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On Tuesday, the International Monetary Fund (IMF) unveiled its most recent World Economic Outlook, adjusting its US growth forecast upwards while anticipating a slower rate of expansion for the euro zone.
Compared to its July update, the IMF increased its projection for US economic growth for the current year by 0.3 %, settling at 2.1%. For the upcoming year, the forecast was raised by 0.5 % to 1.5%.
Conversely, the IMF’s growth prediction for the euro area in 2023 was reduced by 0.2 % to 0.7%, and for 2024, it was cut by 0.3 % to 1.2%.
The upward revision for the US was attributed to robust business investment in Q2, sustained consumer spending in the face of a tight labour market, and a pro-expansion fiscal policy from the government.
However, the IMF also noted that growth is likely to decelerate in the latter half of 2023 and into 2024 due to factors such as slower wage increases, diminishing pandemic-related savings, stringent monetary policy, and rising unemployment.
In the case of the euro zone, the IMF highlighted varying performance among its key economies this year. For instance, Germany’s economy is expected to shrink due to slowing trade and rising interest rates, while France has seen better-than-expected external demand and a recovery in industrial production.
For the United Kingdom, the IMF slightly increased its 2023 growth forecast to 0.5%, but reduced the 2024 projection by 0.4 % to 0.6%, citing the “lingering impacts of the terms-of-trade shock from high energy prices.”
The IMF maintained its global growth estimate at 3% for this year and slightly lowered its 2024 forecast by 0.1 % to 2.9%.
During an interview with CNBC during the organisation’s annual meetings in Marrakech, IMF Chief Economist Pierre-Olivier Gourinchas said, “What we’re seeing is an economy that has been quite resilient given the shocks it has experienced over the last year and a half. The Russian invasion of Ukraine, the energy crisis, and the tightening of monetary policy around the world,”
“What we’re saying also is that 3% is not a global recession, far from it, but it’s also not the kind of growth that we’re used to when looking at the pre-pandemic period, which was more around 3.6, 3.8%. So we characterise this by saying the global economy is kind of limping along, it’s not sprinting right now.”
The IMF report also noted that several factors hindering growth have eased this year, as the World Health Organisation declared that COVID-19 is no longer a global health emergency, supply chains have largely stabilised, and financial volatility in the Swiss and US banking sectors has been contained.
However, challenges still persist, including a manufacturing slowdown, sluggish recovery in some service sectors, and globally coordinated central bank actions to curb inflation.
Lastly, the IMF indicated that China’s economic growth is losing steam following its strict lockdown measures, as the country also grapples with a property crisis. The IMF projects Chinese growth to be 5% this year and 4.2% in the next.