The International Monetary Fund has retained its baseline global growth projection for 2023 at 3 per cent – well below the historical average of 3.8 per cent – but has downgraded its forecast for the coming year from 3 per cent to 2.9 per cent.
The 2024 revision is underpinned by weaker growth expectations across emerging markets, now tipped to expand to 4 per cent, down from 4.1 per cent.
Among emerging market economies, China received the sharpest 2024 downgrade, down 0.3 percentage points from 4.5 per cent to 4.2 per cent.
This comes amid fears of a longer-than-anticipated slowdown in the world’s second largest economy after it reported growth of just 0.8 per cent over the second quarter of 2023.
As for global inflation, the IMF said it expects a marked decline from 8.7 per cent in 2022 to 6.9 per cent in 2023, before a further moderation to 5.8 per cent in 2024.
The IMF has projected faster progress towards the inflation target, previously forecasting global headline inflation of 6.8 per cent in 2023 and 5.2 per cent in 2024.
“Core inflation is generally projected to decline more gradually, and inflation is not expected to return to target until 2025 in most cases,” the IMF stated.
“Monetary policy actions and frameworks are key at the current juncture to keep inflation expectations anchored.”
Reflecting on this latest update from the IMF, Ben May, director of global macro research at Oxford Economics, said despite its downgrade to global economic growth in 2024, its forecast “remains higher than consensus”.
He said the organisation’s “more optimistic” view hinges on the resilience of the US economy, which it expects to grow 2.1 per cent in 2023 and 1.5 per cent in 2025.
“We are not convinced,” Mr May said.
“We still expect the lagged impact of past monetary policy tightening, more restrictive fiscal policy, and weaker household savings buffers to trigger a modest contraction in activity in the US around the turn of the year.
“Then, we anticipate the upturn in prospects for the US economy will be mild.”
Mr May said subdued US economic growth would be characterised by three key headwinds:
- The latent impact of an aggressive monetary policy tightening cycle.
- A more conservative fiscal policy.
- Weaker household finances due to fewer “excess savings”.
“What’s more, we also judge the risks to our near-term US forecasts are skewed to the downside,” Mr May added.
“The resumption of student loan payments, the UAW strike, and the threat of a government shutdown could all dampen growth by more than our baseline assumes in Q4.”
Oxford Economics is forecasting world GDP growth of just 2.5 per cent in 2023 (0.5 percentage points lower than the IMF) and just 1.9 per cent in 2024 (1 percentage point below the IMF’s projection).
“A key determinant of whether or not the IMF’s or our own forecasts for growth next year prove more accurate will be the speed at which inflation falls,” Mr May observed.
