Due to “surprisingly resilient” demand in the United States and Europe, declining energy prices, and the reopening of China’s economy after Beijing lifted its tight COVID-19 restrictions, the International Monetary Fund on Tuesday modestly upped its projection for global growth in 2023.
However, the IMF’s most recent World Economic Outlook estimates represent an improvement above an October prognosis of 2.7% growth this year with cautions that the world could easily tumble into recession. The IMF predicted that global growth would still decline to 2.9% in 2023 from 3.4% in 2022.
The IMF predicted that global growth will pick up a bit in 2024, reaching 3.1%, although this is 0.1 percentage points lower than what it had predicted in October as demand is slowed by the full effects of sharper central bank interest rate increases.
The risks of a recession have diminished, according to IMF chief economist Pierre-Olivier Gourinchas, and central banks are doing a better job of containing inflation. However, more work is still needed to do so, and new disruptions could result from the escalation of the conflict in the Ukraine and China’s fight against COVID-19.
“We have to sort of be prepared to expect the unexpected, but it could well represent a turning point, with growth bottoming out and then inflation declining,” Gourinchas told reporters of the 2023 outlook.
The IMF stated that it now anticipated 1.4% U.S. GDP growth in 2023, up from the 1.0% predicted in October and coming after 2.0% growth in 2022. It noted higher-than-anticipated investment and spending in the third quarter of 2022, as well as a healthy labour market and consumer balance sheets.
It claimed that the euro zone had made comparable progress, with growth for the region expected to reach 0.7% in 2023, up from 0.5% in the October projection, and 3.5% in 2022. According to the IMF, Europe adjusted to increasing energy costs more rapidly than anticipated, and a drop in energy prices had benefited the continent.
With a 0.6% decline in GDP as consumers battle with rising living costs, notably those for energy and mortgages, Britain was the only significant advanced economy that the IMF anticipated would be in recession this year.
After “zero-COVID” lockdown tactics in 2022 drastically reduced China’s growth rate to 3.0% — a pace below the global average for the first time in more than 40 years — the IMF revised China’s growth expectation considerably higher for 2023, to 5.2% from 4.4% in the October forecast. However, the benefit of increased mobility for Chinese citizens will only last a short time.
According to the Fund, given falling economic dynamism and weak structural reform progress, China’s growth will “fall to 4.5% in 2024 before stabilising at below 4% over the medium term.”
The picture for India is still positive, with the same predictions calling for growth to slow to 6.1% in 2023 before picking up again to 6.8% in 2024, mirroring its performance in 2022.
According to Gourinchas, the two Asian superpower economies will account for more than 50% of global growth in 2023.
On the whole, I think we view the reopening of China as a benefit to the global economy, he said, as it will help ease production bottlenecks that have worsened inflation and by creating more demand from Chinese households. He acknowledged that China’s reopening would put some upward pressure on commodity prices.
Despite China’s openness, the IMF expects oil prices to decline in 2023 and 2024 as a result of slower global growth than in 2022.
(Adapted from GulfNews.com)
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