Global Growth Rate will fall in 2023 and 2024: WEO, IMF.

On Tuesday (31.01.2023), International Monetary Fund (IMF) has released World Economic Outlook, 2023.

The Report stated that:

·        Global growth forecast – 3.4% in 2022, 2.9% in 2023, to increase in 2024 to 3.1%

·     In the October 2022 World Economic Outlook (WEO) Report, it had predicted that 2.7% in 2023 and now it is revised by 0.2%

GDP growth rate by classification of Major economies

Advanced economies

GDP growth forecast shows there will be sharp decline from 2.7% in 2022 to 1.2% in 2023 before raising to 1.4% in 2024. This is with a downward revision of 0.2% for 2024. Almost 90% of advanced economies are to witness a decline in growth in 2023 as per the WEO update.

The United States

GDP growth is projected to fall from 2% in 2022 to 1.4% in 2023 and 1.0% in 2024. The WEO forecast that there will be growth rebound in the second half of 2024, and growth in 2024 will be faster than in 2023 fourth quarter (quarter-over-quarter basis), as same applies to many advanced economies.

Euro Area

GDP growth is projected to fall to 0.7% in 2023 before increasing to 1.6% in 2024. This 0.2% upward revision to the forecast for 2023 is due to faster rate hikes by European Central Bank (ECB) that is eroding the real incomes, lower wholesale energy prices, and additional announcements of fiscal purchasing power support in the form of energy price controls and cash transfers.

The United Kingdom

GDP Growth is projected at 0.6% in 2023. This is a downward revision of 0.9% from October, 2022. This downward revision is due to tighter fiscal as well as monetary policies, financial conditions and still-high energy retail prices considering on household budgets.

Japan

GDP Growth is projected to rise to 1.8% in 2023. This growth will be accompanied by monetary and fiscal policy support. However, the growth is expected to decline to 0.9% in 2024. This is due to past stimulus disperse.

Emerging Market and Developing Economies

GDP growth is projected to increase moderately from 3.9% in 2022 to 4% in 2023 and 4.2% in 2024. There is a upward revision of 0.3% for 2023 and 0.1% for 2024. More than half of emerging market and developing economies will have lower growth in 2023 compared to 2022.

GDP growth in emerging market and Developing Asia is expected to increase by 5.3% and 5.2% in 2023 and 2024, respectively. This increase will come after deeper than expected slowdown of 4.3% in 2022, this slowdown is due to China’s economy.

China

The Real GDP of China slowdown in the fourth quarter of 2022. This means 0.2% downgrade for 2022 growth to 3%. This is the first time in more than 40 years China’s Growth is below the global average. For 2023, there will be an increase in growth by 5.2%, attributed to rapidly improving mobility. However, the Growth will fall to 4.5% in 2024 before settling below 4% over the medium term due to declining in business dynamism and slow progress in structural reforms.

India

GDP Growth in India is to decline from 6.8% in 2022 to 6.1% in 2023. This will be followed by an increase to 6.8% in 2024. This increase in growth will be attributed to the strong domestic demand amid of external headwinds.

ASEAN-5 (Indonesia, Malaysia, Philippines, Singapore and Thailand)

The GDP growth rate in these countries are projected to slow to 4.3% in 2023 and to increase to 4.7% in 2024.

Inflation

• Inflation and Russia’s war in Ukraine are still concern for the economic activity.
• Increase in Covid-19 cases in China has diminished growth in 2022. The recent reopening of the economy has made the way for faster-than-expected recovery.
• In 2022, Global Inflation is expected to come down to 8.8%. The same is expected to fall to 6.6% in 2023 and 4.3% in 2024; this is still above the pre-pandemic levels (that is 2017-2019) of around 3.5%.

Upside and Downside Risks

• The Adverse risks have been moderated since the October, 2022, WEO. There is a possibility of stronger boost due to pent-up demand in numerous economies or a rapid fall in inflation.
• The worrying factors that could hold back the recovery are severe health consequences in China, Russia’s war in Ukraine, and tighter global financing costs.

Policy Priorities

• Many economies priority remains to achieve sustained disinflation despite there is a cost-of-living crisis.
• It is essential to implement macro prudential tools and strengthen debt restructuring frameworks.
• There is need of stronger multilateral organisation to mitigate climate change, for raising green investment and to preserve the gains from rules-based multilateral system.

My perspectives:

This is the summary of the WEO Report, January, 2023. In the October, 2022 WEO report IMF stated that “Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024.” This projection of 6.5% and 4.1% in 2023 and 2024 is revised to 6.6 and 4.3% . 

The reason why IMF tilted its WEO Update as “Inflation Peaking and slow growth”  is there is an upward revision of inflation by o.1% an o.2% for 2023 and 2024 respectively. This is really a worrisome factor because it makes the policymakers to tighten both fiscal as well as monetary policy of the economy to control the inflation. As a result the economic activity and growth rate may get affected.