The International Monetary Fund (IMF) has released its latest World Economic Outlook report, which forecasts a moderate slowdown in global economic activity in 2023. The report projects that the world economy will grow by 3% this year, down from 3.6% in 2022, but still above the historical average of 2.8%. The IMF attributes the deceleration to the fading effects of fiscal stimulus, supply chain disruptions, and persistent inflation pressures in some countries.
Emerging market and developing economies are projected to have a modest decline in growth from 4.1 percent in 2022 to 4.0 percent in both 2023 and 2024. 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, due to tighter monetary policy aided by lower international commodity prices. Core inflation is generally projected to decline more gradually, and inflation is not expected to return to target until 2025 in most cases.
Monetary policy actions and frameworks are key at the current juncture to keep inflation expectations anchored. Chapter 2 documents recent trends in inflation expectations at near- and medium-term horizons and across agents. It emphasizes the complementary role of monetary policy frameworks, including communication strategies, in helping achieve disinflation at a lower cost to output through managing agents’ inflation expectations. Given increasing concerns about geoeconomic fragmentation, Chapter 3 assesses how disruptions to global trade in commodities can affect commodity prices, economic activity, and the green energy transition.
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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.
Amid rising debt service costs, more than half of low-income developing countries are in or at high risk of debt distress. There is little margin for error on the policy front. Central banks need to restore price stability while using policy tools to relieve potential financial stress when needed.
However, the report also highlights some positive developments, such as the widespread availability of vaccines, the resilience of consumer spending, and the recovery of trade and investment. The IMF expects that these factors will help prevent a sharp downturn or a prolonged stagnation in the global economy.
The report also analyzes the risks and challenges facing the global economic outlook, such as the uncertainty surrounding the evolution of the COVID-19 pandemic, the divergence in policy responses and economic performance across regions, and the potential spillovers from financial market volatility and geopolitical tensions.
The IMF urges policymakers to adopt a balanced and coordinated approach to address these issues, while also advancing structural reforms and strengthening multilateral cooperation. The report emphasizes that achieving a more inclusive, sustainable, and resilient growth path will require addressing long-standing challenges such as climate change, inequality, and digitalization.
The global recovery from the COVID-19 pandemic and Russia’s invasion of Ukraine remains slow and uneven. Despite economic resilience earlier this year, with a reopening rebound and progress in reducing inflation from last year’s peaks, it is too soon to take comfort. Economic activity still falls short of its pre-pandemic path, especially in emerging markets and developing economies, and there are widening divergences among regions.
Several forces are holding back the recovery. Some reflect 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.
The World Economic Outlook is a semiannual publication that provides analysis and projections of the global economy and its major regions. The report is based on data and information available as of October 10, 2023.