The global economy will weaken this year as interest rates rise and Russia’s war in Ukraine continues to escalate. But economists are more optimistic than they were a few months ago.
The International Monetary Fund said on Monday that global growth will now slow from 3.4% in 2022 to 2.9% in 2023. This is a forecast of 2.7% in October.
The upgrade in outlook reflects China’s “sudden reopening” and the IMF said it would “pave the way for a rapid recovery of activity”. He also cited an unexpected recovery in several economies in the second half of 2022, as well as an improvement in global financial conditions as inflation eases and the US dollar comes off its highs.
Official data published on Tuesday showed that the European economy was able to record growth in the fourth quarter of 2022. Overall GDP growth in euro terms was 0.1% compared to the third quarter of the year, easing fears of a recession..
“The outlook is less gloomy than our October forecast, and may represent a turning point, with growth slowing and inflation slowing,” IMF research director Pierre-Olivier Gorinchas said in a blog post.
The IMF emphasized that this year’s growth “remains weak by historical standards.” (Between 2000 and 2019, the annual average was 3.8 percent.)
Central banks must continue their aggressive campaign to reduce inflation, which has been high for decades, which slows economic activity. He predicted that “nine out of ten advanced economies will shrink.”
In the United States It is expected to decrease from 2 percent growth in 2022 to 1.4 percent in 2023. Europe – its economy has proved surprisingly strong. Despite the region’s energy crisis, growth is expected to slow from 3.5% to 0.7% among the 20 eurozone countries, partly due to the mild winter so far.
The United Kingdom is expected to achieve a reduction of 0.6%. It is the only Group of Seven economy slated to shrink this year. A closely-watched survey of executives published last week showed the sharpest drop in business activity since the national Covid-19 lockdown two years ago.
High interest rates and low consumer confidence have depressed activity in the core service sector, while the public sector has been hit by a wave of strikes not seen in decades.
Still, the IMF sees some improvements at the global level Attitude. The main reason is China.
Beijing ended its strict “zero Covid” policy late last year, reopening its borders and moving away from the isolation and testing policies that have stifled growth in the world’s second-largest economy. In the year The 3% expansion in 2022 is one of the country’s worst performances in the past decade.
The IMF now predicts that growth in China will rise to 5.2% this year, significantly higher than previous estimates.
The inflation trend is also promising. IMF “General measures [are] “It is now slowing in most countries,” although prices for goods and services, excluding food and energy, are rising, although in many cases they have not yet peaked. The headline is annual US inflation hit a record high in June, while European inflation has fallen since October, hitting a record.
The IMF forecasts that global inflation will slow from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024. Before the pandemic, it was about 3.5%.
The rebound in US dollar strength since November is a boon for emerging markets and economic growth. The downward march of the greenback has made it more expensive to import goods, including food and energy, and raised the cost of paying interest on some debt.
The IMF warned that outlook risks remain high. China’s recovery could lose steam if future waves of coronavirus keep people at home or if the vulnerable asset sector slows sharply. Inflation may remain higher than central banks would like, forcing tighter monetary policy. The war in Ukraine remains a key source of uncertainty. Escalation will include food and energy market disruptions.
But for now, I feel a little better about the next 12 months – Stressing that it will not be easy.
“At this point, the global economic outlook is not worsening,” Gorinchas wrote. “This is good news, but not enough. The road back to full recovery, sustainable growth, stable prices and prosperity for all is beginning.