The outlook for the global economy is growing slightly brighter as China eases its zero-COVID policies and the world shows surprising resilience in the face of high inflation, elevated interest rates and Russia’s ongoing war against Ukraine.
That’s the view of the International Monetary Fund, which now expects the world economy to grow 2.9% this year. This forecast is better than the 2.7% growth for 2023 that IMF predicted in Oct, but lower than the 3.4% growth expected in 2022.
The IMF is a lending institution that lends to 190 countries. It predicts that inflation will ease this year as a result of aggressive interest rates hikes by the Federal Reserve (and other central banks). These rate increases are expected to slow down consumer demand, which has led to higher prices. Globally, IMF forecasts consumer inflation to fall from 8.8% lastyear to 6.6% and 4.3% respectively in 2023 and 2024.
A big factor in the upgrade to global growth was China’s decision late last year to lift anti-virus controls that had kept millions of people at home. The IMF said China’s “recent reopening has paved the way for a faster-than-expected recovery.’’
The IMF now expects China’s economy — the world’s second-biggest, after the United States — to grow 5.2% this year, up from its October forecast of 4.4%. Beijing’s economy eked out growth of just 3% in 2022 — the first year in more than 40, the IMF noted, that China has expanded more slowly than the world as a whole. The end of the virus restrictions is expected, however, to revive economic activity by 2023.
The IMF’s 2023 growth outlook improved for the United States (forecast to grow 1.4%) as well as for the 19 countries that share the euro currency (0.7%). Europe, though suffering from energy shortages and higher prices resulting from Russia’s invasion of Ukraine, proved “more resilient than expected,’’ the IMF said. A warmer winter than anticipated helped the European economy to remain resilient, which in turn kept down natural gas demand.
Russia’s economy, hit by sanctions after its invasion of Ukraine, has proved sturdier than expected, too: The IMF’s forecast foresees Russia registering 0.3% growth this year. It would represent a slight improvement on the 2.2% contraction that was forecasted for 2022. And it’s well above the 2.3% contraction for 2023 that the IMF had forecast for Russia in October.
The United Kingdom is a striking exception to the IMF’s brighter outlook for 2023. It predicts that the British economy would shrink 0.6% in 2023. However, in October, IMF forecast 0.3% growth. British economic growth is being squeezed by tighter government budgets and higher interest rates.
“These figures confirm we are not immune to the pressures hitting nearly all advanced economies,’’ Chancellor of the Exchequer Jeremy Hunt said in response to the IMF forecast. “Short-term challenges should not obscure our long-term prospects — the U.K. outperformed many forecasts last year, and if we stick to our plan to halve inflation, the U.K. is still predicted to grow faster than Germany and Japan over the coming years.”
The IMF stated that the world economy faces serious risks. They include the possibility that Russia’s war against Ukraine war will escalate, that China will suffer a sharp increase in COVID cases and that high interest rates will cause a financial crisis in debt-laden countries.
Since the coronavirus epidemic in early 2020, global outlooks have been clouded in uncertainty. Forecasters have been repeatedly confounded by events: A severe if brief recession in early 2020; an expectedly strong recovery triggered by vast government stimulus aid; then a surge in inflation, worsened when Russia’s invasion of Ukraine nearly a year ago disrupted world trade in energy and food.
Three weeks ago, the IMF’s sister agency, the World Bank, issued a more downbeat outlook for the global economy. The World Bank slashed its forecast for international growth this year by nearly half — to 1.7% — and warned that the global economy would come “perilously close’’ to recession.
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