The Fund projects that growth will decelerate this year to 3.6% from its earlier January prediction of 4.2% and accelerate to 4.2% the next year.
The IMF also predicted that global growth will decline from last year’s 3.4% to 2.8% before rising to 3% in 2024 in its estimates for the world economy, which were made public yesterday at the current Springs Meeting in Washington, DC.
The COVID-19 and Russian-Ukraine war-related global economic recovery is on pace, according to the Bretton Woods institution, although it is still in a fragile position.
It noted that despite persistently high inflation and recent financial sector upheaval, the early 2023 indications that the world economy could accomplish a smooth landing—with inflation declining and growth remaining steady—have faded.
While food and energy prices have decreased and central banks have lifted interest rates, it was highlighted that underlying pricing pressures are proving persistent as a result of tight labor markets in many economies.
The report also stated that the banking sector’s vulnerabilities are coming into focus and that there is a growing fear of contagion across the entire financial sector, including non-bank financial institutions. It also stated that policymakers have taken decisive steps to stabilize the banking system.
The IMF made a suggestion that the key factors that drove the global economy in 2022 appear likely to persist in 2023, but with different intensities.
Debt levels continue to be high, restricting the ability of fiscal planners to address fresh problems, it claimed.
According to the report, the battle in Ukraine is raging: “Commodity prices that rose sharply following Russia’s invasion of Ukraine have moderated, but the war continues, and geopolitical tensions are high. Infectious COVID-19 strains caused widespread outbreaks last year, but economies that were hit hard – most notably China – appear to be recovering, easing supply-chain disruptions. Despite the fillips from lower food and energy prices and improved supply-chain functioning, risks are firm to the downside with the increased uncertainty from the recent financial sector turmoil.”
It noted that the baseline estimate, which makes the assumption that the recent difficulties in the financial sector are managed, calls for growth to decline from 3.4% in 2022 to 2.8% in 2023 before steadily rebounding and leveling off at 3% in five years – the lowest medium-term forecast in decades.
“Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 per cent in 2022 to 1.3 per cent in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5 per cent in 2023 – the weakest growth since the global downturn of 2001, barring the initial COVID-19 crisis in 2020 and during the global financial crisis in 2009 – with advanced economy growth falling below one percent,” it stated.
