The International Monetary Fund (IMF) issued its regular update on the global economy signaling its more positive stance. It said that while the global economy is poised to slow this year, before rebounding next year, the outlook had improved. But growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity.
The IMF raised its growth outlook for the first time in a year last week, saying it sees a “turning point” for the global economy. It expects global growth to slow from 3.4% in 2022 to 2.9% in 2023, and then rebound to 3.1% in 2024.
China and India will be the major drivers of growth this year
Source: IMF
The risk of a global recession remains, as well as one in the US, but it’s diminishing, thanks to resilient American spending and China’s reopening. “The outlook is not worsened this time around, which in itself is good news,” a turnaround from last year when the IMF cut its 2023 outlook three times.
Economic growth proved surprisingly resilient in the third quarter of last year, with strong labour markets, robust household consumption and business investment, and a better-than-expected response to the energy crisis in Europe. Inflation showed improvement, with overall measures now decreasing in most countries – even if core inflation in some regions has yet to peak.
Elsewhere, China’s re-opening paves the way for a rapid rebound in activity. Global financial conditions have improved as inflation pressures started to abate. And a weakening of the US dollar from its November high provided relief to developing countries.
Nevertheless, the IMF cautioned that the light at the end of the economic tunnel is still down the track. The fight against inflation is not yet won, monetary policy will need to remain contractionary and some countries will need to tighten further. “There are still some challenges to get on our way to a sustainable recovery that is broad and long-lasting,” the IMF said.
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