A man in March 2023 walks past a model of the G20 logo outside the finance ministry in New Delhi, India. The International Monetary Fund (IMF) announced on Thursday that global growth in the first quarter of the year slightly exceeded its April projections. However, recent data has shown a mixed picture, with some areas of resilience alongside signs of slowing momentum. The IMF briefing note for a G20 finance leaders meeting in India highlighted manufacturing weakness across G20 economies and continued weakness in global trade. On the other hand, the demand for services is strong, particularly in the tourism sector, which is experiencing a recovery.
The IMF did not indicate any changes to its April 2023 global GDP growth forecast of 2.8 percent, which is lower than the 3.4 percent growth in 2022. However, the IMF stated that risks are “mostly” tilted to the downside. These risks include the intensification of Russia’s war in Ukraine, stubborn inflation, and potential financial sector stress that could disrupt markets.
The IMF did note that inflation appears to have peaked in 2022, but core inflation remains above targets in most G20 countries. The report suggests that reduced supply chain disruptions and lower demand for goods may result in disinflationary pressures from goods. However, services inflation, which is now the major driver of core inflation, is expected to decline at a slower pace due to strong consumer demand and the shift in spending from goods to services.
Looking ahead, the IMF suggests that there is a possibility of a softer landing for output and labor markets, with activity remaining resilient, inflation falling faster than expected, and labor markets cooling through a decrease in vacancies rather than an increase in unemployment.
In terms of policy recommendations, the IMF advises G20 policymakers to continue their fight against inflation by tightening monetary policy and maintaining real interest rates above neutral until there are clear signs of inflation returning to target levels. However, policymakers should also be vigilant for signs of financial sector stress and be prepared to deploy financial policy tools to contain them. The IMF also suggests that G20 countries need to tighten fiscal policy to ensure debt sustainability and create fiscal space, which can help support disinflation by reducing aggregate demand.
IMF Managing Director Kristalina Georgieva emphasized the importance of completing a review of the IMF’s quota resources to increase their overall size and ensure a fair distribution that reflects the evolving global economy. The IMF is working towards completing this review by December 15, with a focus on increasing the shareholding of major emerging markets like China.
In addition, the IMF warns G20 countries about the risks associated with industrial policy, particularly subsidies, which can distort trade and investment. Examples mentioned include China’s industrial subsidies and subsidies for green energy investment in the United States and the European Union. The IMF suggests that G20 countries should develop common perspectives on the appropriate use of subsidies to improve World Trade Organization rules and avoid a fragmented global economy.
Overall, the IMF’s briefing note highlights the mixed nature of global economic growth, with both pockets of resilience and signs of slowing momentum. Policymakers are advised to continue their efforts to combat inflation while remaining vigilant for financial sector stress. The IMF also emphasizes the importance of fiscal policy tightening and the need to address risks associated with industrial subsidies.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
