MARRAKECH (Reuters) – The International Monetary Fund (IMF) on Tuesday cut its growth forecasts for China and the euro zone and reported weak and uneven global growth despite the resilience of the U.S. economy.
The IMF left its forecast for global real gross domestic product (GDP) growth in 2023 unchanged at 3.0% in its latest World Economic Outlook (WEO), but reduced its forecast for 2024 by 0.1 point percentage to 2.9% compared to its July forecast. Global production increased by 3.5% in 2022.
Pierre-Olivier Gourinchas, chief economist of the IMF, told reporters that the global economy continues to recover from the COVID-19 pandemic, Russia’s invasion of Ukraine and the energy crisis in last year, but that growth trends were increasingly divergent across the world and the medium-term outlook was “poor”.
Forecasts point to a soft landing for economies, but the IMF remains concerned about risks from China’s housing crisis, commodity price volatility, geopolitical fragmentation and resurgent inflation, added the Economist.
The Israeli-Palestinian conflict poses an unexpected new risk, but Pierre-Olivier Gourinchas believes it is too early to say how developments in the conflict would affect the global economy, he told Reuters.
The IMF is monitoring the situation, Pierre-Olivier Gourinchas said, noting that oil prices had risen by some 4% in recent days, reflecting fears of an interruption in oil production or transportation.
Research by the IMF shows that a 10% increase in oil prices would curb global output by about 0.2% the following year and increase global inflation by about 0.4%.
“UNCOMFORTABLELY HIGH” INFLATION
Inflation continued to decline around the world due to a decline in energy prices and, to a lesser extent, food prices. It should fall to 6.9% over one year on average in 2023, compared to 8.7% in 2022, and 5.8% in 2024.
Core inflation, which excludes food and energy prices, is falling more slowly and is expected to fall to 6.3% in 2023, from 6.4% in 2022, and to 5.3% in 2024 , given still tight labor markets and higher-than-expected services inflation, the IMF said.
“Inflation remains at an uncomfortable level,” said Pierre-Olivier Gourinchas, who warned that central banks must avoid premature easing.
The IMF raised its growth forecast for the United States, the world’s largest economy, by 0.3 percentage points to 2.1% for 2023, and by 0.5 percentage points to 1.5% for next year, citing significant investments and increased consumption. The United States is thus the only major economy to have exceeded growth forecasts made before the pandemic.
In China, on the other hand, GDP is expected to increase by 5.0% in 2023 and 4.2% in 2024, downward revisions of 0.2 and 0.3 percentage points respectively, mainly due to the crisis real estate in the country and the weakness of external demand.
The IMF also cut its growth estimates for the euro zone to 0.7% in 2023 and 1.2% in 2024, compared to forecasts in July of 0.9% and 1.5%.
“The global economy is showing resilience. It is not shaken by the major shocks suffered over the last two or three years, but it is not doing very well either,” commented the economist.
(Reporting Andrea Shalal, Corentin Chappron and Diana Mandiá, editing by Kate Entringer)
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