IMF projects slow global growth amid ongoing challenges

The International Monetary Fund (IMF) has issued a sobering projection, stating that global growth is expected to remain at a sluggish 3.0 per cent in 2023 and further decline to 2.9 per cent in 2024. According to the IMF report, this forecast, disclosed in the latest World Economic Outlook, reflects one of the lowest growth rates in decades. The global economy continues to grapple with multiple shocks and the rising cost of living.

IMF posed on X, "Global growth will remain slow at 3.0 per cent in 2023 and 2.9 per cent in 2024. The growth forecast is the lowest in decades as the global economy continues to recover from multiple shocks and the cost-of-living crisis.  The IMF's "Navigating Global Divergences" report for October 2023 underlines the challenges faced in achieving substantial economic recovery on a global scale. The baseline forecast anticipates a slowdown in global growth from 3.5 per cent in 2022 to 3.0 per cent in 2023 and 2.9 per cent in 2024, a notable dip below the historical average of 3.8 per cent recorded between 2000 and 2019.

Advanced economies are also anticipated to experience a decline, dropping from 2.6 per cent growth in 2022 to 1.5 per cent in 2023 and 1.4 per cent in 2024. This is attributed to the effects of policy tightening to curb inflation. Emerging markets and developing economies are likely to witness a slight decrease in growth from 4.1 per cent in 2022 to 4.0 per cent in both 2023 and 2024.
The report indicates that global inflation is expected to gradually decrease, declining from 8.7 per cent in 2022 to 6.9 per cent in 2023 and 5.8 per cent in 2024.

This decline is influenced by tighter monetary policies and lower international commodity prices. However, core inflation is projected to decrease at a slower pace, with a return to target inflation not expected until 2025 in most cases. According to the IMF, a key focus should be on monetary policy actions and frameworks to anchor inflation expectations. In addition, the report underscores the importance of effective communication strategies to manage inflation expectations among different stakeholders.

The IMF report also highlights the potential disruptions to global trade in commodities due to increasing concerns about geo-economic fragmentation. It emphasizes the impact such disruptions could have on commodity prices, economic activity, and the green energy transition. Despite the relative resilience displayed in the global economy, primarily during the earlier stages of recovery, it is essential to remain cautious. Economic activity still falls short of pre-pandemic levels, particularly in emerging market and developing economies, with disparities widening between regions.

Several factors continue to hinder a robust recovery, including the persistent effects of the pandemic, the Ukraine conflict, geo-economic fragmentation, cyclical factors related to monetary policy tightening, withdrawal of fiscal support, and extreme weather events. While the likelihood of a hard landing has decreased, risks to global growth persist, with China's property sector crisis and spill over effects on commodity exporters being of particular concern.

Additionally, rising near-term inflation expectations and tight labour markets could result in core inflation pressures that require higher-than-expected policy rates. Climate and geopolitical shocks also pose risks, potentially leading to food and energy price spikes. The IMF suggests that effective policies, coordination, and structural reforms are essential to navigate these challenges successfully. To achieve a robust and sustainable recovery, addressing both cyclical and structural challenges is imperative.