Global economy will slow, but not enter recession: IMF

The world economy will grow 2.9% this year and the threat of recession will ease in some countries due to strong consumption and investment, and the lifting of the zero-covid policy in China, estimated the International Monetary Fund (IMF).

With the world experiencing the consequences of Russia’s invasion of Ukraine, recessions, and efforts to curb inflation through higher credit costs, the IMF hopes that the world economy expands 2.9% in 2023, that is, 0.2 percentage points more than what had been predicted last October.

(See: Latin America and the EU: bridges to be built against economic downturns).

“Adverse risks have moderated” since the October forecast, says the Fund in the update of the World Economic Outlook published this Tuesday.
Year “it will remain challenging (…) But it could well represent a turning point”, the chief economist of the International Monetary Fund, Pierre-Olivier Gourinchas, told reporters.

According to the IMF, the slowdown is less pronounced than might be expected in several developed economies, such as the United States (1.4% growth in 2023, this is 0.4 percentage points more than the estimate in October), Germany or Italy. These two European economies would even see the prospect of a recession recede.

“We are a long way from any kind of global economic recession marker”, says Gourinchas.

It is good news that the Fund attributes above all to the reopening of China after the abandonment of the zero covid policy.

(See: Sanctions fail: Russia’s ways around them).

The Asian giant will grow 5.2% compared to 4.4% expected three months ago, and will drag the global economy with it.

Inflation also seems to be falling compared to 2022.

For its part, the IMF forecasts for this year a level slightly higher than that forecast three months ago (+6.6% vs. +6.5%), but in 2024 it should return to levels below those of 2021 (+4 .3% vs. +4.7%).

The three global locomotives (United States, China and Europe) resist, albeit for different reasons, and all developed economies are expected to follow suit.

But there is an exception: the United Kingdom, the only country in the G20 that will experience a recession, of the order of 0.6%. Russia, by contrast, could emerge from recession despite the sanctions imposed since it invaded Ukraine.

Its economy will expand slightly in 2023 (0.3%) and considerably more in 2024 (2.1%).
Despite the fact that in 2023 many economies will grow less than in other years, some have shown surprising resilience.

“Low growth forecast in 2023 reflects central bank rate hikes to fight inflation, especially in advanced economies, as well as (the effect of) the war in Ukraine”, explains the IMF.

(See: IMF warns Latin America about falling prices of raw materials).

But “economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, strong domestic consumption and business investment as well”, emphasizes Gourinchas.

Countries adapted better than expected to the energy crisis in Europe, he added, with gas prices lower than anticipated and enough resources for the boreal winter. In the rest of the world the situation varies depending on the region.

(See: Banco de la República forecasts high inflation this year: its forecasts).

The most pronounced growth is expected in sub-Saharan Africa (3.8%, almost unchanged from the previous forecast), the Middle East and Central Asia (3.2%, 0.4 percentage points less than in October).

The IMF also points out indebtedness as a risk in the medium-term panorama, since it estimates that 15% of low-income countries are over-indebteda situation to which another 45% of those countries are exposed and another 25%, if you look at the emerging market economies.

AFP