IMF expects subdued growth as 'tightening starts to bite'

IMF expects subdued growth as 'tightening starts to bite'
The IMF lowered its global growth outlook in its latest World Economic Outlook to 2.9% for next year from an earlier forecast of 3%. / bne IntelliNews
By Felix Richter of Statistia October 11, 2023

The International Monetary Fund (IMF) published its latest update on the state of the world economy on Tuesday, predicting sluggish growth for 2023 and 2024, as many challenges persist and policy tightening is taking effect. According to its World Economic Outlook, the organization now expects global GDP to grow by 3.0% this year, down from 3.5% in 2022. For next year, the IMF predicts 2.9% growth, a slight downward correction from its April 2023 forecast of 3.0%, reports Statista.

"Economic activity still falls short of its pre-pandemic path, especially in emerging market and developing economies and there are widening divergences among regions," the report finds. "Several forces are holding back the recovery. Some reflect the long-term consequences of the pandemic, the war in Ukraine and increasing geoeconomic fragmentation. Others are more cyclical in nature, including the effects of monetary policy tightening necessary to reduce inflation, withdrawal of fiscal support amid high debt and extreme weather events."

Aside from inflation, which is expected to remain elevated across advanced economies until 2025, many of the problems that weighed on the global economy in 2022 – high debt levels, the war in Ukraine and rising geopolitical tensions – have carried over into 2023, resulting in continued uncertainty and muted growth prospects. And while China's reopening boosted global growth prospects earlier this year, the country's property crisis now poses yet another downside risk, not only to domestic growth as a deepening of the crisis could have global spillover effects.

All things considered, the IMF finds that risks to its latest outlook are slightly more balanced compared to six months ago, when the US and Swiss banking crises as well as the specter of a potentially disastrous US debt default cast large shadows over the global economy.

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