The International Monetary Fund said better economic data in the third quarter of last year, the easing of inflation and the reopening of China point to resilience in the global economy, prompting it to marginally raise its growth forecast for 2023, but more work needs to be done for a full recovery to take place.
The fund raised its global economic growth estimate for this year by 0.2 percentage points to 2.9 per cent from its October forecast, a slowdown from the 3.4 per cent expansion in 2022 and below the historical average of 3.8 per cent over the 2000-2019 period.
The global economy is projected to rebound to 3.1 per cent in 2024, the IMF said in its World Economic Outlook report released on Tuesday.
Despite the revision, the Washington-based lender warned that the financial environment remains “fragile” as the fight against inflation is not over and will continue to weigh on the global economy, along with Russia's war in Ukraine.
A depreciating US dollar, coupled with global monetary policy tightening, is starting to cool demand and inflation, but the full impact is unlikely to be realised before 2024, the IMF said.
After hitting 8.8 per cent in 2022, global inflation is expected to fall to 6.6 per cent in 2023 and 4.3 per cent in 2024, still above pre-pandemic levels of about 3.5 per cent, it said. About 84 per cent of countries are expected to have lower headline inflation in 2023 than in 2022.
Advanced economies will have a more pronounced slowdown and are set to decline to 1.2 per cent in 2023 and 1.4 per cent in 2024, from growth of 2.7 per cent last year and 5.2 per cent in 2021. Nine in 10 advanced economies are likely to decelerate this year.
The US, the biggest of the group, is forecast to expand 1.4 per cent in 2023, instead of a previous 1.6 per cent estimate, down from 2 per cent last year and 5.7 per cent in 2021.
The US Federal Reserve raised interest rates seven times last year to curb inflation that hit a four-decade high.
It is meeting this week and is set to raise interest rates by a more moderate 25 basis points after a series of 75 bps and 50 bps increases last year, as prices have started to ease in the world's largest economy.
The euro area, which includes 19 EU countries that use the euro as their primary currency, has had a mild winter and the impact of an energy crisis as a result of the face-off with Russia over its war in Ukraine has been more muted.
The euro area is forecast to grow 0.7 per cent in 2023, slightly above the earlier estimate of 0.5 per cent, following a 3.5 per cent expansion in 2022 and 5.2 per cent growth in 2021 — due to the European Central Bank tightening monetary policy and the increase in the price of its imported energy.
Germany, Europe's largest economy, is set to grow 0.1 per cent in 2023 instead of an earlier projected contraction of 0.3 per cent. Its economy grew by 1.9 per cent last year and 2.6 per cent in 2021.
France, the euro area's second-largest economy, is forecast to grow 0.7 per cent in 2023 following a 2.6 per cent expansion in 2022, and growth of 6.8 per cent in 2021.
Japan, the world's third-largest economy, which removed restrictions on foreign visitors, is projected to grow 1.8 per cent in 2023 compared with a previous 1.6 per cent estimate, after growing about 1.4 per cent in 2022.
The UK, which slipped a notch to become the world's sixth-largest economy due to its economic crisis last year that drove the pound to its lowest level against the US dollar, is expected to contract 0.6 per cent in 2023 instead of a previous 0.3 per cent expansion projection. Its economy is estimated to have grown 4.1 per cent in 2022.
Emerging market and developing economies are projected to grow 4 per cent in 2023, up from 3.9 per cent in 2022, with China's output accelerating by 5.2 per cent compared with a previous 4.4 per cent forecast, as it benefits from a full reopening this year.
China, the world's second-largest economy, is estimated to have grown by 3 per cent in 2022.
India, which overtook the UK to become the world's fifth-largest economy in 2022, is expected to outpace the world's economies with a 6.1 per cent expansion in 2023 after growing 6.8 per cent last year. Its growth in 2024 is forecast at 6.8 per cent.
India and China will account for half of global growth this year, compared with only a tenth for the US and euro area combined, the IMF said.
The Middle East and Central Asia are forecast to grow by 3.2 per cent following a 5.3 per cent expansion in 2022 and then pick up to 3.7 per cent in 2024.
Saudi Arabia, the Arab world’s largest economy, is forecast to grow 2.6 per cent this year following an 8.7 per cent expansion in 2022, and to accelerate 3.4 per cent in 2024.
The kingdom, the world's largest exporter of oil, benefitted from the rally in crude prices last year after Brent, the global benchmark for two thirds of the world's oil, rose by about 10 per cent, following a 50 per cent gain in 2021.
Brent soared to a 14-year high of close to $140 a barrel in March last year after the start of Russia’s military offensive in Ukraine, but sluggish economic growth in China and the strong possibility of a recession in several economies weighed on the market and brought prices back down in 2022.
In 2023, oil prices are projected to fall by about 16 per cent, while nonfuel commodity prices are expected, on average, to fall by 6.3 per cent, the fund said. The average assumed price of oil based on futures markets as of November 29, 2022 is $81.13 in 2023 and $75.36 in 2024, the fund said.
World trade growth is expected to decline this year to 2.4 per cent, despite an easing of supply bottlenecks, before rising to 3.4 per cent in 2024.
“The inflation news is encouraging, but the battle is far from won,” said IMF chief economist Pierre-Olivier Gourinchas.
“Monetary policy has started to bite, with a slowdown in new home construction in many countries. Yet, inflation-adjusted interest rates remain low or even negative in the euro area and other economies, and there is significant uncertainty about both the speed and effectiveness of monetary tightening in many countries.”
Multilateral co-operation needs to be shored up amid economic fragmentation, Mr Gourinchas said.
“We must buttress multilateral co-operation, especially on fundamental areas of common interest such as international trade, expanding the global financial safety net, public health preparedness and the climate transition,” he said.
“This time around, the global economic outlook hasn’t worsened. That’s good news, but not enough. The road back to a full recovery, with sustainable growth, stable prices, and progress for all, is only starting.”