London
CNN
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The global economy is set to weaken this year as rising interest rates and Russia’s war in Ukraine continue to weigh on economic activity. But economists are more optimistic than they were a few months ago.
The International Monetary Fund said on Monday that it now expects global economic growth to slow to 2.9% in 2023 from 3.4% in 2022. That was higher than the 2.7 percent forecast in October.
The upward revision to the outlook reflects China’s “sudden reopening,” which the IMF said “paves the way for a rapid rebound in economic activity.” It also cited the unexpected resilience of many economies in the second half of 2022, as well as an improvement in global financial conditions as inflation begins to moderate and the dollar retreats from its highs.
The European economy barely managed to grow in the fourth quarter of 2022, official data showed on Tuesday.GDP growth in countries using the euro currency was 0.1% compared with the third quarter of this year, alleviating recession fears.
“The outlook is less pessimistic than our October forecast and could represent a turning point, with growth bottoming out and inflation falling,” Pierre-Olivier Gourinchas, director of the IMF’s research department, wrote in a blog post.
Growth this year “will remain weak by historical standards,” the IMF stressed. (From 2000 to 2019, the average annual growth rate was 3.8%.)
Central banks will need to continue their aggressive actions to bring down decades of high inflation, which will lead to a slowdown in economic activity. It predicts that “nine out of 10 advanced economies are likely to slow down”.
In the US, growth is expected to slow from 2% in 2022 to 1.4% in 2023.Europe – its economy has proven surprisingly resilient Economic growth in the 20 countries that use the euro is expected to slow to 0.7 percent from 3.5 percent despite the region’s energy crisis, due in part to a mild winter so far.
The UK is expected to contract by 0.6%. It is the only G7 economy expected to shrink this year. A closely watched survey of executives published last week showed the biggest drop in business activity since the national Covid lockdown two years ago.
Higher interest rates and low consumer confidence have dampened activity in the dominant services sector, while the public sector has been hit by the worst wave of strikes in decades.
Still, the IMF sees an improvement in the global economy appearance. An important reason is China.
Beijing ended its strict “zero-Covid” policy late last year, reopening its borders and ditching a draconian quarantine and testing policy that had hampered growth in the world’s second-largest economy. Its 3% expansion in 2022 is one of the country’s worst performances in decades.
The IMF now forecasts that China’s growth rate will rebound to 5.2% this year, significantly higher than its previous estimate.
Inflation trends are also promising.According to the IMF, “overall measures [are] Now falling in most countries,” even though in many cases price increases for goods and services, excluding food and energy, have yet to peak. Annual Headlines US inflation hit a high in June, while inflation in Europe has been falling since hitting a record high in October.
The IMF forecasts that global inflation will fall from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024. Before the pandemic, that rate was closer to 3.5%.
Meanwhile, emerging market and developing economies have been helped by a pullback in dollar strength since November. A sharp rise in the dollar has made imported commodities, including food and energy, more expensive and raised the cost of paying interest on certain debts.
Risks to the outlook remain high, the IMF warned. China’s recovery could lose steam if future waves of the coronavirus keep people at home, or if the fragile real estate sector slows sharply. Inflation could stay high for longer than the central bank would like, calling for tighter monetary policy. The war in Ukraine remains a major source of uncertainty. The escalation could add to disruptions in food and energy markets.
For now, though, the next 12 months will feel slightly better — Stressing them all at the same time is not easy.
“This time around, the global economic outlook is not worsening,” Gurinchas wrote. “It’s good news, but it’s not enough. The road back to full recovery with sustainable growth, stable prices and progress for all is just beginning.”