The International Monetary Fund (IMF) published its latest semi-annual World Economic Outlook report in which it raised its outlook for the world economy in 2023, estimating that risks have eased in recent months after the US averted a default and authorities postponed a banking crisis.
“The recent resolution of the US debt ceiling standoff and, earlier this year, strong action by authorities to contain turbulence in US and Swiss banking, reduced the immediate risks of financial sector turmoil,” the IMF said.
“This moderated adverse risks to the outlook.”
Global GDP will grow 3% in 2023, the IMF said in its world Outlook report released Tuesday.
While that’s still a slowdown from 3.5% growth last year, it’s faster than its 2.8% projection in April; for 2024 the IMF sees the risk of a global recession has faded.
Drilling down into the report we find:
- IMF expects the US to grow 1.8% this year, a 0.2% increase from April, before slowing to 1% in 2024.
- China is seen growing 5.2% this year, unchanged from its prior projection. However, it warned that the nation’s recovery following the post-pandemic reopening at the beginning of this year is slowing, in part due to softness in the real estate industry that’s hurting investment, as well as weak foreign demand and rising youth unemployment.
- Curiously, Saudi Arabia is expected to suffer the biggest growth slowdown, as GDP growth tumbles from 8.7% in 2022 to just 1.9%, a 1.2% cut from the last forecast, reflecting a drop in the price of oil and oil-output cuts announced in April and June
- UK GDP forecast was boosted by 0.7% to a 0.4% expansion, on better-than-expected consumption, falling energy prices, lower post-Brexit concerns and a resilient financial sector
- Russia GDP also increased by 0.8% point to 1.5% growth, reflecting a strong first half of the year among retail trade, construction and industrial production, driven by fiscal stimulus
- Brazil GDP was upgraded 1.2% points to a 2.1% expansion after a surge in agricultural output early in the year, which also helped lift activity in services
- Germany is the only country projected to be in recession in 2023 when its GDP contracts 0.3%, compared with a prior forecast for a 0.1% drop, on weak manufacturing output and an economic contraction in the first quarter
Yet despite the modestly more optimistic global view, the IMF warned that prospects for growth look weak compared with the 3.8% average during the two decades prior to the Covid-19 pandemic and that “the balance of risks to global growth remains tilted to the downside.”
According to the DC-based fund, higher interest rates, which are helping to tame inflation, will weigh on activity, something we already saw in the record drop in European loan demand.
Additional shocks like an intensifying of the war in Ukraine and “climate disasters” could spur even more central-bank tightening.