The global economy is showing signs of slightly better, according to the latest update of growth data released on Tuesday by the International Monetary Fund (IMF), which now forecasts slightly better growth in 2023 and will remain stable in 2024. The institution now anticipates global growth at 3% in 2023, against 2.8% in its previous estimate in April, and which should remain at the same level in 2024, unchanged from the previous estimate.
“Our projection for this year is improving and inflation is falling, these are both good news,” said IMF chief economist Pierre-Olivier Gourinchas, “but we are not out of it yet and growth remains weak, in particular due to a marked slowdown in advanced economies.” Most of the advanced economies, like the main emerging countries, seem to be performing better than the Fund had feared so far, despite a now restrictive monetary policy almost everywhere, in order to fight against inflation which remains “stubbornly high”.
On this front too, the IMF expects a slight improvement by the end of the year with inflation which should reach 6.8% worldwide at the end of the year, 0.2 percentage point less than forecast in April. But inflation that also lasts longer: at the end of 2024, it should still be at 5.2%, while in March the institution expected it to be 0.3 percentage points lower. “The slowdown we are seeing is largely due to the easing of prices in China, particularly in industry in the second quarter,” detailed Pierre-Olivier Gourinchas. The IMF insists on the need to continue monetary tightening in order to bring inflation back to its target, even if this implies an effect on the economy, which has so far been much more resilient than expected, particularly in emerging countries.
On the side of the G7, Germany should be the only country to experience a recession in 2023. This moreover seems more and more inevitable and a little more marked than expected in April, for the IMF, which now expects a decline of 0.3%, against only 0.1% in April. Conversely, the other main European economies are resisting better, the forecast for the French economy dropping to 0.8% (0.1 point compared to April) and that of Italy to 1.1% (0.4 point) when the Spanish economy even seems to be showing real signs of good health (2.5% expected, 1 point).
On the side of the United States, the risk of recession, although long announced, now seems to have been ruled out, despite the successive rate hikes since March 2022: the IMF now expects growth of 1.8% for its economy, against 1.6% last April. The American economy was particularly solid in the first quarter, with growth of 2% at an annualized rate, with a growth overhang for the year which was estimated at 0.9% according to the OECD.
“The job market remains very strong and tight and inflation, even core inflation, is less significant, although it is not slowing down fast enough. But there are also signs of a slowdown, the reason for our revision for next year”, now expected at just 1%, underlined Pierre-Olivier Gourinchas. As for emerging countries, growth forecasts for the Chinese economy remain unchanged, at 5.2% in 2023 and 4.5% in 2024, despite concerns about the risk of a slowdown, and the consequences of potential deflation, while inflation was zero in June, over one year.
“We keep our forecasts unchanged because we believe that China can succeed in achieving its growth objectives, but this will require support from the authorities, in terms of monetary and budgetary policy, in particular for consumers”, according to Pierre-Olivier Gourinchas. Conversely, major Latin American economies appear to be doing better, benefiting from strong trade performance, a record surplus for Brazil, and investment, with Mexico largely benefiting from the US drive to strengthen supply chains.
These two countries have seen their growth forecasts raised for 2023 respectively by 1.2 points, to 2.1%, and 0.8 points, to 2.6%, compared to the April estimate. As for Russia, which was to expect a severe recession in 2023, according to the IMF’s initial report published last October, it continues to see its forecasts improve: expected at 0.7% for 2023 last April, it can hope to see its economy grow by 1.5%, the Fund now estimates.
