The International Monetary Fund (IMF) has raised its growth forecast for the global economy, signaling increased positivity despite China’s slowing momentum.
In its latest update to the World Economic Outlook, the IMF revised its 2023 global growth prediction to 3%, up by 0.2 percentage points from its April assessment of 2.8%. The forecast for 2024 remains at 3%.
In terms of inflation, the IMF expects improvement compared to the previous year. Headline inflation is projected to reach 6.8% in 2023, down from 8.7% in 2022. However, core inflation, which excludes volatile items, is anticipated to decline more slowly to 6% in 2023, from 6.5% in 2022.
“The global economy continues its gradual recovery from the pandemic and Russia’s invasion of Ukraine. In the near term, we are witnessing undeniable signs of progress,” stated Pierre-Olivier Gourinchas, the IMF’s chief economist, in a blog post accompanying the update. However, he cautioned that challenges still loom and it is premature to celebrate.
The IMF highlighted concerns over tighter credit conditions, reduced household savings in the U.S., and a shallower-than-expected economic rebound in China due to strict Covid-19 lockdowns.
“In the United States, the pandemic-related transfers that assisted households in coping with cost-of-living challenges and tighter credit conditions have been nearly exhausted. In China, the post-reopening economic recovery shows signs of losing steam due to concerns surrounding the property sector, which has implications for the global economy,” warned Gourinchas.
According to the IMF, the U.S., the world’s largest economy, is expected to grow by 1.8% in 2023 and 1% in 2024. In China, gross domestic product (GDP) is forecasted to decline from 5.2% in 2023 to 4.5% in 2024.
“The ongoing weakness in the Chinese real estate sector is weighing on investment, while foreign demand remains weak. Additionally, rising and persistently high youth unemployment, at 20.8% in May 2023, indicates a weakness in the labor market,” stated the IMF in its report. It added that high-frequency data up to June confirms a slowdown in momentum during the second quarter of 2023.
These comments come after Chinese stocks rallied on Tuesday following statements from authorities that they are preparing further stimulus measures. Reports suggest that Beijing is working on initiatives to boost domestic demand, according to China’s state news agency cited by Reuters.
Germany
Among the major economies in Europe, the IMF has reduced its growth expectations for Germany this year. The fund now predicts a contraction of 0.3%, down by 0.2 percentage points from its April forecast. This decline is attributed to weaker manufacturing output and lower growth performance in the first quarter of this year.
Recent data released on Monday revealed a faster-than-expected shrinkage in business activity across the eurozone in July. In Germany, the data indicated an economic contraction, with manufacturing production levels declining for the third consecutive month at the fastest pace since May 2020.
“This unfavorable start to the third quarter for Germany’s economy, marked by the flash PMI entering contraction territory, is primarily driven by the manufacturing sector. Furthermore, the slowdown in services sector growth that began last month has extended into July,” commented Cyrus de la Rubia, the chief economist at the Hamburg Commercial Bank, in response to the data release.
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