The International Monetary Fund (IMF) has raised its projection for global growth this year marginally today, citing the strong economy, especially service sector activity in Q1 2023. The international lender did, however, also issue a warning over the ongoing issues that are dimming the medium-term outlook.
IMF projects 3% global economic growth
The IMF predicted 3% real GDP growth for the whole world this year in its most recent World Economic Outlook (WEO), which is 0.2% points more than its April prediction. However, despite slowing growth among the world’s leading nations, the prediction for global growth in 2024 is expected to remain at 3 percent.
The IMF highlighted a decrease in the skyrocketing inflation and the extreme stress that the banking sector was experiencing, which led to a minor increase in the growth forecast. IMF Chief Economist Pierre-Olivier Gourinchas mentioned that the economy is still in the woods with minimal growth.
According to the WEO, the global economic growth rate is now 6.3%, less than half of what it was two years ago and lower than the projected rate of 3.5% for 2022. Gourinchas explained how the world’s population is aging, especially in China, Japan, and Germany, which is why growth has slowed down.
MFT predicts lower inflation
The IMF predicts that global headline inflation may drop to 6.8% this year from 8.7% in 2022 and further decline to 5.24% in 2024. However, core inflation will decrease progressively, from 6.5% last year to 6.0 percent in 2023 and then to 4.7% in 2024.
The Bank of England is anticipated to increase interest rates the fourteenth time in a row the following week to curb inflation in Britain, where prices jumped 7.9 percent from a year earlier in June. Britain has managed to defy several predictions by averting a recession thus far this year, including those of IMF economics. However, the nation continues to deal with difficult economic issues: A tight labor market is pushing up salaries, and homeowners are getting more anxious about the effects of high-interest rates on their mortgages because payback rates are frequently modified.
According to Gourinchas, the present cycle of monetary tightening may not end until the end of 2024 or the beginning of 2025, when the central bankers hope to see the decrease in inflation they have targeted.
The IMF warns that if the conflict in Ukraine worsens owing to Russia’s withdrawal from the Black Sea grain agreement and a spike in extreme weather events worldwide brought on by the El Nino weather pattern, the cost of commodities might increase. That could result in additional rate increases.
The World Health Organization’s resolution to halt the global health emergency caused by COVID-19, which has decreased shipping prices and delivery times to pre-pandemic levels, was applauded by the IMF.
EMDEs growth outlook has remained stable
The IMF predicted that the outlook for emerging markets and developing economies (EMDEs) is broadly stable, with growth of 4.0% in 2023 and 4.1% in 2024. The WEO also observed that EMDEs like China and India would contribute much of this year’s global growth, whereas mature nations will have significantly slower economic growth.
According to the research, China’s annual growth estimate is still 5.2%. The estimate for advanced economies’ growth in 2023 increased from April’s prediction to 1.5% and from 2024’s prediction to 1.4%.
Meanwhile, India’s growth is anticipated to reach 6.1% this year, which is 0.2 percentage points higher than the previous prediction made in April. According to the research, this expansion was caused by momentum from higher-than-expected growth in the fourth quarter of 2022 due to higher domestic investment.
