The International Monetary Fund (IMF) has revised its growth forecast for the global economy, projecting a 3% expansion in 2023, up from the 2.8% prediction made in April earlier this year. The latest report, titled ‘Near-Term Resilience, Persistent Challenges (July 2023)’, highlights the modest increase in the growth projection for 2023, although the figure remains below historical standards.
According to the IMF, the 0.2 percentage point upgrade for 2023 brings some positivity, but it is crucial to note that the forecast remains significantly lower compared to the historical average of 3.8% observed between 2000 and 2019. The weaker growth is evident in both advanced economies and emerging markets and developing economies.
Advanced economies have been a driving force behind the decline in growth, with manufacturing weakness and idiosyncratic factors offsetting stronger services activity. The growth slowdown is projected to be substantial, dropping from 2.7% in 2022 to 1.5% in 2023 for advanced economies. Approximately 93% of advanced economies are expected to experience lower growth in 2023, with projections indicating growth remaining at 1.4% for 2024 among these economies.
In contrast, emerging markets and developing economies are projected to maintain a relatively stable growth outlook for 2023 and 2024, with slight revisions of 0.1 percentage point for 2023 and -0.1 percentage point for 2024.
The IMF also addresses concerns regarding global headline inflation, expecting a decline from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024. However, the report notes that underlying (core) inflation is expected to decline at a slower pace, and projections for inflation in 2024 have been revised upwards.
Despite the improved forecast, the IMF warns of potential risks that could impact the global economy negatively. Factors such as an escalation in the conflict in Ukraine and extreme weather-related events could lead to further monetary policy tightening and higher inflation rates. Additionally, financial sector turbulence may resume as central banks adjust their policies.
The report acknowledges some upside potential, with inflation possibly falling faster than expected, leading to less restrictive monetary policies. It also suggests that domestic demand might prove to be more resilient in certain economies.
Regarding Nigeria, the IMF maintains its growth projection at 3.2% for 2023, despite projecting a gradual decline due to security issues in the oil sector. For sub-Saharan Africa, economic growth is expected to decrease to 3.5% in 2023 before recovering to 4.1% in 2024, according to the report.
The IMF emphasizes the importance of achieving sustained disinflation while ensuring financial stability for most economies. It calls on central banks to prioritize restoring price stability and strengthening financial supervision and risk monitoring. Additionally, countries are advised to provide liquidity promptly and mitigate the risk of moral hazard. Building fiscal buffers and offering targeted support to vulnerable populations are also encouraged.
In conclusion, the IMF’s latest report points to a slightly brighter outlook for the global economy in 2023, but challenges persist. Policymakers and central banks are urged to remain vigilant and proactive to navigate the uncertain economic landscape and foster sustainable growth.
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