The International Monetary Fund dimmed its outlook slightly for global growth, but said gradual disinflation is expected in all major economies despite macro uncertainty.
“Global growth will bottom out at 2.8% this year (vs. 2.9% forecast earlier) before rising modestly to 3% in 2024,” the IMF said in its World Economic Outlook released on Tuesday. The U.S. economy is forecast to grow 1.6% this year, up 0.2 percentage points from the IMF’s prior guidance.
The fund raised concerns over sharp policy tightening in the past year that’s starting to have serious side effects for the financial sector. “The stability of any financial system hinges on its ability to absorb losses without recourse to taxpayers’ money,” said Pierre-Olivier Gourinchas, economic counsellor, IMF.
He stressed that a full-blown financial crisis is “not where we are, even if more financial tremors are bound to occur.”
The IMF expects global retail inflation to slow from 8.7% in 2022 to 7% in 2023, 0.4 percentage points higher than its earlier outlook, and 4.9% in 2024.
The fund expects ~76% of economies to see lower headline inflation in 2023, due to declining fuel and nonfuel commodity prices as well as expected cooling effects of monetary tightening. “Returning inflation to target is expected to take until 2025 in most cases,” the IMF warned. “Once inflation rates are back to targets, deeper structural drivers will likely reduce interest rates toward their pre-pandemic levels.”
Growth in the volume of world trade is expected to shrink from 5.1% in 2022 to 2.4% in 2023, echoing a slowdown in global demand. “Rising trade barriers and the lagged effects of U.S. dollar appreciation in 2022 are also expected to weigh on trade growth,” said the IMF.
Note that the World Bank and IMF are holding their spring meetings this week.
Earlier, IMF’s Kristalina Georgieva warned that medium-term prospects for global growth were the weakest since 1990.