IMF projects gradual global economic recovery despite lingering risks
In its July 2023 World Economic Outlook Report, the International Monetary Fund (IMF) has highlighted that the global economy continues to make gradual progress in recovering from the COVID-19 pandemic and the aftermath of Russia’s invasion of Ukraine.
Promising signs of improvement are evident in the first quarter of the year, with the official end of the COVID-19 health crisis and the return of supply-chain disruptions to pre-pandemic levels. Economic activity has proven resilient despite the challenging environment, supported by robust labor markets. Additionally, global inflation pressures have eased faster than anticipated, partly due to the significant reduction in energy and food prices from their war-induced peaks. The report acknowledges the efficacy of forceful actions taken by US and Swiss authorities in containing financial instability following the March banking turmoil.
Despite these positive developments, the IMF cautions that numerous challenges still loom on the horizon, warranting continued vigilance.
According to the Fund’s baseline forecast, global growth is projected to slow from 3.5% in the previous year to 3% in 2023 and maintain a similar rate in 2024. This represents a slight 0.2 percentage points upgrade for 2023 from the April projections. Meanwhile, global inflation is expected to decline from 8.7% in the prior year to 6.8% in 2023 and further to 5.2% in 2024, with a downward revision of 0.2 percentage points.
The slowdown is predominantly concentrated in advanced economies, with growth in these regions expected to decline from 2.7% in 2022 to 1.5% in 2023 and remain subdued at 1.4% in 2024. In contrast, emerging markets and developing economies are projected to experience a pickup in growth, accelerating from 3.1% in 2022 to 4.1% in 2023 and 2024.
Despite the welcome news of stronger growth and lower inflation, the IMF highlights that risks persist, with the global economy losing momentum. The tightening of monetary policy globally has started to impact economic activity, affecting credit growth, interest payments for households and firms, and real estate markets. Excess savings from pandemic-related transfers in the United States are nearly depleted, posing challenges amid cost-of-living crises and tighter credit conditions. In China, concerns about the property sector are casting uncertainty on the recovery.
Core inflation, which excludes energy and food prices, remains a concern, remaining well above central banks’ targets. While expected to decline gradually, core inflation in advanced economies is anticipated to remain elevated, indicating that the battle against inflation is ongoing.
Overall, the IMF’s report indicates a cautiously optimistic outlook for the global economy, emphasizing the importance of continuous monitoring and proactive policy measures to navigate potential risks and ensure sustained recovery.
