Global growth to fall from last year: IMF

The International Monetary Fund (IMF) has released the latest update (April) on its World Economic Outlook, sharing that the baseline forecast for global output growth is 0.1 percentage point lower than predicted in January’s update.

Global output is expected to rise to 3 per cent in 2024, stated the report.

Pierre-Olivier Gourinchas, the IMF’s chief economist, said: “The world economy is still recovering from the unprecedented upheavals of the last three years, and the recent banking turmoil has increased uncertainties. We expect global output growth to fall from 3.4 per cent last year to 2.8 per cent in 2023, before rising to 3 per cent in 2024, mostly unchanged from our January projections.

“Advanced economies are expected to see an especially pronounced growth slowdown from 2.7 per cent in 2022 to 1.3 per cent in 2023.

“Global headline inflation is set to fall from 8.7 per cent in 2022 to 7 per cent in 2023 on the back of lower commodity prices but underlying core inflation is proving to be stickier. Importantly, this outlook assumes that recent financial stresses remain contained.”

Uncertainty clouds outlook, says IMF

Much uncertainty clouds the short- and medium-term outlook as the global economy adjusts to the shocks of 2020–22 and the recent financial sector turmoil, stated the IMF update.

Recession concerns have gained prominence, while worries about stubbornly high inflation persist, it read.

“Once again, risks are heavily tilted to the downside, they have risen with the recent financial turmoil. Most prominently, recent banking system turbulence could result in a sharper and more persistent tightening of global financial conditions.

“The simultaneous rate hikes across countries could have more contractionary effects than expected, especially as debt levels are at historical highs. There might be a need for more monetary tightening if inflation remains stickier than expected. These risks and more could all materialise at a time when policymakers face much more limited policy space to offset negative shocks, especially in low-income countries,” added the IMF chief economist.

With the fog around current and prospective economic conditions thickening, policymakers have a narrow path to walk towards restoring price stability while avoiding a recession and maintaining financial stability. Achieving strong, sustainable, and inclusive growth will require policymakers to stay agile and be ready to adjust as information becomes available.

Gourinchas said: “First, as long as financial stress is not systemic as it is now, the fight against inflation should remain the priority for central banks. Second, to safeguard financial stability, central banks should use separate tools and communicate their objectives clearly to avoid unwarranted volatility. Financial policies should remain laser focused on preserving financial stability and watch for any buildup of risks in banks, non-banks, and the real estate sectors. Third, in many countries fiscal policy should tighten to ease inflation pressures, restore debt sustainability, and rebuild fiscal buffers.

“Finally, in the event of capital outflows that raise financial stability risks, emerging market and developing economies should use the integrated policy framework, combining temporary targeted foreign exchange interventions and capital flow measures where appropriate.”

The IMF forecasts global growth to fall from last year’s 3.4% to 2.8% in 2023 before rising to 3% in 2024. The global economy’s gradual recovery from the pandemic and from Russia’s invasion of Ukraine remains on track but is fragile. https://t.co/lvRdo3zKMV #WEO pic.twitter.com/L1Wq9wWyqr

— IMF (@IMFNews) April 11, 2023

In other news, according to the World Bank’s latest Global Economic Prospects report, global growth is “slowing sharply” in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by the Russia-Ukraine crisis.

The global economy is projected to grow by 1.7 per cent in 2023 and 2.7 per cent in 2024.

 Read: Global economy ‘slowing sharply’, projected to grow by 1.7% in 2023, says World Bank

The report highlighted that “given fragile economic conditions, any new adverse development, such as higher-than-expected inflation, abrupt rises in interest rates to contain it, a resurgence of the Covid-19 pandemic, or escalating geopolitical tensions, could push the global economy into recession”.

The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95 per cent of advanced economies and nearly 70 per cent of emerging market and developing economies, the report stated.