Colombo Sri Lanka (Commonwealth Union)_The International Monetary Fund has raised global growth outlook for 2023 to 2.9 percent from its original forecast in October 2022 of 2.7 percent, in which it also warned that the world was at risk of going into recession. With the US and Europe seeing increasing demand, energy costs plateauing and China reopening its economy, the IMF calls the world ‘surprisingly resilient’ and will be seeing a better outlook this year than earlier predicted.
Beijing abandoning its strict COVID19 protocols and the west seeing a strengthening of its economy were the two key factors in heralding this change in forecast by the IMF, which now seems upbeat for 2024 as well, stating that global growth will see an acceleration to 3.1 percent in 2024. However, it does caution that interest rate hikes by central banks globally will slow demand, although recession risks have subsided. Central banks have also been proactive in controlling inflation although the Ukrainian war and China’s continuing fight against COVID19 could see an uptick in disruptions.
With stronger consumer demand in the US, the IMF believes GDP growth will go up to 1.4 percent this year from 1 percent forecast in October 2022. The US closed 2022 with a growth of 2 percent. A number of factors contributed to the changing trend including higher consumption, strong consumer balance sheets, increased investment and a robust labour market.
The growth forecast for the Eurozone bloc in 2023 is at 0.7 percent, a marginal increase from October’s prediction of 0.5 percent, resulting from higher energy costs decreasing quicker than expected and energy prices also easing. Growth yet remains dismal with only a marginal increase. The IMF said Europe had adapted to higher energy costs more quickly than expected, and an easing of energy prices had helped the region. The UK is the only advanced economy which is due to go into recession this year, shrinking 0.6 percent due to higher interest rates and tightening spending patterns squeezing growth.
Asia’s two powerhouse economies are billed to contribute more than 50 percent to global growth this year. China has had a sharp upward movement to 5.2 percent in 2023 from the forecast of 4.4 percent in October. The country’s zero-COVID strategy held the economy back resulting in a growth rate of just 3 percent in 2022, which for the first in more than forty years was well below the global average. India in the meanwhile is looking at a dip in 2023 to 6.1 percent but will rebound to 6.8 percent in 2024, much like its 2024 growth performance.
Risks remain however – more widespread COVID19 outbreaks and real estate turmoil in China, escalation of the war in Ukraine leading to spikes in energy and food prices and central banks having the hard task of keeping inflation down are the non-predictable short term risks the world may have to contend with. But the stash of unused savings will sustain demand growth particularly in travel and tourism and labour market pressures easing in some advanced economies will help cool inflation and the reasoning for galloping interest rate hikes.