In its latest World Economic Outlook Update, the International Monetary Fund (IMF) is projecting that global growth will rise 2.9 percent in 2023 – higher than it previously forecast, but still down from the 3.4% growth seen in 2022.
The IMF’s February 2023 update shows that global growth is continuing to improve, with stronger momentum in advanced economies largely due to increased investment and consumption, as well as accommodative monetary policies.
Inflation worldwide should drop to 6.6 percent this year from a global average of 8.8 percent last year, according to the Report.
Inflation has been stabilizing, with most economies experiencing mild deflationary pressures. Commodity prices have also been relatively stable, though energy prices are expected to rise modestly over the next year, the IMF said.
Growth in developing economies is projected to remain strong, while advanced economies are expected to grow at a slower rate.
The Report says emerging markets and developing economies are benefiting from stronger global trade, lower commodity prices, and improved access to external financing.
Financial markets have also been relatively stable in the last few weeks, with most asset prices rising modestly. Global liquidity remains abundant, with ample capital flows to emerging markets.
Overall, the global economy is also on track to further rise to 3.1% in 2024.
The IMF is also dropping its October 2022 prediction that one-third of all countries would fall into a recession by the end of this year.
However, the IMF warns that the global recovery is still incomplete, with pandemic-related disruptions continuing to weigh heavily on some sectors and countries.
It also highlights that the recovery is uneven, with the unemployment rate still high in many countries – estimated at 8.1% globally in January 2023 – and pockets of poverty and social exclusion persisting in many areas.
The IMF is also urging policymakers to take action to ensure an inclusive, resilient and sustained recovery. It also is urging countries to embrace digital technologies to increase productivity and create jobs.
Britain Will Be the Only G7 Economy to Shrink
Although the IMF said it thinks the UK economy is now, “on the right track,” toward recovery, it is now warning that it will fall by 0.6% in 2023. It had projected just a 0.3% contraction in its October 2022 forecast.
Citing the ongoing cost of living crisis hitting Brits hard, it expects the UK to perform worse than other advanced economies, including sanctions-laden Russia, which is expected to grow 0.3%.
It also said the UK’s economic outlook is bleak due to a combination of other factors, including Brexit-related uncertainty and disruption, as well as the impact of COVID-19 on consumer spending and business investment.
The IMF says these factors could lead to a prolonged period of weak economic growth and high unemployment in the UK.
At 10.5%, Inflation is still near a 40-year high; however, Prime Minister Rishi Sunak has pledged to cut that in half by the end of 2024.
The government’s Office for Budget Responsibility (OBR) also expects inflation to fall to 3.75% by the end of this year.
The Bank of England is continuing to raise interest rates – now at a 14-year high of 4% — to fight inflation by making the cost of borrowing money more expensive to cool consumer demand.
The U.S. is Likely to Skirt a Recession
The U.S. economy is on track to grow by a modest 1.4%, due in part to the Fed steadily raising interest rates to bring inflation under control.
The IMF says the cooling of prices and a “soft landing” without a major downturn would mean the U.S. economy will grow slightly, the unemployment rate will peak at 5.2% and the anticipated recession will be narrowly avoided.
“Our own projections is [sic] that there is a narrow path that allows the U.S. economy to escape recession altogether, or if it has a recession that recession would be relatively shallow,” said Pierre-Olivier Gourinchas, Chief Economist for the IMF.
“There could be a need to tighten monetary policy more if inflation is more persistent, maybe labor markets will remain tight, and that will be required.”
The IMF chief also said the Fed raising interest rates in order to cool down the economy and try to keep it “on this gliding path toward lower inflation without precipitating a recession” is the right direction.
“But once this is over, you could anticipate that somehow then there won’t be a need to keep tight monetary policy, and then the question would raise, what is the new normal we’re going to be in? And there’s a lot of discussion around that.” Gourinchas said.
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