Global economy still only limping, IMF says

13 October 2023 03:07

The world’s economy is slowing down but fears of a painful contraction and mass unemployment have subsided, the International Monetary Fund said recently.

Global growth remains dampened by supply chain disruptions linked to the COVID-19 pandemic and Russia’s war in Ukraine, persistently high inflation, and spiraling borrowing costs. But on the bright side, historically high employment levels and a steady decline in prices have reduced the chances of a “hard landing” scenario, which in April the IMF had flagged as likely, Politico reports.

“Projections are increasingly consistent with a ‘soft landing’ scenario, bringing inflation down without a major downturn in activity,” Pierre-Olivier Gourinchas, the IMF chief economist, said in Marrakech, where the IMF and the World Bank are hosting their annual meetings despite a devastating earthquake that hit the country in September.

Following 3.5 percent global growth in 2022, the IMF now expects world GDP to come in at 3 percent this year and 2.9 percent in 2024, a 0.1 percentage point downgrade from its earlier forecasts. It also warned that its medium-term growth expectations, at 3.1 percent for 2028, are at their lowest in decades.

Inflation is expected to come down steadily from last year’s peak of 8.7 percent to 6.9 percent on average this year and 5.8 percent the next — but both these figures were revised upward, reflecting expectations that inflation could become entrenched, which would pose a challenge to central bankers.

The IMF invited policymakers to stay focused on bringing inflation down and to avoid cutting interest rates prematurely, only “gradually cutting” them once inflation was closer to target.

Global divergence

The picture of economic recovery, however, was fragmented. Among advanced economies, the U.S. is expected to grow above its pre-pandemic trend this year at 2.1 percent — a 0.3 percentage point improvement on earlier IMF expectations — and 1.5 percent in 2024, with only a minor uptick in unemployment.

In Europe the picture is less rosy, reflecting higher exposure to the conflict in Ukraine, higher energy prices, as well as lower demand for its exports driven by a slowdown in China.

Following 3.3 percent growth in 2022, eurozone output is expected to slow to 0.7 percent this year and 1.2 percent next — a downgrade of 0.2 and 0.3 percentage points compared to IMF July projections.

That’s a “pretty sharp slowdown,” Gourinchas said. “We’re expecting a rebound in 2024 but it’s a modest rebound.” He warned of a "soft patch" for European growth in the next year, before picking up again.

The bloc’s largest economy, Germany, is likely to experience a contraction of half a percentage point this year, before rebounding to 0.9 percent growth next year.

Further risks to the outlook include a deepening of China’s real estate crisis and increased geopolitical tensions that could limit the flow of goods and contribute to further price spikes.

“Growth remains slow and uneven, with growing global divergences. The global economy is limping along, not sprinting,” Gourinchas said.

Caliber.Az

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