The International Monetary Fund updates the outlook for the global economy as inflation eases

The International Monetary Fund said on Monday that it expects the global economy to slow down this year as central banks continue to raise interest rates to tame inflation, but also noted that output will be more resilient than previously expected and that a global recession will slow. It may be avoided.

The International Monetary Fund raised its economic growth forecasts for 2023 and 2024 in its closely watched World Economic Outlook report, citing consumer resilience and the reopening of China’s economy among the reasons for the more optimistic outlook.

However, the fund warned that the fight against inflation is not over and urged central banks to avoid the temptation to change course.

“The fight against inflation is bearing fruit, but central banks must continue their efforts,” said Pierre-Olivier Gournchas, chief economist at the International Monetary Fund, in an article accompanying the report.

Global production is expected to slow to 2.9 percent in 2023, from 3.4 percent last year, before rebounding to 3.1 percent in 2024. Inflation is expected to ease to 6.6 percent this year from 8.8 percent in in 2022 and then drop to 4.3 percent next year. .

After a series of cuts in recent years as the pandemic worsened and the Russian war in Ukraine intensified, the IMF’s latest forecasts are more optimistic than those issued by the fund in October.

Since then, China has abruptly reversed its “zero Covid” policy of lockdowns to contain the epidemic and embarked on a rapid reopening. The IMF also said that Europe’s energy crisis was less severe than initially expected, and that a weaker US dollar was providing relief to emerging markets.

The International Monetary Fund earlier predicted that a third of the global economy could be in recession this year. However, Mr Gourinchas said in a press briefing ahead of the report’s release that far fewer countries are now facing a recession in 2023 and that the IMF does not expect a global recession.

“We are seeing a significant reduction in the risk of a recession, both globally, and even if we think about the number of countries that may be in recession,” Mr. Gorenchas said.

Despite the most optimistic forecasts, global growth remains weak by historical standards, and the war in Ukraine continues to weigh on activity and sow uncertainty. The report also warns that the global economy remains facing significant risks, warning that “severe health outcomes in China could hinder recovery, Russia’s war in Ukraine could escalate, and tightening global financing costs could exacerbate the debt crisis.”

Growth in particularly rich countries is expected to slow this year, with nine out of 10 advanced economies likely to grow slower than in 2022.

The International Monetary Fund expects growth in the United States to slow to 1.4 percent this year from 2 percent in 2022. It expects the unemployment rate to rise from 3.5 percent to 5.2 percent next year, but a recession in the largest economy can still be avoided. In the world.

“There is a narrow path for the US economy to emerge from a recession entirely, or if it is in a recession, a relatively shallow recession,” said Mr. Gorinchas.

The International Monetary Fund said a slowdown in Europe would be more pronounced, as the boost from reopening its economies this year fades and consumer confidence declines in the face of double-digit inflation. In the eurozone, growth is expected to slow to 0.7 percent from 3.5 percent.

China is expected to recover from the recession with production accelerating to 5.2 percent in 2023 from 3 percent in 2022.

China and India combined are expected to account for about half of global growth this year. International Monetary Fund officials said at a press conference on Monday evening that China’s economic path will be a major driver of the global economy, noting that after a period of influx, China seems to have stabilized and is fully productive.

However, Mr Gourinchas noted that there were still signs of weakness in China’s real estate market and that its growth could ease in 2024. The report described the sector as a “major source of vulnerability” that could lead to widespread defaults by developers and non-compliance. stability in the Chinese financial sector.

Russia is a surprising contributor to global growth, suggesting that efforts by Western countries to cripple their economies appear to be faltering. The International Monetary Fund expects Russian production to expand by 0.3 percent this year and 2.1 percent next year, in defiance of previous predictions of a sharp contraction in 2023 amid a raft of Western sanctions.

A coordinated plan by the United States and Europe to cap the price of Russian oil exports at $60 a barrel is not expected to significantly reduce the country’s energy revenues.

“At the current G7 oil price ceiling level, Russian crude oil export volumes are not expected to be significantly affected, with the continued redirection of Russian trade from sanctions to non-sanctions countries,” the IMF said in the report.

Among the IMF’s most pressing concerns is the growing trend of “fragmentation”. The war in Ukraine and the global response have divided countries into blocs and fostered pockets of geopolitical tension, threatening to impede economic progress.

“Fragmentation could intensify – with further restrictions on cross-border movements of capital and workers and international payments – and could impede multilateral cooperation on the provision of global public goods,” the IMF said. “The costs of this fragmentation are particularly high in the short term, as it takes time to replace broken flows across borders.”