IMF October Economic Outlook: Global recovery remains slow, with growing regional divergences and little margin for policy error

Autor: Tiberiu Porojan
Timp de citit: 2 minute

Despite economic resilience earlier this year, with a reopening rebound and progress in reducing inflation from last year’s peaks, economic activity still falls short of its prepandemic path, especially in emerging market and developing economies, and there are widening divergences among regions.

Several forces are holding back the recovery, some reflecting the long-term consequences of the pandemic, the war in Ukraine, and increasing geoeconomic fragmentation.

Others are more cyclical in nature, including the effects of monetary policy tightening necessary to reduce inflation, withdrawal of fiscal support amid high debt, and extreme weather events.

According to the newest report from the International Monetary Fund, global growth is forecast to slow from 3.5 percent in 2022 to 3.0 percent in 2023 and 2.9 percent in 2024.

The projections remain below the historical (2000–19) average of 3.8 percent, and the forecast for 2024 is down by 0.1 percentage point from the July 2023 outlook.

For advanced economies, the expected slowdown is from 2.6 percent in 2022 to 1.5 percent in 2023 and 1.4 percent in 2024, amid stronger-than-expected US momentum but weaker-than-expected growth in the euro area.

Emerging market and developing economies are projected to have growth modestly decline, from 4.1 percent in 2022 to 4.0 percent in both 2023 and 2024, with a downward revision of 0.1 percentage point in 2024, reflecting the property sector crisis in China.

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Forecasts for global growth over the medium term, at 3.1 percent, are at their lowest in decades, and prospects for countries to catch up to higher living standards are weak.

Global inflation is forecast to decline steadily, from 8.7 percent in 2022 to 6.9 percent in 2023 and 5.8 percent in 2024. But the forecasts for 2023 and 2024 are revised up by 0.1 percentage point and 0.6 percentage point, respectively, and inflation is not expected to return to target until 2025 in most cases.

Risks to the outlook are more balanced than they were six months ago, on account of the resolution of US debt ceiling tensions and Swiss and US authorities’ having acted decisively to contain financial turbulence.

The likelihood of a hard landing has receded, but the balance of risks to global growth remains tilted to the downside.

China’s property sector crisis could deepen, with global spillovers, particularly for commodity exporters. Elsewhere, near-term inflation expectations have risen and could contribute—along with tight labor markets––to core inflation pressures persisting and requiring higher policy rates than expected.