The International Monetary Fund (IMF) has raised its global growth forecast for 2023 to reflect “surprisingly resilient” demand in the United States and Europe, lower energy costs, and the reopening of China’s economy following Beijing’s abandonment of harsh COVID-19 restrictions.
It still expects global growth to slow this year against 2022, although by a lesser margin than it anticipated in October. The IMF now forecasts 2.9% growth in 2023, up from 2.7% in October, compared to 3.4% growth last year.
The data are contained in the organization’s most recent World Economic Outlook, which warns that the world might easily enter a recession this year. “Central banks are likely to continue tightening monetary policy to combat inflation, and concerns that this restrictive attitude may push the economy into a recession have intensified in major advanced nations,” according to the research.
The IMF now forecasts 1.4% growth in the United States this year, up from 1.0% in October, and 2.0% growth in 2022. This is due to higher-than-expected consumption and investment in the third quarter of 2022, as well as a solid labour market and consumer balance sheets.
The Eurozone prognosis has also improved, rising to 0.7% from 0.5% in October, however this is still lower than the 3.5% growth expected in 2022. According to the IMF, Europe has adapted to increasing energy costs faster than projected.
The International Monetary Fund has raised China’s growth prediction to 5.2% from 4.4% in October. China’s growth rate in 2022 was reduced to 3.0% as a result of zero-COVID policy, putting it below the world average for the first time in more than 40 years.
India’s outlook remains positive, with unaltered projections for 2023 growth of 6.1%, followed by a rebound to 6.8% in 2024, matching its performance in 2022.
Britain is the only big economy expected to contract this year, according to the IMF. It predicts a 0.6% drop in GDP as households grapple with rising living costs, such as electricity and mortgages. The IMF has reduced its global growth prediction for 2024 to 3.1% from 3.2% in October.
The Federal Reserve of the United States has slowed the pace of interest rate increases, but warns there will be “ongoing increases” as it fights inflation. The Federal Reserve raised its benchmark overnight interest rate by a quarter percentage point, bringing it to 4.50-4.75%. This comes after six successive greater increases, including three consecutive quarter-point increases.
While inflation has begun to slow, Federal Reserve Chair Jerome Powell predicts two more rate hikes in the coming months and does not expect the Fed to drop rates this year.
Job postings in the United States unexpectedly increased in December, indicating that labour demand remains strong despite higher interest rates and mounting Fed policy has an impact not only in the United States, but also in worldwide financial markets, as it impacts currency exchange rates, and changes in US interest rates are frequently mirrored in other countries.
The European Central Bank (ECB) hiked interest rates by half a percentage point this month, to 2.5%, and expressly signalled that at least one more hike of the same amount would follow next month.
“We know we have work to do, we know we are not done,” ECB President Christine Lagarde said, reaffirming past comments that the bank will “stay the course” in its quest to return inflation to its objective of about 2%.g fears of a recession, and this could keep the Fed on its policy tightening course. However, a drop in consumer expenditure for the second month in a row in December shows that too aggressive monetary policy is no longer required.
While the Bank of England hiked interest rates for the tenth time in a row, it abandoned its commitment to keep raising them “forcefully” if necessary, claiming that inflation has likely peaked. Rates are currently at their highest since 2008, at 4.0%, up from 3.5% previously.
According to the bank, its rate hikes since December 2021 will have an increasing impact on the economy. It is attempting to stifle 10% inflation.
It believes Britain is still on track for a recession, but it will be “far shallower” than previously predicted, owing to a drop in energy prices. It now expects GDP to decline by 0.5% in 2023, down from a 1.5% prediction in November.
