The IMF has said global economic growth is on track to increase somewhat more than expected. However, overall growth in 2023 remains stunted in advanced economies, and Germany’s growth is expected to contract.
The International Monetary Fund (IMF) upgraded its forecast for global growth in a new report published on Tuesday, raising its 2023 prediction from the 2.8% assessed in April to 3%.
The IMF attributed the slight uptick in growth to a resilient service sector and strong labor markets in the first quarter. The IMF also said inflationary pressures and stress on the banking sector are subsiding.
However, the latest outlook predicts global gross domestic product (GDP) growth will remain flat, hovering around 3% into 2024, as risks to the global economy persist. The numbers for 2023 and 2024 remain sluggish compared with overall economic growth of 6.3% in 2021, and 3.5% last year.
“While the forecast for 2023 is modestly higher than predicted in the April 2023 World Economic Outlook (WEO), it remains weak by historical standards,” the IMF wrote on its website.
Balance of risks ’tilted to the downside’
“The balance of risks to global growth remains tilted to the downside. Inflation could remain high and even rise if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events, triggering more restrictive monetary policy,” the report said.
Although global inflation has cooled down after hitting record levels in the US and Europe, consumer prices globally are still forecast to increase by 6.8% in 2023, compared with pre-pandemic levels averaging 3.5%.
“We’re on track, but we’re not out of the woods,” IMF chief economist Pierre-Olivier Gourinchas told Reuters news agency.
“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.”
Emerging economies take the lead
The IMF projected that a large share of growth in 2023 will come from emerging market and developing economies, with “broadly stable” growth of 4 to 4.1% in 2023 and 2024 respectively. This is mainly being driven by China and India.
However, the report warned credit availability remains tight for emerging economies, and there is the risk of debt distress spreading to more economies.
On other hand, growth in more advanced economies is projected to expand considerably slower by only 1.5% and 1.4% in 2023 and 2024. For the US, the IMF predicts 2023 growth of 1.8%, which is expected in 2024 to slide towards 1%.
“We are cautiously prudent that the US economy could avoid a recession and … glide towards its inflation target without having a recession in its future,” Gourinchas told AFP news agency.
“But it’s a very, very narrow path,” he added.
German growth expected to contract
The IMF report also said that Germany will be the only G7 economy expected to contract this year, with a contraction of 0.3% projected in 2023. That is a more pessimistic forecast than the -0.1% projected in April’s WEO.
The IMF attributed this to weak manufacturing output and economic contraction in the first quarter of 2023.
However, in 2024, the IMF projects Germany’s growth will recover somewhat, with GDP expected to rise 1.3%