IMF’s sober outlook for global economy

The International Monetary Fund (IMF) has projected uncertainty in global economic growth rates in the medium term. According to the IMF’s chief economist, Pierre-Olivier Gourinchas, “You have uncertainty. You have geo-economic fragmentation, low productivity growth, and low demographics. You put all these things together and you have slowdown in medium-term growth.”

As IMF and World Bank meeting comprising financial officials from 190 countries gather at Marrakech, the IMF’s latest World Economic Outlook (WEO), out for September, noted that the prospect of stronger economic growth was dampened by the lingering Covid effect, Russia’s war in Ukraine, economic fragmentation (different regions and different countries are growing at different rates), rising interest rates, lack of governmental support for growth through fiscal stimulus and Russia’s war in Ukraine. The economic impact of the fighting that has emerged between Israel and Hamas in Gaza remains to be assessed as the IMF’s WEO was finalised on September 26.

The IMF sees the US economy growing by 2.1 per cent in 2023, an increase of 0.3 per cent, and by 1.5 per cent next year, an increase of 0.5 per cent. In contrast, China’s growth rate has been projected to be at 5 per cent, a reduction by 0.2 per cent for 2023, and 4.2 per cent in 2024, a reduction of 0.3 percentage point. And the growth for euro area has been cut down by 0.7 per cent in 2023 from 0.9 per cent and 1.2 per cent for 2024 from 1.5 per cent.

The United Kingdom’s growth has been raised to 0.5 per cent by 0.1 percentage point for 2023, but reduced to 0.4 percentage point to 0.6 per cent in 2024. Japan is expected to grow 2 per cent in 2023, and 1 per cent in 2024.

Among the advanced economies, it is only the United States’ growth prospects that look promising. The overall global GDP growth remains at 3 per cent, though the estimate for 2024 has been reduced by 0.1 percentage point to 2.9 per cent from the IMF’s July forecast.

Inflation is declining around the globe, according to the IMF because of falling energy prices and to a lesser extent food prices. Global inflation is expected to drop to 6.9 per cent in 2023 from 8.7 per cent in 2022, and fall further in 2024 to 5.8 per cent. The IMF has also said that global investment is lower than before the epidemic, and there is no appetite among investors for expansion or risk-taking because of rising interest rates.

The IMF is also of the view that as the unemployment rates are low in advanced economies, there is no likelihood of wages pushing up the prices, and higher prices triggering higher wages, and therefore inflation.

The general picture of the global economy as presented by the IMF in its September report is quite grim if not catastrophic. And with the challenge of increasing financial support to tackle climate change, especially in the poor countries, the stress on the resources of a global economy that is chugging slowly will be intense.

But this could also prove to be a game changer if the measures for a green economy can stimulate growth rates, create new jobs and reduce extreme weather events which are causing immense loss of human lives and economic resources. The IMF-WB meeting at Marrakech should also be able to take forward the agenda of reform of these two venerable institutions so that they create new financial resources for supporting poor countries to tackle climate change. With political crises on the rise from the Indo-Pacific to Central Asia to West Asia and to Europe, the global economy cannot remain insulated from the political conflicts and humanitarian crises. The IMF and WB have to do out-of-the-box thinking.