Global growth has proven “surprisingly resilient” and most countries will avoid a recession this year, the IMF said, as it upgraded its forecasts and hailed a possible turning point for the global economy.
In estimates that took into account China’s decision to abandon its zero-Covid policy last month, the fund said it expected the global economy to grow 3.2% between the end of of the last quarter of 2022 and the end of the last quarter of this year. .
This would mark a significant improvement from 2022, when the IMF estimates the global economy grew by 1.9%. The projected growth of 3.2% is also 0.5 percentage point higher than the IMF’s last forecast in October.
Pierre-Olivier Gourinchas, the IMF’s chief economist, said 2023 “may well represent a turning point” as economic conditions improve in subsequent years.
“We are far from everything [sign of] global recession,” Gourinchas said, in stark contrast to chief executive Kristalina Georgieva’s remarks earlier this month that the recession would affect more than a third of the global economy.
The IMF said its improved outlook reflected the opening of the Chinese economy and lower energy prices for Europe.
It predicted that, on average, the global economy would be 2.9% larger in 2023 than in 2022 – a different basis for calculation than comparisons from the fourth quarter of this year and last year. That’s down from the 3.4% pace estimated for 2022.
But the IMF remained less optimistic than investors. With the MSCI World equity index up 7% year-to-date and bond markets expecting interest rate cuts ahead of 2024, traders predicted a soft landing and a no-holds-barred reduction. inflation pain.
The fund expects the UK to be the only economy to contract in 2023, with GDP expected to be 0.5% lower in the fourth quarter of the year than in the same period of 2022. Even Russia’s economy is expected to outpace that of the UK, according to its estimates, growing by 1% over the same period.
China’s growth, at 5.9%, is expected to be more than double the fund’s October estimate, while India is expected to be the world’s fastest-growing major economy this year, with higher output 7% in the last quarter of 2023 to that of a year earlier. Together, China and India will account for half of global growth this year, while the United States and the euro zone will only account for 10%, according to the IMF.
China will be an “engine” that will benefit other countries, Gourinchas said.
The IMF, however, warned that it remained concerned about risks in China’s property sector. Beijing has been grappling with a real estate crisis since 2021, when developer Evergrande defaulted on its international debt.
By the end of the year, the US economy is expected to be 1% larger than a year ago, unchanged from the October forecast. But the IMF says the country’s performance in 2022 has been better than expected.
Gourinchas said there was “a possibility” that a U.S. recession could be avoided, but that it was a “narrow road”, adding that higher interest rates would “certainly cool the economy”. economy and bring down inflation.
The US Federal Reserve is expected to hike rates by a quarter point this week, setting a target range of between 4.5% and 4.75%.
Tobias Adrian, director of the IMF’s monetary and capital markets department, warned that interest rates could rise more than markets expect and take longer to come down, particularly in the United States.
“There is definitely a gap between what policymakers communicate and what is valued in markets,” he said. “There are still a lot of upside risks to inflation. . . Until it is very clear that inflation is falling sustainably . . . monetary policy still needs to be tightened further.
The IMF also reiterated concerns about defaults in emerging markets, but downplayed the risk of a “systemic debt crisis environment”.
According to the fund, about 60% of low-income countries and several emerging market economies are at risk of being or are already in trouble.
Asked about reviving bailout talks with Pakistan, whose growth outlook has been downgraded by 2.5 percentage points to 2% for this year, the IMF said it would focus on restoring internal and external sustainability during a mission to Islamabad this week.