The International Monetary Fund (IMF) has slightly increased its 2023 global growth forecast, citing strong economic performance in the first quarter, but also cautioned about ongoing challenges impacting the long-term outlook.
In the recent World Economic Outlook, the IMF stated that inflation was decreasing, banking sector stress was alleviating, but global economic risks were still skewed negatively due to tight credit conditions. The institution has now predicted a 3.0% global real GDP growth in 2023, a 0.2 percentage point increase from its April estimate, but maintained the 2024 outlook at 3.0%.
“We’re on track, but we’re not out of the woods,” IMF chief economist Pierre-Olivier Gourinchas told Reuters in an interview, noting that the upgrade was driven largely by first-quarter results. “What we are seeing when we look five years out is actually close to 3.0%, maybe a little bit above 3.0%. This is a significant slowdown compared to what we had pre-COVID.”
Factors like global population aging, particularly in China, Germany, and Japan, along with potential labour market disruptions due to new technologies, also play a role in this deceleration. However, emerging market and developing economies are expected to demonstrate stable growth with 4.0% and 4.1% in 2023 and 2024 respectively. Despite this, concerns over tight credit conditions and potential debt distress remain.
The IMF acknowledged the improvements in global conditions, thanks to the WHO’s termination of the COVID-19 global health emergency and a return to pre-pandemic shipping costs and delivery times. Yet, the fund underscored lingering hurdles from 2022 such as high inflation, increased borrowing costs, and tightened credit access due to banking strains.
The organisation also expressed worries about potential financial sector volatility, the impact of higher interest rates on poorer countries, and the eroding savings buffers in advanced economies, particularly in the US.
The IMF also projected a decline in global inflation, reaching 6.8% in 2023 from 8.7% in 2022, and further falling to 5.2% in 2024. However, it cautioned that inflation could spike if conflict in Ukraine intensifies or extreme temperature rises due to El Nino weather patterns drive commodity prices higher.
World trade growth is also anticipated to slow, with the IMF expecting a mere 2.0% growth in 2023 before a rise to 3.7% in 2024. The US, the largest global economy, received a growth forecast upgrade to 1.8% for 2023, with robust labour markets contributing to the positive adjustment.
China’s growth forecast remained unchanged, but concerns about a slower recovery and potential real estate sector contraction were highlighted. The IMF revised Germany’s outlook downwards while upgrading UK’s forecast. It also slightly increased growth expectations for the Eurozone and Japan for 2023.
