The International Monetary Fund on Monday 31 January 2023 published its latest economic growth projections for 2023 and 2024 in a quarterly update to its World Economic Outlook (WEO).
The IMF acknowledged that Economic growth proved surprisingly resilient in the third quarter of 2022, with a strong labor market, robust private demand, and better-than-expected adaptation to the energy crisis in Europe. Inflation also showed improvement with overall measures decreasing in most places. Even core inflation which excludes more volatile energy and food prices has yet to peak in many countries.
In its statement, the global economy is expected to be slow in 2023 before rebounding next year. Growth will also remain weak by historical standards, as the fight against inflation, and Russia’s war in Ukraine weigh on activity. Global growth is expected to drop from 3.4 percent recorded in 2022 to 2.9 percent in 2023, then rebound to 3.1 percent in 2024. For advanced economies, the slowdown will be more pronounced, with a decline from 2.7 in 2022, to 1.2 percent in 2023. Nine out of ten advanced economies will see growth decelerate this year. US growth will slow to 1.4 percent in 2023, as federal interest rate heights work their way through the economy.
For developing economies the growth is expected to rise modestly to 4 percent, and 4.2 percent, from 2023 to 2024.
Global inflation has been revised upwards again to 6.9 percent in the first quarter of 2023 and is expected to decline to 4.4 percent by the end of 2023. Inflation could remain stubbornly high, with continued labor market tightness and growing wage pressures requiring tighter monetary policies, which will result in central banks raising their real policy rates above a neutral stance, and keeping them there until underlying inflation is on the decisive, declining path.
An escalation of the war in Ukraine remains a major threat and could destabilize energy and food markets, and further fragment the global economy. A sudden reprising in financial markets could tighten financial conditions, especially in emerging markets and developing economies. The recent news about inflation is encouraging, but the battle is far from won. 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.
The Chief Economist of the IMF recommended that emerging market economies should let their currencies adjust as much as possible, in response to the tighter global monetary conditions using FX interventions or capital flow management where appropriate to smooth excessive and non-fundamental volatility and they should improve resilience, ease price pressures, and foster the green transition
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