Monday, March 27, 2023
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Global economy to slow in 2023 and rebound next year

The IMF announced on Monday, that global growth is expected to slow from 3.4% in 2022 to 2.9% in 2023 in a press briefing held in Singapore to mark the launch of the January update of the World Economic Outlook report.

“The global economy will slow down this year before rebounding in 2024. But a global recession is not in our baseline. The important factors shaping the outlook are: On the downside, Russia’s war in Ukraine and the global fight against inflation. On the upside, the reopening of China’s economy will have a mild upward revision to our projections. The global economy has shown a lot of resilience,” said Pierre-Olivier Gourinchas, IMF’s Chief Economist.

“Labour markets are tight, household spending and business investment remains strong, and European economies proved quite resilient against the energy crisis. Global growth is expected to slow from 3.4% in 2022 to 2.9% in 2023. The slowdown will be more pronounced for advanced economies,” he said. Growth in emerging and developing Asia is expected to rise in 2023 and 2024 to 5% and 5.2% respectively, after the deeper-than-expected slowdown in 2022 to 4.3% attributable to China’s economy. China’s real GDP slowdown in the fourth quarter of 2022 implies a 0.2% point downgrade for 2022 growth to 3.0% the first time in more than 40 years with China’s growth below the global average.

Growth in India is set to decline from 6.8% in 2022 to 6.1% in 2023 before picking up to 6.8% in 2024, with resilient domestic demand despite external headwinds. Growth in the ASEAN-5 countries (Indonesia, Malaysia, Philippines, Singapore and Thailand) is similarly projected to slow to 4.3% in 2023 and then pick up to 4.7% in 2024.

China and India will account for 50% of global growth. Global headline inflation is expected to fall from 8.8% in 2022 to 4.3% in 2024. Core inflation, however, is more persistent and remains too elevated. To sum up, barring new shocks, 2023 could be the year of turning points, with growth bottoming out and inflation decreasing.”

However, the risks to the outlook remain tilted to the downside, even if adverse risks have moderated since October and some positive factors seem more relevant.

“An escalation of the war in Ukraine remains a major risk to the global economy, and a sudden repricing in financial markets could deteriorate financial conditions, especially for emerging and developing economies. On the upside, strong household balance sheets amid tight labor markets and robust wage growth could help sustain private demand,” added Gourinchas. Gourinchas stressed that the global economic outlook hasn’t worsened but the road back to a full recovery, with sustainable growth, stable prices, and progress for all, is only starting.

“The fight against inflation has started to bear fruit, but the battle is far from won. Central banks need to raise real policy rates above the neutral level and keep them there until inflation is on a sustained declining path.”

“Central banks and prudential authorities must closely monitor the buildup of risks and vulnerabilities, especially in the housing and non-bank financial sectors. Countries should also roll back the broad and untargeted support they provided households and firms to counter the cost-of-living crisis and instead adopt targeted measures to conserve fiscal space, allow the energy price signal to reduce energy demand and avoid overly stimulating the economy.”

“Finally, urgent action is needed to halt the forces of geo-economics fragmentation and strengthen multilateral cooperation in areas of common interest; international trade, the global financial safety net, public health preparedness, and the climate transition,” said Gourinchas.