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Journalism of Courage
In its January update of the World Economic Outlook (WEO) report, the IMF has marginally improved the forecast for global growth in 2023 — a relief, given the fears of a global recession in 2023. The turnaround reflects “positive surprises and greater-than-expected resilience in numerous economies”.
The IMF releases the WEO twice every year, in April and October, apart from updating it twice — in January and July.
Here are three key takeaways from the latest update:
In the October 2022 WEO, the IMF forecast that the global growth rate will decelerate from 3.4% in 2022 to 2.7% in 2023. In fact, at that time the IMF painted a grim picture: “More than a third of the global economy will contract this year or next, while the three largest economies—the United States, the European Union, and China—will continue to stall. In short, the worst is yet to come, and for many people 2023 will feel like a recession.”
In the January update, however, the IMF effectively rules out a global recession: “Negative growth in global GDP or global GDP per capita—which often happens when there is a global recession—is not expected.”
Instead, it expects global growth to bottom out in 2023 before starting to gather speed in 2024.
As such, the global growth, which was estimated at 3.4 percent in 2022, is now projected to fall to 2.9 percent in 2023 before rising to 3.1 percent in 2024.
“Compared with the October forecast, the estimate for 2022 and the forecast for 2023 are both higher by about 0.2 percentage point, reflecting positive surprises and greater-than-expected resilience in numerous economies,” stated the IMF.
China, Russia, the US, Germany, and Italy are some of the key economies that have seen the most significant upward revisions in their 2023 GDP forecasts. The United Kingdom saw a substantial (almost 1 percentage point) downgrade in its 2023 GDP.
Global inflation has peaked but relief will be slow
Inflation, which destabilised the global economy, is expected to have peaked in 2022 but the disinflation (the fall in inflation rate) will be slow and take all of 2023 and 2024.
“About 84 percent of countries are expected to have lower headline (consumer price index) inflation in 2023 than in 2022. Global inflation is set to fall from 8.8 percent in 2022 (annual average) to 6.6 percent in 2023 and 4.3 percent in 2024––above pre-pandemic (2017–19) levels of about 3.5 percent,” stated the IMF.
Price rise is slowing for two main reasons. One, monetary tightening all across the world — higher interest rates drag down overall demand for goods and services and that, in turn, slows down inflation. Two, in the wake of a faltering demand, prices of different commodities — both fuel and non-fuel — have come down from their recent highs.
In 2023, advanced economies are expected to have an inflation of 4.6% while emerging economies will continue to face an inflation of 8.1%.
India will stay the world’s fastest growing major economy in 2023 and 2024
There’s been no change in India’s growth outlook since October 2022.
“Growth in India is set to decline from 6.8 percent in 2022 to 6.1 percent in 2023 before picking up to 6.8 percent in 2024, with resilient domestic demand despite external headwinds,” states the IMF.
This means India will remain the world’s fastest growing major economy both in 2023 as well as 2024.
India’s GDP growth rate is expected to be significantly higher than all its comparable economies, especially China (which is set to grow at 5.4% in 2023 and 4.5% in 2024).
