The International Monetary Fund has slightly upgraded its outlook for world growth this year on the back of resilient service sector activity in the first quarter and a strong labor market, the lender said Tuesday.
But despite the mildly better economic forecast, growth is expected to slow to three percent in 2023 and then stay there, held down by weak growth among the world’s advanced economies, the IMF announced in a new report.
“The global economy continues to gradually recover from the pandemic and Russia’s invasion of Ukraine. But it is not yet out of the woods,” IMF Chief Economist Pierre-Olivier Gourinchas said during a press conference.
The growth forecast for this year was raised by 0.2 percentage points from the IMF’s last estimate in April, putting the world economy on track for three percent growth in both 2023 and 2024.
This is down from growth of 6.3 percent in 2021, and 3.5 percent last year, the IMF announced in its update to the World Economic Outlook (WEO).
Earlier this year, the IMF published its lowest medium-term forecast since the 1990s, citing slowing population growth and the end of the era of economic catch-up by countries including China and South Korea.
On Tuesday, the IMF said the global inflation picture has improved somewhat, with consumer prices now expected to increase by 6.8 percent this year, down 0.2 percentage points from April’s forecast.
This is largely on account of subdued inflation in China, Daniel Leigh, the head of the IMF’s World Economic Studies division, told reporters on Tuesday.
“This is one of the only countries in the world right now where inflation is below the target rate,” he said, adding that the IMF has revised China’s inflation forecast for the year down sharply to 1.1 percent.
‘Resilient’ US consumption
The IMF has lifted its outlook for US growth this year to 1.8 percent, up 0.2 percentage points from April, citing “resilient consumption growth in the first quarter.”
The still-tight labor market in the world’s largest economy “has supported gains in real income and a rebound in vehicle purchases,” the IMF added in its report.
The fund sees US growth slipping to 1.0 percent next year, as savings accumulated during the pandemic dry up and the economy loses momentum.
As with the April forecast, much of global growth this year is expected to come from emerging market and developing economies (EMDEs) like India and China, with activity in advanced economies predicted to slow substantially this year and next.
Advanced economies are now anticipated to grow by 1.5 percent this year, up 0.2 percentage points from April, and by 1.4 percent in 2024.
Citing positive economic news from the United Kingdom, the IMF has lifted the country’s growth forecast for 2023 to 0.4 percent, leaving Germany as the only G7 economy expected to contract this year.
The news is much more positive among the EMDEs, which are forecast to grow by 4.0 percent this year, and by 4.1 percent next year.
The IMF’s 2023 growth forecast for China remained unchanged at 5.2 percent, although it notes there has been a change in composition, with underperformance of investment due to the country’s troubled real estate sector.
Alongside property sector weakness, the IMF said foreign demand remains tepid and warned of rising and elevated youth unemployment, which reached almost 21 percent in May.
The IMF lifted India’s 2023 growth prospects to 6.1 percent, up 0.2 percentage points from April, citing “momentum from stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment.”
The fund now expects Russia’s economy to grow by 1.5 percent this year, an upward revision of 0.8 percentage points from April, due to stronger-than-expected economic data fueled by “a large fiscal stimulus.”
The IMF anticipates the Russian government’s budget deficit will expand to 6.1 percent this year, up from 1.4 percent last year, according to a spokesperson.
