International Monetary Fund: World Economic Outlook April 2023

On Tuesday, the International Monetary Fund issued its weakest medium-term global growth forecast in more than 30 years.

The Washington, D.C.-based institution said that five years from now, global growth is expected to be around 3% — the lowest medium-term projection in the International Monetary Fund’s World Economic Outlook since 1990.

“It is not currently expected that the global economy will return to the growth rates that prevailed before the pandemic in the medium term,” the fund said in its latest report on global economic prospects.

The IMF said the weaker growth prospects stem from progress made by economies like China and South Korea in raising living standards, as well as slower global labor force growth and geopolitical fragmentation, such as Brexit and Russia’s invasion of Ukraine.

But in the short term, the International Monetary Fund expects global growth of 2.8% this year and 3% in 2024, just below its estimates published in January. The new estimates are a 0.1 percentage point cut for this year and next.

The IMF said in the same report: “The meager forecast reflects the tough political positions needed to bring down inflation, the repercussions of the recent deterioration in financial conditions, the ongoing war in Ukraine, and the increasing geo-economic fragmentation.”

Looking at some regional breakdowns, the International Monetary Fund sees the US economy expanding 1.6% this year and the Eurozone growing 0.8%. However, the UK is seeing a contraction of 0.3%.

China’s GDP is expected to increase by 5.2% in 2023, according to the International Monetary Fund, and in India by 5.9%. Russia’s economy – which shrank by more than 2% in 2022 – is expected to grow 0.7% this year.

“The main forces affecting the world in 2022 — the monetary stances of central banks to moderate inflation, limited fiscal margins to absorb shocks amid historically high debt levels, rising commodity prices and economic geographic fragmentation with Russia’s war in Ukraine, and China’s economic reopening — seem to be It is likely to continue into 2023. But now these forces are superimposed and interacting with new financial stability concerns,” the IMF warned.

The IMF said its baseline forecast “assumes that recent financial sector stresses have been contained”. It comes after the failure of a number of banks in March, which caused volatility in global markets.

Silvergate Capital, Silicon Valley Bank and Signature Bank all failed, as regulators took action to try to prevent infections. Since then, First Republic Bank has also received support from other lenders, and in Switzerland, authorities have asked UBS to step in and take over its troubled rival Credit Suisse.

Pressures in the banking sector have dissipated in recent weeks, but they have made the overall economic picture worse in the eyes of the IMF.

“Financial sector pressures could amplify and contagion could spread, weakening the real economy through a sharp deterioration in financing conditions and forcing central banks to reconsider their policy paths,” the fund said.

Bank failures have highlighted the potential consequences of tight monetary policy in many major economies. High interest rates, raised by central banks struggling to bring down stubbornly high inflation, are hurting companies and national governments with high levels of debt.

“A hard landing – especially for advanced economies – has become a much greater risk. Policymakers may face difficult trade-offs to reduce flat inflation and maintain growth while maintaining financial stability,” the IMF said.

The foundation expects the overall global inflation rate to fall from 8.7% in 2022 to 7% this year, as energy prices fall. However, the decline in core inflation, which strips out volatile food and energy costs, is expected to take longer.

In most cases, the IMF does not expect headline inflation to return to its target levels before 2025.