The International Monetary Fund (IMF) upgraded its forecast for global growth this year on the back of reduced price pressures, increased fiscal supports by governments and the reopening of the Chinese economy following its zero-Covid policy.
In its latest global outlook report, the Washington-based fund said growth was projected to fall from an estimated 3.4 per cent in 2022 to 2.9 per cent in 2023, then rise to 3.1 per cent in 2024.
The forecast for 2023 is 0.2 per cent higher than what it predicted in October but still below the historical average of 3.8 per cent.
Despite the modest upgrade in growth forecasts, the agency warned that the rise in central bank rates to fight inflation and Russia’s war in Ukraine continue to weigh on economic activity. It said the balance of risks remain tilted to the downside.
Severe health outcomes in China could hold back the recovery while Russia’s war in Ukraine could escalate, it said.
Tighter global financing conditions could also worsen debt distress, the fund said ahead of three expected interest rate hikes from the European Central Bank, the US Federal Reserve and the Bank of England this week.
The agency also warned of a possible stock market correction.
“Financial markets could also suddenly reprice in response to adverse inflation news, while further geopolitical fragmentation could hamper economic progress,” it said.
In its report, the IMF said the global fight against inflation, Russia’s war in Ukraine, and a resurgence of Covid-19 in China weighed on global economic activity in 2022, and the first two factors will continue to do so in 2023.
Despite these headwinds, it noted, however, that real GDP was surprisingly strong in the third quarter of 2022 in numerous economies, including the United States, the euro area, and major emerging market and developing economies.
“The sources of these surprises were in many cases domestic: stronger-than-expected private consumption and investment amid tight labour markets and greater-than-anticipated fiscal support,” it said.
Households spent more to satisfy pent-up demand, particularly on services, partly by drawing down their stock of savings as economies reopened. Business investment rose to meet demand. On the supply side, easing bottlenecks and declining transportation costs reduced pressures on input prices and allowed for a rebound in previously constrained sectors, such as motor vehicles.
“Energy markets have adjusted faster than expected to the shock from Russia’s invasion of Ukraine,” it said.