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MACROECONOMICS - WASHINGTON. The International Monetary Fund on Tuesday raised its 2023 global growth estimates slightly given resilient economic activity in the first quarter, but warned that persistent challenges were dampening the medium-term outlook.
The IMF in its latest World Economic Outlook said inflation was coming down and acute stress in the banking sector had receded, but the balance of risks facing the global economy remained tilted to the downside and credit was tight.
The global lender said it now projected global real GDP growth of 3.0% in 2023, up 0.2 percentage point from its April forecast, but left its outlook for 2024 unchanged, also at 3.0%.
The 2023-2024 growth forecast remains weak by historical standards, well below the annual average of 3.8% seen in 2000-2019, largely due to weaker manufacturing in advanced economies, and it could stay at that level for years.
"We're on track, but we're not out of the woods," IMF chief economist Pierre-Olivier Gourinchas told Reuters in an interview, noting that the upgrade was driven largely by first-quarter results. "What we are seeing when we look five years out is actually close to 3.0%, maybe a little bit above 3.0%. This is a significant slowdown compared to what we had pre-COVID."
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This was also related to the aging of the global population, especially in countries like China, Germany and Japan, he said. New technologies could boost productivity in coming years, but that in turn could be disruptive to labor markets.
The outlook is "broadly stable" in emerging market and developing economies for 2023-2024, with growth of 4.0% expected in 2023 and 4.1% in 2024, the IMF said. But it noted that credit availability is tight and there was a risk that debt distress could spread to a wider group of economies.
The world is in a better place now, the IMF said, noting the World Health Organization's decision to end the global health emergency surrounding COVID-19, and with shipping costs and delivery times now back to pre-pandemic levels.
"But forces that hindered growth in 2022 persist," the IMF said, citing still-high inflation that was eroding household buying power, higher interest rates that have raised the cost of borrowing and tighter access to credit as a result of the banking strains that emerged in March.
"International trade and indicators of demand and production in manufacturing all point to further weakness," the IMF said, noting that excess savings built up during the pandemic are declining in advanced economies, especially in the United States, implying "a slimmer buffer to protect against shocks."
While immediate concerns about the health of the banking sector - which were more acute in April - had subsided, financial sector turbulence could resume as markets adjust to further tightening by central banks, it said.
The impact of higher interest rates was especially evident in poorer countries, driving debt costs higher and limiting room for priority investments. As a result, output losses compared with pre-pandemic forecasts remain large, especially for the world’s poorest nations, the IMF said.
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