Global economic growth may be reaching a turning point, IMF chief says

Inflation in the Mena region is expected to surpass 10% for the fourth straight year in 2023

Kristalina Georgieva, IMF managing director, spoke at the seventh Arab Fiscal Forum in Dubai on Sunday. EPA

Global economic growth may be reaching a “turning point”, supported by falling inflation and China’s reopening, International Monetary Fund managing director Kristalina Georgieva said on Sunday.

“While this is encouraging, the balance of risks remains tilted to the downside. China’s recovery could stall [and] inflation could remain higher than expected,” said Ms Georgieva, who was speaking at the seventh Arab Fiscal Forum in Dubai.

“Russia’s war in Ukraine could escalate, causing further fragmentation of the global economy.”

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Last month, the fund raised its global economic growth estimate for this year to 2.9 per cent from a previous forecast of 2.7 per cent.

The IMF expects global inflation to decline to 6.6 per cent in 2023 from 8.8 per cent last year. It is expected to fall further to 4.3 per cent next year.

“China’s reopening is helping, as well as resilient labour markets and consumer spending in the US and the EU,” said Ms Georgieva.

The Middle East and North Africa region is forecast to grow by 3.2 per cent this year, following a 5.4 per cent expansion in 2022, as the Opec+ group of countries sticks to an oil output cut of 2 million barrels per day.

Opec+ announced a reduction of its collective output in October last year amid growing signs of an economic slowdown and Covid-19 curbs in China, the world’s second-largest economy and top crude importer.

Brent, the benchmark for two thirds of the world’s oil, surged to $90 a barrel last month after China reopened its borders after nearly three years of adhering to a strict zero-Covid policy. The global benchmark has since given up some gains and was last trading at $86.39 on Friday.

“For oil importers, the challenges would continue. Public debt is a particular concern, with several economies in the region facing elevated debt-to-GDP ratios — some close to 90 per cent,” Ms Georgieva said.

Inflation in the Mena region is expected to surpass 10 per cent for the fourth consecutive year in 2023 on higher food prices and currency depreciations, the IMF said.

“We expect inflation to gradually decline as commodity prices settle and tighter monetary and fiscal policies have their intended effect. For the Gulf Co-operation Council countries, we expect inflation to remain contained,” Ms Georgieva said.

However, the war in Ukraine and climate disasters could worsen food shortages for the “most vulnerable”, she added.

“Tighter global or domestic financial conditions could lead to high borrowing costs and, in some cases, a financing crunch,” she said.

“Domestically, delays in much-needed reforms could weigh on regional prospects and government finances.”

Last week, Moody's Investors Service downgraded Egypt's credit rating to B3 from B2 owing to the country's reduced external buffers and shock absorption capacity as it pursues economic reforms in line with its IMF programme.

In 2022, Egypt, the Arab World’s third-largest economy, agreed to a $3 billion rescue plan with the fund that is contingent on the country introducing a flexible foreign exchange regime and reducing the state's footprint in the economy to allow more room for the private sector.

Inflation in the country soared in 2022, exacerbated by the fallout from the war in Ukraine, prompting the Central Bank of Egypt to raise interest by 800 basis points.

Meanwhile, Lebanon, which is in the grip of its worst economic crisis in decades, continues to suffer from hyperinflation, which hit 122 per cent in December, compared with the same period a year earlier.

“Several Arab countries are adopting credible medium-term fiscal frameworks. These are key to mitigating risks when they materialise, while enabling governments to maintain essential spending, stabilise debt, and build investor trust,” Ms Georgieva said.