- The global growth forecast of 3.0% in 2023 remains unchanged
- Inflation is slowing but ‘not quite yet’ – IMF chief economist
- IMF Raises US Forecast, Downgrades Outlook for China, Eurozone
MARRAKECH, Morocco, Oct 10 (Reuters) – The International Monetary Fund on Tuesday cut its growth forecasts for China and the euro zone, saying overall global growth remained low and uneven despite what it called “significant strength” in the U.S. economy.
In its latest World Economic Outlook, the IMF left its forecast for global real GDP growth unchanged at 3.0% in 2023, but cut its 2024 forecast to 2.9% from its July 3.0%. World production grows by 3.5% in 2022.
IMF Chief Economist Pierre-Olivier Gourinchas said the global economy continued to recover from Covid-19, Russia’s invasion of Ukraine and last year’s energy crisis, but divergent growth trends indicated “normal” medium-term prospects.
Forecasts generally point to a soft landing, but the IMF is concerned about risks associated with China’s asset crisis, volatile commodity prices, geopolitical fragmentation and a resurgence of inflation, Gourinchas said.
A new risk emerged in the form of the Israeli-Palestinian conflict just as officials from 190 countries met in Marrakech for the annual meetings of the IMF and World Bank, but came after the IMF’s quarterly outlook closed on September 26.
Gourinchas told Reuters it was too early to say how a large increase would affect the global economy: “Depending on how the situation will unfold, there are many different scenarios that we have not yet begun to explore, so we cannot do anything. The assessment is still at this stage.”
He said the IMF was monitoring the situation, adding that oil prices had risen about 4% in recent days, reflecting concerns that oil production or transportation could be disrupted.
An International Monetary Fund study found that a 10% increase in oil prices would reduce global output by 0.2% over the next year and increase global inflation by 0.4%, he said.
Stronger growth is hampered by the lingering impact of the pandemic, the war in Ukraine and increasing fragmentation, rising interest rates, extreme weather events and shrinking fiscal support, the IMF said. Total global output in 2023 will fall by 3.4%, or roughly $3.6 trillion – below pre-pandemic projections.
“The world economy is showing resilience. It’s not out of the big shocks it experienced in the last two or three years, but it’s not doing well either,” Gaurinchas said in an interview. “We’re seeing the global economy falter, and it’s still not fast enough.”
The medium-term outlook was particularly “gloomy” for emerging economies, which faced a slow catch-up in living standards and heightened credit concerns, Gourinchas told a news conference.
Even in 2028, the IMF projects global growth at just 3.1%.
“You have uncertainty. You have geo-economic fragmentation, low productivity growth and low population. Put all these together and you have a slowdown in medium-term growth,” Gourinchas told Reuters.
Inflation ‘comfortably high’
Inflation continued to decline around the world, but remained very high, driven by falling energy prices and, to a lesser extent, food prices. It is expected to decline to 8.7% in 2022, 5.8% in 2024 and an annual average of 6.9% in 2023.
Core inflation, excluding food and energy, should ease gradually – from 6.4% in 2022 to 6.3% in 2023 and 5.3% in 2024 – given tighter labor markets and stickier-than-expected services inflation, the IMF said.
“Inflation is uncomfortably high,” Gourinchas warned: “Central banks … should avoid premature easing.”
Labor markets were buoyant and unemployment rates low in most advanced economies, but in the United States there was not much evidence of a wage-price inflationary spiral, even with a major strike by American auto workers.
“We don’t see strong signs of an unrestricted sequence of wages chasing prices and prices chasing wages,” he told Reuters.
The IMF said uncertainty has eased since its April projections, but there are still more downside risks to 2024. The chance of growth falling below 2% – which has happened only five times since 1970 – now stands at 15%, compared to 25% in April.
The IMF noted that investment was uniformly low before the pandemic, with businesses showing less appetite for expansion and risk-taking given high interest rates, tighter credit conditions and less financial support.
Gourinchas said the fund was advising countries to rebuild thin fiscal buffers against future shocks, noting that the substantial decline in fiscal deficits in the United States was “very concerning.”
US growth beats pre-pandemic forecasts
The IMF raised its forecast for US growth by 0.3 percentage points to 2.1% in 2023 and by 0.5 percentage points to 1.5% next year, citing strong business investment and growing consumption. That makes the US the only major economy to beat pre-pandemic forecasts.
China is forecast to grow by 5.0% in 2023, but will be 4.2%, 0.2 and 0.3 percentage points lower than previously expected in 2024 due to the asset crisis and weak external demand.
If the real estate crisis deepens, China’s growth could slow to 1.6% percent, knocking 0.6 percentage points off global growth, Gourinchas said.
Unless China takes “forceful action” to clean up the real estate sector, “the problem could worsen.”
The IMF cut estimates for euro zone growth to 0.7% in 2023 and 1.2% in 2024, down from July forecasts of 0.9% and 1.5%.
The UK, hit hardest by higher energy prices, saw its growth forecast raised from 0.1 percentage point to 0.5% for 2023, but cut to 0.6% for 2024 from 0.4 percentage point.
Japan is expected to grow 2.0% in 2023, an upward revision of 0.6 percent, boosted by pent-up demand, a surge in inbound tourism, its accommodative monetary policy and a rebound in auto exports, the IMF said. This leaves Japan’s 2024 growth outlook unchanged at 1.0%.
Andrea Shalal reports; Editing by Andrea Ritchie and Catherine Evans
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