The IMF boosts global economic forecasts, but difficulties remain.

The IMF boosts global economic forecasts, but difficulties remain.

The International Monetary Fund has slightly increased its forecast for the global economy for this year and the next. However, it acknowledges that there are still challenges ahead, and the recovery still needs to be secure.


According to the IMF, Covid-19 has officially ended, supply chain disruptions are returning to pre-pandemic levels, global inflation is still high but decreasing, and the banking turmoil in the US and Switzerland that occurred in March has been contained. Additionally, strong economic activity in the first quarter has shown resilience.


Consequently, the fund has revised its previous forecast for this year, increasing it by 0.2 percentage points to 3 percent. However, this growth rate is lower than the 3.5 percent expansion observed in 2022. The projected growth rate for 2024 is expected to be similar.


IMF chief economist Pierre-Olivier Gourinchas cautioned that despite the positive developments, numerous challenges still need to be addressed. Therefore, it is premature to celebrate at this stage.


The projected growth rates for advanced economies are weaker compared to historical standards. This year, the growth rate is expected to decelerate to 1.5 percent from 2.7 percent in 2022. Furthermore, the growth is anticipated to remain subdued, with an expansion of 1.4 percent in 2024.


The United States, which is the largest country in the group, is expected to experience a growth rate of 1.8 percent in 2023. This is an increase from the previous projection of 1.6 percent but still lower than the 2.1 percent expansion recorded last year. The economy is expected to grow by 1 percent in 2024.


The euro area experienced significant challenges last year due to the Ukraine war, high energy prices, and record inflation. As a result, it is expected to undergo a significant slowdown as the European Central Bank continues raising interest rates to restore price stability.


In 2022, the annual inflation rate in the EU reached a significant milestone of 9.2 percent, a substantial increase from the 2.9 percent recorded in 2021.


The bloc, consisting of 20 countries that use the euro as their primary currency, is projected to experience a growth rate of 0.9 percent in 2023, following a 3.5 percent expansion in 2022.


Germany, the largest economy in Europe, is projected to experience a contraction of 0.3 percent this year instead of the previously forecasted shrinkage of 0.1 percent.


Due to an economic crisis last year that caused the pound to reach its lowest level against the US dollar, the UK slipped to become the world’s sixth-largest economy. However, there is now an expectation that the UK will expand by 0.4 percent instead of contracting by 0.3 percent, as previously estimated.


Emerging market and developing country growth is expected to remain at 4% this year and improve to 4.1% by 2024.


The growth estimate for China in 2023 remains unchanged at 5.2 percent after experiencing a 3 percent expansion in 2022. It is then expected to slow down to 4.5 percent in 2024.


In 2022, India surpassed the UK to become the fifth-largest economy globally. India is projected to continue to outperform other countries, with an estimated growth rate of 6.1 percent in 2023, higher than the previous estimate of 5.9 percent. Furthermore, India’s economy is expected to accelerate to 6.3 percent in 2024.


Reduced from 2.9% to 2.5%, the predicted expansion of the Middle East and Central Asia. The growth rate will slow to 4.4 percent in 2022 from 5.4 percent in 2021. By 2024, the growth rate is expected to have reached 3.2%.


The forecast for Saudi Arabia, the largest economy in the Arab world, has been revised. Instead of the previously projected growth rate of 3.1 percent, it is expected to grow by 1.9 percent this year. This adjustment is primarily due to production cuts and lower oil prices, which resulted in an 8.7 percent expansion in 2022.


It is anticipated that the growth rate in the kingdom will increase to 2.8 percent by 2024.


Saudi Arabia, which holds the title of being the world’s largest exporter of oil, experienced significant advantages from the surge in crude prices that occurred last year.


According to the IMF, a projected 21% decrease in oil prices is expected for 2023. This projection is based on futures markets, which estimate an average price per barrel of $76.43 in 2023 and $71.68 in 2024. In comparison, the average price per barrel was $96.36 in 2022.


According to the fund, world trade growth is projected to decrease to 2 percent in 2023, down from 5.2 percent in 2022. However, it is expected to rebound and reach 3.7 percent in 2024.


According to the IMF, the current percentage of global trade growth is significantly lower than the average from 2000 to 2019, which was 4.9 percent. Reasons for this drop include sluggish global demand, a move towards local services, the lingering effects of the strong US dollar (a common international trading currency), and stricter trade restrictions.



Tighter monetary policies implemented by central banks to combat inflation and reduce credit availability are impacting economic growth.


The US Federal Reserve is anticipated to raise its key interest rate to a 22-year high on Wednesday. This move is part of its efforts to address inflation and restore price stability. Since initiating its monetary tightening cycle in March 2022, the Federal Reserve has increased rates by 500 basis points.


According to the IMF, global inflation is projected to decrease by 6.8 percent this year, compared to 8.7 percent in 2022. This represents a downward revision of 0.2 percentage points for 2023. Inflation is anticipated to continue to decrease to 5.2 percent by 2024.


“However, although certain adverse risks have decreased, the overall balance still leans towards the downside,” stated Mr. Gourinchas.


The global tightening of monetary policy has entered a contractionary phase in policy rates. This situation has begun to harm economic activity. It is causing a slowdown in the growth of credit to the non-financial sector, leading to increased interest payments for households and firms and creating pressure in the real estate markets.


The International Monetary Fund (IMF) stated that central banks should maintain their focus on restoring price stability and strengthening financial supervision and risk monitoring, as these are the key priorities for most economies. The IMF emphasized the importance of achieving sustained disinflation and ensuring financial stability to promote economic growth.


The lender based in Washington has stated that countries should promptly provide liquidity in the event of market strains while also creating fiscal buffers.


Hopefully, we have reached the final stage of the inflationary cycle that began in 2021, as inflation appears to be receding. However, it is important to note that hope alone is not a sufficient strategy, and successfully executing the touchdown may pose significant challenges,” Mr. Gourinchas stated.


The risks to inflation are currently more balanced. However, it is crucial to avoid lowering interest rates too soon. This means waiting until there are clear and consistent indications that underlying inflation is cooling down. We have yet to reach that point.


Central banks should consistently monitor the financial system and be prepared to utilize their additional tools to uphold financial stability.



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