previous estimate of 3.0%. It should be noted that global output grew by 3.5% in 2022.
While the global economy is recovering from the impact of COVID-19, the Ukraine conflict, and last year’s energy crisis, the IMF highlighted the mediocre medium-term prospects due to diverging growth trends. The organization expressed concerns about various risks, including China’s property crisis, volatile commodity prices, geopolitical fragmentation, and a resurgence in inflation.
During the IMF and World Bank annual meetings held in Marrakech, a fresh risk emerged in the form of another conflict, although the IMF’s quarterly outlook update was finalized on September 26. The IMF is closely monitoring the situation as rising oil prices could potentially disrupt oil production or transportation.
Research conducted by the IMF revealed that a 10% increase in oil prices would dampen global output by approximately 0.2% in the following year and increase global inflation by about 0.4%.
The IMF emphasized that although the global economy is experiencing stronger growth, it is being hindered by the lingering effects of the pandemic, the Ukraine conflict, increasing fragmentation, rising interest rates, extreme weather events, and shrinking fiscal support. The projected total global output for 2023 is estimated to be 3.4% or approximately $3.6 trillion, which is below pre-pandemic projections.
The medium-term outlook appears darker for emerging economies, as they face slower catch-up in living standards and increased debt concerns, according to the IMF. Even in 2028, the IMF projects global growth of just 3.1%.
In terms of inflation, the IMF noted a decline globally due to lower energy and, to a lesser extent, food prices. However, inflation remains high and is expected to decrease to an average of 6.9% in 2023 from 8.7% in 2022, and further to 5.8% in 2024. Core inflation, which excludes food and energy, is expected to decline gradually to 6.3% in 2023 from 6.4% in 2022, and to 5.3% in 2024 due to tight labor markets and persistent services inflation.
Although labor markets are buoyant and unemployment rates are low in most advanced economies, there is currently no evidence of a wage-price inflation spiral, even with the recent major strike by US autoworkers.
While uncertainty has narrowed since the IMF’s April forecasts, there are still more downside risks than upside risks for 2024. The probability of growth falling below 2% is now estimated at 15%, compared to 25% in April.
The IMF highlighted that investment across the globe remains lower than before the pandemic, with businesses displaying less eagerness for expansion and risk-taking due to higher interest rates, stricter lending conditions, and reduced fiscal support.
The IMF also advised countries to rebuild fiscal buffers against future shocks, particularly emphasizing the significant deterioration in fiscal deficits in the United States.
The IMF raised its growth forecast for the United States, citing stronger business investment and growing consumption. It now anticipates the US economy to grow by 2.1% in 2023 and 1.5% next year, making it the only major economy to exceed pre-pandemic estimates.
Concerning China, the IMF revised its growth forecast to 5.0% for 2023, but expects a slowdown to 4.2% in 2024 due to a property crisis and weak external demand. If the real estate crisis worsens, it could lower China’s growth by up to 1.6 percentage points, subsequently impacting global growth by 0.6 percentage points, according to the IMF.
The IMF also adjusted its estimates for eurozone growth to 0.7% in 2023 and 1.2% in 2024, down from the previous forecasts of 0.9% and 1.5% in July.
The United Kingdom, which has been adversely affected by high energy prices, saw its growth forecast increase to 0.5% for 2023, but decrease to 0.6% for 2024.
Japan, on the other hand, is projected to grow by 2.0% in 2023, buoyed by pent-up demand, a surge in inbound tourism, and the country’s accommodative monetary policy, along with a rebound in auto exports. The IMF maintained its growth outlook for Japan at 1.0% for 2024.
Overall, the IMF’s revised growth forecasts paint a picture of a global economy facing diverging trends and risks, with stronger growth hampered by various factors. The medium-term prospects appear mediocre, especially for emerging economies, while inflation remains a concern. The IMF calls for countries to take measures to rebuild fiscal buffers and emphasizes the need for caution in the face of uncertainties.
