Kathmandu, January 31
The International Monetary Fund (IMF) has projected global growth to fall from an estimated 3.4 per cent in 2022 to 2.9 per cent in 2023 and rise to 3.1 per cent in 2024. The forecast for 2023 is 0.2 percentage points higher than the IMF's prediction in October 2022 World Economic Outlook (WEO) but below the historical (2000 to 2019) average of 3.8 per cent with the rise in central bank rates to fight inflation and as the ongoing war in Ukraine continue to weigh on economic activity, as per the updated WEO report.
Negative growth in global GDP or global GDP per capita - which often happens when there is a global recession - is not expected.
For advanced economies, growth is projected to decline sharply from 2.7 per cent in 2022 to 1.2 per cent in 2023 before rising to 1.4 per cent in 2024, with a downward revision of 0.2 percentage points for 2024. About 90 per cent of advanced economies are projected to see a decline in growth in 2023.
For emerging market and developing economies, growth is projected to rise modestly, from 3.9 per cent in 2022 to four per cent in 2023 and 4.2 per cent in 2024, with an upward revision of 0.3 percentage point for 2023 and a downward revision of 0.1 percentage point for 2024.
About half of emerging markets and developing economies are projected to have lower growth in 2023 than in 2022. Growth in emerging and developing Asia is expected to rise in 2023 and 2024 to 5.3 per cent and 5.2 per cent, respectively, after the deeper-than-expected slowdown in 2022 to 4.3 per cent attributable to China's economy. In emerging market and middle-income economies, growth is projected to rise from 3.8 per cent in 2022 to four per cent in 2023 and 4.1 in 2024.
Meanwhile, growth in low-income developing countries is projected to advance to 4.9 per cent in 2022 and 2023 before rising to 5.6 per cent in 2024.
Although the rapid spread of COVID-19 in China dampened growth in 2022, the recent reopening has paved the way for a faster-than-expected recovery, as per the report. However, Russia's war in Ukraine could escalate and severe health outcomes in China could hold back the recovery as tighter global financing conditions could further worsen debt distress and lead financial markets to suddenly reprice in response to adverse inflation news, while further geopolitical fragmentation could hamper economic progress.
According to the report, global inflation is expected to fall from 8.8 per cent in 2022 to 6.6 per cent in 2023 and 4.3 per cent in 2024, still above pre-pandemic (2017-19) levels of about 3.5 per cent. The projected annual average headline and core inflation will, respectively, still be above pre-pandemic levels in 82 per cent and 86 per cent of economies as disinflation takes time.
In advanced economies, annual average inflation is projected to decline from 7.3 per cent in 2022 to 4.6 per cent in 2023 and 2.6 per cent in 2024 - above target in several cases. In emerging markets and developing economies, projected annual inflation declines from 9.9 per cent in 2022 to 8.1 per cent in 2023 and 5.5 per cent in 2024, above the 4.9 per cent pre-pandemic (2017-19) average.
In low-income developing countries, inflation is projected to moderate from 14.2 per cent in 2022 to 8.6 per cent in 2024 - still high, but close to the pre-pandemic average, the IMF report shows.
In most economies, the priority will remain to achieve sustained disinflation amid the cost-of-living crisis. With tighter monetary conditions and lower growth potentially affecting financial and debt stability, the IMF report states that it is necessary to deploy macro-prudential tools and strengthen debt restructuring frameworks, and accelerate COVID-19 vaccinations in China to safeguard the recovery.
Fiscal support should be better targeted at those most affected by elevated food and energy prices, and broad-based fiscal relief measures should be withdrawn alongside stronger multilateral cooperation to preserve the gains from the rules-based multilateral system and to mitigate climate change by limiting emissions and raising green investment.
A version of this article appears in the print on February 1, 2023, of The Himalayan Times.
