IMF forecasts global growth to bottom out at 2.8% in 2023
The global pandemic has had far-reaching impacts across multiple sectors, but perhaps one of the most significant has been on the world’s economy. The economic effects of the COVID-19 pandemic have been profound and long-lasting, with many countries still struggling to recover from the damage caused by the crisis.
According to the World Economic Outlook (WEO) Report released by the International Monetary Fund (IMF) in April 2023, the global economy is projected to bottom out at 2.8% growth in 2023, before slowly rising to 3.0% in 2024. While emerging market and developing economies are already experiencing robust growth rates, the report notes that the slowdown is concentrated in advanced economies, especially in the Euro area and the United Kingdom.
The report suggests that the cumulative effects of the past three years of adverse shocks, most notably the COVID-19 pandemic and Russia’s invasion of Ukraine, are manifesting in unforeseen ways. Despite pent-up demand, lingering supply disruptions, and commodity price spikes, global inflation is projected to decrease from 8.7% in 2022 to 7.0% in 2023 and 4.9% in 2024, although more slowly than initially anticipated.
For advanced economies, the report predicts that growth will decline by half in 2023 to 1.3%, before rising to 1.4% in 2024. The forecast for 2023 is only slightly higher than the previous year’s, and well below the 2.6% forecast of January 2022. Approximately 90% of advanced economies are projected to see a decline in growth in 2023, leading to higher unemployment rates of 0.5% on average from 2022 to 2024.
On the other hand, economic prospects for emerging market and developing economies are stronger on average than for advanced economies, although they vary more widely across regions. The report suggests that growth is expected to be 3.9% in 2023 and rise to 4.2% in 2024. However, the forecast for 2023 is modestly lower than in the January 2023 WEO Update and significantly below the 4.7% forecast of January 2022.
In low-income developing countries, GDP is expected to grow by an average of 5.1% over 2023-24, but projected per capita income growth averages only 2.8% during the same period, below the average forecast.
The report also notes that global headline inflation has been declining since mid-2022 at a three-month seasonally adjusted annualized rate, partly due to a fall in fuel and energy commodity prices, particularly in the United States, Euro area, and Latin America. Despite the decline, headline inflation is running at nearly 7% (year over year) in the Euro area, with some member states seeing rates near 15%, and above 10% in the United Kingdom, leaving household budgets stretched.
To dampen demand and reduce underlying (core) inflation, the majority of central banks around the world have been raising interest rates since 2021, both at a faster pace and in a more synchronous manner than in the previous global monetary tightening episode just before the global financial crisis.
The global economy is facing an uncertain future as the cumulative effects of past shocks continue to impact the world’s economic stability. While emerging market and developing economies are leading the charge in terms of growth, advanced economies are expected to see a decline in growth, leading to higher unemployment rates. The decline in inflation is positive, but central banks around the world must continue to monitor and address the underlying issues causing inflation to rise.
