MARRAKESH: The IMF on Tuesday left its top-line global growth forecast for 2023 unchanged, despite significant underlying differences between regions, while lifting its inflation outlook for the next couple of years.
The updated World Economic Outlook (WEO) report, released as the International Monetary Fund holds its annual meetings in Marrakesh, maintains a global growth estimate of 3.0 percent for this year while cutting the 2024 assessment to 2.9 percent, down 0.1 percent from the previous forecast in July.
Inflation, which has fallen sharply since last year, is predicted to remain elevated at 6.9 percent this year, up slightly from July, and 5.8 percent in 2024, up 0.6 percentage points.
Higher inflation could force central banks to keep interest rates higher for longer, which would likely have a knock-on effect for global growth.
The global economy has shown “remarkable” resilience as it continues to recover from the Covid-19 pandemic, Russia’s invasion of Ukraine, and the cost-of-living crisis, the IMF said in the WEO.
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However, the report also noted that “growth remains slow and uneven, with growing global divergences.”
“The global economy is limping along, not sprinting,” it warned.
US and Europe diverge
Among advanced economies, the divergence in economic outlook between Europe and the United States is predicted to grow further in the coming years.
The US economy is now forecast to grow by 2.1 percent this year, up 0.3 percentage points, and by 1.5 percent next year, up half a percentage point.
Meanwhile, the Euro area is forecast to grow by just 0.7 percent this year, down 0.2 percentage points from July, and by a reduced 1.2 percent in 2024.
The reasons for the divergence across the Atlantic are fourfold, according to IMF Chief Economist Pierre-Olivier Gourinchas, but the primary reason is the enduring impact of the war in Ukraine on energy prices.
Unlike Europe, the United States is a net energy exporter, “so when the price of energy goes up, if anything, they become richer,” he told AFP in an interview ahead of the publication of the WEO.
He also pointed to more resilient US consumer spending, less impact from interest rate hikes due to a higher prevalence of longer-term mortgages, and more generous pandemic-related fiscal support than in Europe.
Among Europe’s economies, Germany’s outlook has worsened since July, leaving it as the only country in the G7 group of advanced economies that is expected to enter a recession this year or next.
Meanwhile, the IMF sharply raised Japan’s economic outlook to 2.0 percent for this year, pointing to “pent-up demand, a surge in inbound tourism, and accommodative policies, as well as by a rebound in auto exports.”
China slows, India advances
The picture is also mixed among emerging market and developing economies.
The IMF downgraded its growth forecast for China’s economic growth for the next two years, saying lower investment due to the country’s real estate troubles was the “main contributor.”
The IMF now expects the world’s second-largest economy to grow by 5.0 percent this year, and 4.2 percent in 2024, down 0.2 and 0.3 percentage points, respectively.
Gourinchas told AFP that China’s below-trend growth forecast requires “very forceful, and very sizable action by the government to really bring back confidence in the sector.”
The IMF expects China’s neighbor India to fare far better, lifting its growth forecast for this year to 6.3 percent, in line with its unchanged outlook for 2024.
The growth outlook for this year for the Middle East and Central Asia was cut by half a percentage point to 2.0 percent, dragged down by a sharp reduction in the growth forecast for oil-rich Saudi Arabia.
And in Sub-Saharan Africa, the outlook has worsened slightly, with growth expected to reach 3.3 percent, down 0.2 percentage points amid a projected slowdown in the Nigerian economy.
Russian economy remains resilient
Russia’s economy has remained more resilient than many economists expected since its invasion of Ukraine began in February last year.
The IMF sharply raised its economic growth forecast once more to 2.2 percent for this year, up 0.7 percentage points from July. Its growth outlook for next year was cut slightly to 1.1 percent.
The IMF said this was the result of a “substantial fiscal stimulus, strong investment, and resilient consumption in the context of a tight labor market.”
Russia’s fiscal deficit is expected to grow to 3.7 percent this year, up sharply from 2022 but significantly lower than its July forecast, according to an IMF spokesperson.
This was “in part thanks to recent windfall taxes and higher oil and gas revenues due to the ruble depreciation,” they said in a statement shared with AFP.
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