The International Monetary Fund (IMF) has slightly raised its forecasts for global growth this year but warned that the outlook remains “weak by historical standards” with inflation proving more persistent than previously anticipated.
In its latest world Economic Outlook, the Washington-based fund said growth in global economic output is now expected to fall from 3.5 per cent in 2022 to 3 per cent this year, slightly better than the 2.8 per cent forecast in April but well below the historical average of 3.8 per cent. The IMF left its global growth forecast for 2024 unchanged at 3 per cent.
Forecasts for growth in the euro area remain “broadly unchanged”, the IMF said, projected to fall from 3.5 per cent in 2022 to 0.9 per cent in 2023, before rising to 1.5 per cent in 2024.
“Given stronger services and tourism, growth has been revised upward by 0.4 percentage point for Italy and by 1.0 percentage point for Spain,” the fund said.
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“However, for Germany, weakness in manufacturing output and economic contraction in the first quarter of 2023 means that growth has been revised downward by 0.2 percentage point, to -0.3 per cent.”
Global inflation, meanwhile, is projected to decline from 8.7 per cent last year to 6.8 per cent this year, a 0.2 percentage point downward revision.
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In the report, the fund said that central bank actions to tackle the generationally high rates of inflation in the aftermath of the Covid crisis and the invasion of Ukraine have improved the outlook for headline inflation globally but are also weighing on economic activity.
But underlying inflation is projected to decline more gradually and, consequently, forecasts for inflation have been revised upward to 5.2 per cent in 2024 from a previous estimate of 4.9 per cent.
Inflation could also “remain high and even rise”, the IMF said, “if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events, triggering more restrictive monetary policy”.
In a blog post published on Tuesday, IMF chief economist Pierre-Olivier Gourinchas said that stronger-than-expected growth and lower inflation are welcome and suggest the global economy is heading in the right direction. “Yet, while some adverse risks have moderated, the balance remains tilted to the downside.”
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“First, signs are growing that global activity is losing momentum,” he said. “The global tightening of monetary policy has brought policy rates into contractionary territory. This has started to weigh on activity, slowing the growth of credit to the non-financial sector, increasing households’ and firms’ interest payments, and putting pressure on real estate markets.”
Mr Gourinchas also said the Chinese economy’s loss of momentum “amid continued concerns about the property sector” could have implications for the global economy. But the IMF has left its forecast for Chinese growth unchanged for this year and next at 5.2 per cent, slowing to 4.5 per cent in 2024.
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The French economist added that after several years of “heavy fiscal support” from governments, it is time for countries to rebuild fiscal buffers in preparation for further shocks. “This is not a call for generalised austerity,” he said.
“The pace and composition of this fiscal consolidation should be mindful of the strength of private demand, while protecting the most vulnerable. Yet some consolidation measures seem entirely appropriate. For instance, with energy prices back to their pre-pandemic levels, many fiscal measures, such as energy subsidies, should be phased out.”
The IMF is forecasting oil prices, which increased 39 per cent globally last year, will slump by 21 per cent amid a general economic slowdown.
