I.M.F. Upgrades Global Outlook as Inflation Eases
WASHINGTON — The International Monetary Fund said on Monday that the global economy was expected to slow this year as central banks continued to raise interest rates to tame inflation, but it also suggested that growth would be more resilient than previously anticipated and that a global recession would probably be avoided.
The I.M.F. upgraded its economic growth projections for 2023 and 2024 in its closely watched World Economic Outlook report, pointing to resilient consumers and the reopening of China’s economy as among the reasons for a more optimistic outlook.
The fund warned, however, that the fight against inflation was not over and urged central banks to avoid the temptation to change course.
“The fight against inflation is starting to pay off, but central banks must continue their efforts,” Pierre-Olivier Gourinchas, the I.M.F.’s chief economist, said in an essay that accompanied the report.
Global output is projected to slow to 2.9 percent in 2023, from 3.4 percent last year, before rebounding to 3.1 percent in 2024. Inflation is expected to decline to 6.6 percent this year from 8.8 percent in 2022 and then to fall to 4.3 percent next year.
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After a succession of downgrades in recent years as the pandemic worsened and Russia’s war in Ukraine intensified, the I.M.F. latest forecasts were rosier than those the fund released in October.
Since then, China abruptly reversed its “zero Covid” policy of lockdowns to contain the pandemic and embarked on a rapid reopening. The I.M.F. also said that the energy crisis in Europe had been less severe than initially feared and that the weakening of the U.S. dollar was providing relief to emerging markets.
The I.M.F. predicted previously that a third of the world economy could be in recession this year. However, Mr. Gourinchas said in a news briefing ahead of the release of the report that far fewer countries were now facing recessions in 2023 and that the I.M.F. was not forecasting a global recession.
“We are seeing a much lower risk of recession, either globally, or even if we think about the number of countries that might be in recession,” Mr. Gourinchas said.
Despite the more hopeful outlook, global growth remains weak by historical standards and the war in Ukraine continues to weigh on activity and sow uncertainty. The report also cautions that the global economy still faces considerable risks, warning that “severe health outcomes in China could hold back the recovery, Russia’s war in Ukraine could escalate and tighter global financing costs could worsen debt distress.”
Growth in rich countries is expected to be particularly sluggish this year, with nine out of 10 advanced economies likely to have slower growth than they had in 2022.
The I.M.F. projects growth in the United States to slow to 1.4 percent this year from 2 percent in 2022. In the euro area, growth is projected to slow 3.5 percent to 0.7 percent. China is projected to pick up the slack with output accelerating to 5.2 percent in 2023 from 3 percent in 2022.
Russia is also helping to fuel global growth, suggesting efforts by Western nations to cripple Russia’s economy appear to be faltering. The I.M.F. predicts Russian output to expand by 0.3 percent in this year and by 2.1 percent next year, defying earlier forecasts of a steep contraction in 2023 amid a raft of Western sanctions.
A coordinated plan by the United States and Europe to cap the price of Russian oil exports at $60 a barrel is not expected to substantially curtail its energy revenues.
“At the current oil price cap level of the Group of 7, Russian crude oil export volumes are not expected to be significantly affected, with Russian trade continuing to be redirected from sanctioning to non-sanctioning countries,” the I.M.F. said in the report.
Among the I.M.F.’s most pressing concerns is the growing trend toward “fragmentation.” The war in Ukraine and the global response has divided nations into blocs and reinforced pockets of geopolitical tension, threatening to hamper economic progress.
“Fragmentation could intensify — with more restrictions on cross-border movements of capital, workers and international payments — and could hamper multilateral cooperation on providing global public goods,” the I.M.F. said. “The costs of such fragmentation are especially high in the short term, as replacing disrupted cross-border flows takes time.”