The global economic outlook has brightened slightly as China eases its zero-COVID policy and the world shows remarkable resilience in the face of high inflation, high interest rates and Russia’s ongoing war against Ukraine.
That is the opinion of the International Monetary Fund, which now expects the world economy to grow by 2.9% this year. The forecast is better than the 2.7% expansion for 2023 that the IMF predicted in October, although it is down from the estimated 3.4% growth in 2022.
The IMF, the 190-nation lending organization, expects inflation to fall this year, as a result of aggressive interest rate hikes by the Federal Reserve and other major central banks. The rate hike is expected to reduce consumer demand leading to higher prices. Globally, the IMF expects consumer inflation to decline from 8.8% last year to 6.6% in 2023 and 4.3% in 2024.
A big factor in boosting global growth was China’s decision late last year to lift anti-virus controls that kept millions at home. The IMF said China’s “recent reopening has paved the way for a faster-than-expected recovery.”
The IMF now expects China’s economy – the world’s second largest, after the United States – to grow 5.2% this year, up from an October forecast of 4.4%. Beijing’s economy is expected to grow by just 3% in 2022 – the first year in more than 40, the IMF notes, that China has grown more slowly than the rest of the world. But the end of virus restrictions is expected to revive economic activity in 2023.
The IMF’s 2023 growth outlook has improved for the United States (forecast to grow 1.4%) as well as for the 19 countries that share the euro currency (0.7%). Europe, though suffering from energy shortages and higher prices as a result of the Russian invasion of Ukraine, proved “more resistant than expected,” the IMF said. Europe’s economy benefited from a warmer-than-expected winter, which reduced demand for natural gas,
The Russian economy, subject to sanctions after entering Ukraine, has proven sturdier than expected, too: The IMF forecast foresees Russia registering 0.3% growth this year. This would mark an improvement from the 2.2% contraction in 2022. And higher than the 2.3% contraction for 2023 that the IMF predicted for Russia in October.
The UK is a notable exception to the IMF’s brighter outlook for 2023. It has estimated that the UK economy will shrink by 0.6% in 2023; in October, the IMF has expected growth of 0.3%. Higher interest rates and tighter government budgets are choking the UK economy.
“These figures confirm that we are not immune to the pressures that almost all advanced economies face,” Chancellor of the Exchequer Jeremy Hunt said in response to the IMF forecast. “Short-term challenges should not obscure our long-term prospects – the UK exceeded many forecasts last year, and if we stick to our plans to reduce inflation, the UK is still predicted to grow faster than Germany and Japan in the coming years.”
The IMF notes that the world economy is still facing serous risks. They include the possibility that Russia’s war against Ukraine will escalate, China will suffer an increase in COVID cases and high interest rates will lead to a financial crisis in debt-laden countries.
The global outlook has been shrouded in uncertainty since the coronavirus pandemic hit in early 2020. Forecasters have repeatedly been baffled by the prospect of: A severe recession if there is one in early 2020; a supposedly strong recovery fueled by massive government stimulus aid; then increase in inflation, worsened when the Russian invasion of Ukraine almost a year ago disrupted world trade in energy and food.
Three weeks ago, the IMF’s sister agency, the World Bank, issued a more bleak outlook for the global economy. The World Bank cut its forecast for international growth this year by almost half – to 1.7% – and warned that the global economy is “very close” to recession.
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