The International Monetary Fund (IMF) released the latest World Economic Outlook report this week. The report tracks important global economic trends.
The forecast for growth remains low but has improved since the most recent projections. At the same time, the IMF expects inflation, which has risen considerably since the COVID-19 pandemic, to peak and fall this year.
The war in Ukraine and the rise of central bank rates to fight inflation were highlighted as factors constraining economic activity. However, the re-opening of China and the loosening of pandemic-related lockdown restrictions may help to boost global growth.
IMF growth projections
According to the IMF’s latest World Economic Outlook update, global economic growth is projected to fall from an estimated 3.4 percent in 2022 to 2.9 percent in 2023 before rising to 3.1 percent in 2024.
Although forecasted growth remains “subpar”, the overall picture has improved slightly since the previous predictions were made. The current projection for 2023 is 0.2 percentage points higher than predicted in the October 2022 World Economic Outlook.
This is not a massive cause for celebration, since growth remains below the historical average of 3.8 percent roughly sustained between 2000 and 2019.
The IMF also provided growth projections on an individual basis for some states and regions. In 2022, the United States had an estimated growth of 2.0 percent. In 2023, it is projected to fall to 1.4 percent, before a further drop to 1.0 percent in 2024.
Meanwhile, China’s growth is expected to rise from 3.0 percent in 2022 to 5.2 percent this year. However, in 2023, it is projected to fall to 4.5 percent.
Russia, with its economy battered by Western sanctions, endured an estimated negative growth of -2.2 percent in 2022. This is expected to rise to 0.3 percent in 2023, with a further rise expected in 2024 to 2.1 percent.
The Euro Area had a combined growth of 3.5 percent in 2022, according to IMF estimates. The forecast for 2023 is 0.7 percent and for 2024, 1.6 percent.
The United Kingdom had arguably the worst projections, with it being the only major economy expected to shrink in 2023. The estimated growth in 2022 was 4.1 percent. However, in 2023, growth is projected to shrink to -0.6 percent, before making a meager recovery to 0.9 percent in 2024.
Inflation reached 8.8 percent in 2022, according to the IMF. This is expected to fall to 6.6 percent in 2023 and a further drop to 4.3 percent is forecasted for 2024.
This projection will be greeted with some relief by many economists. As noted by the IMF, “In most economies, amid the cost-of-living crisis, the priority remains achieving sustained disinflation.”
Nevertheless, the forecasts for inflation remain higher than pre-pandemic levels. Between 2017 and 2019, inflation averaged about 3.5 percent.
Balance of risks
“The balance of risks remains tilted to the downside,” says the IMF. However, “adverse risks have moderated” since the last World Economic Outlook in October 2022. A stronger economic boost from pent-up demand in multiple economies or a more rapid fall in inflation remains possible.
“Severe health outcomes” in China pose a significant risk, as does the war in Ukraine which could worsen and escalate. Tighter global financing costs could make debt distress worse and financial markets could suddenly and unexpectantly reprice in response to inflation. More broadly, greater geopolitical fragmentation could damage economic progress.
The IMF recommends deploying macroprudential tools and introducing measures to strengthen debt restructuring frameworks to address the cost-of-living crisis and rising inflation.
The IMF also says, “Stronger multilateral cooperation is essential to preserve the gains from the rules-based multilateral system and to mitigate climate change by limiting emissions and raising green investment.”