IMF’s latest World Economic Outlook update

In News

• The International Monetary Fund (IMF) released the January update of its World Economic Outlook.

About World Economic Outlook

• It presents analyses of global economic developments during the near and medium term. 
• Chapters give an overview as well as a more detailed analysis of the world economy; consider issues affecting industrial countries, developing countries, and economies in transition to market; and address topics of pressing current interest. 
• The IMF releases the WEO twice every year, in April and October, apart from updating it twice — in January and July.

Key takeaways from the latest World Economic Outlook update

• Global growth
  • It projects that global growth will fall to 2.9 percent in 2023 but rise to 3.1 percent in 2024. 
  • The 2023 forecast is 0.2 percentage points higher than predicted in the October 2022 World Economic Outlook but below the historical average of 3.8 percent. Rising interest rates and the war in Ukraine continue to weigh on economic activity. 
• Inflation 
  • Global inflation is expected to fall from 8.8 percent in 2022 to 6.6 percent in 2023 and 4.3 percent in 2024, still above pre-pandemic (2017–19) levels of about 3.5 percent.
  • The price rise is slowing for two main reasons. 
    • monetary tightening all across the world — higher interest rates drag down overall demand for goods and services and that, in turn, slows down inflation.
    • in the wake of faltering demand, prices of different commodities — both fuel and non-fuel — have come down from their recent highs.
• Asia: According to the report, growth in emerging and developing Asia is expected to rise in 2023 and 2024 to 5.3% and 5.2%, respectively, after the deeper-than-expected slowdown in 2022 to 4.3 percent attributable to China’s economy.
• Indian Scenario:  It is expecting some slowdown in the Indian economy next fiscal year and projected the growth to 6.1% from 6.8% during the current fiscal ending March 31.

Concerns 

• Severe health outcomes in China could hold back the recovery, Russia’s war in Ukraine could escalate, and tighter global financing costs could worsen debt distress. 
• Financial markets could also suddenly reprice in response to adverse inflation news, while further geopolitical fragmentation could hamper economic progress.

Recommendations 

• In most economies, amid the cost-of-living crisis, the priority remains achieving sustained disinflation. With tighter monetary conditions and lower growth potentially affecting financial and debt stability, it is necessary to deploy macroprudential tools and strengthen debt restructuring frameworks.
• Accelerating COVID-19 vaccinations in China would safeguard the recovery, with positive cross-border spillovers. 
• 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.
• Stronger multilateral cooperation is essential to preserve the gains from the rules-based multilateral system and to mitigate climate change by limiting emissions and raising green investment.

Source: TH