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The global economy is poised to slow this year, before rebounding next year. Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity.
Despite these headwinds, the outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining.
Economic growth proved surprisingly resilient in the third quarter of last year, with strong labour markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe.
Inflation, too, showed improvement, with overall measures now decreasing in most countries — even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.
Elsewhere, China’s sudden re-opening paves the way for a rapid rebound in activity. And global financial conditions have improved as inflation pressures started to abate.
This, and a weakening of the US dollar from its November high, provided some modest relief to emerging and developing countries.
Accordingly, we have slightly increased our 2022 and 2023 growth forecasts. Global growth will slow from 3,4 percent in 2022 to 2,9 percent in 2023 then rebound to 3,1 percent in 2024.
For advanced economies, the slowdown will be more pronounced, with a decline from 2,7 percent last year to 1,2 percent and 1,4 percent this year and next.
Nine out of 10 advanced economies will likely decelerate.
US growth will slow to 1,4 percent in 2023 as Federal Reserve interest-rate hikes work their way through the economy. Euro area conditions are more challenging despite signs of resilience to the energy crisis, a mild winter, and generous fiscal support.
With the European Central Bank tightening monetary policy, and a negative terms-of-trade shock — due to the increase in the price of its imported energy — we expect growth to bottom out at 0,7 percent this year.
Emerging market and developing economies have already bottomed out as a group, with growth expected to rise modestly to 4 percent and 4,2 percent this year and next.
The restrictions and Covid-19 outbreaks in China dampened activity last year. With the economy now re-opened, we see growth rebounding to 5,2 percent this year as activity and mobility recover.
India remains a bright spot. Together with China, it will account for half of global growth this year, versus just a tenth for the US and euro area combined.
Global inflation is expected to decline this year but even by 2024, projected average annual headline and core inflation will still be above pre-pandemic levels in more than 80 percent of countries. — IMF.org.
Online Reporter