The risk of a crash landing for the global economy has receded, and prospects for higher growth have improved, the International Monetary Fund’s (IMF) chief economist Pierre-Olivier Gourinchas said last week.
“Things are moving in the right direction,” he said, adding there was now less danger of global growth slipping to 2% or below, since the most acute financial risks had abated.
The latest IMF forecast of 3% growth for the global economy is 0.2% higher than three months ago. It follows a stronger than expected first quarter but is a step down from last year’s 3.5% and below historical averages. The IMF expects growth to remain weak over the next five years — partly because of poor gains in productivity.
Gourinchas said the odds of a soft landing in the US had increased as price pressures eased in recent months. The IMF was less optimistic on Germany’s economic prospects, forecasting a 0.3% contraction this year. It maintained its call that China’s economy would grow by 5.2% in 2023. Australia’s real GDP growth in 2023 is expected to be 1.6%, and its inflation rate over the year to average 5.3%.
Debt distress across developing economies remains a top concern despite emerging countries overall remaining “resilient” to financial market volatility. A lingering fear is that, despite sharp falls in headline rates, strong labour markets and robust consumer demand will make inflation hard to suppress. That will mean central banks will have to keep tightening their monetary policy screws.
Gourinchas also said that the collapse of the UN-brokered deal to export Ukrainian grain across the Black Sea was likely to put “upward pressure” on global food prices. Ukraine is one of the world’s biggest grain exporters, but the deal to enable exports to continue throughout the war with Russia fell apart earlier this month after Moscow pulled out..
Gourinchas said, “We are nearing the peak of the hiking cycle, but we’re not quite there yet. We’re going to see central banks holding where they are until they are confident enough that the economy is on the right track.”
Further rate rises are expected from the US Federal Reserve, the European Central Bank and the Bank of England over the coming days, and the IMF on Tuesday urged rate-setters to avoid any “premature easing”. Core inflation measures, which strip out changes in food and energy costs, will only slowly return to the 2% target most monetary authorities aim for. Inflation is set to remain above target in 89% of economies with such thresholds next year.
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