WASHINGTON: The International Monetary Fund (IMF) has slightly upgraded its outlook for world growth this year on the back of resilient service sector activity in the first quarter and a strong labour market, the lender said on Tuesday.

But despite the mildly better economic forecast, growth is expected to slow to three per cent in 2023 and then stay there, held down by weak growth among the world’s advanced economies, the IMF announced in its latest report.

“The global economy continues to gradually recover from the pandemic and Russia’s invasion of Ukraine. But it is not yet out of the woods,” IMF chief economist Pierre-Olivier Gourinchas said during a press conference.

The growth forecast for this year was raised by 0.2 percentage points from the IMF’s last estimate in April, putting the world economy on track for 3pc growth in both 2023 and 2024. This is down from growth of 6.3pc in 2021, and 3.5pc last year, the IMF announced in its update to the World Economic Outlook (WEO).

US on ‘very narrow path’ to avoid recession, says Fund’s chief economist

The IMF said the global inflation picture has improved somewhat, with consumer prices now expected to increase by 6.8 per cent this year, down 0.2 percentage points from April’s forecast. This is largely on account of subdued inflation in China, Daniel Leigh, the head of the IMF’s World Economic Studies division, told reporters on Tuesday.

“This is one of the only countries in the world right now where inflation is below the target rate,” he said, adding that the IMF has revised China’s inflation forecast for the year down sharply to 1.1pc.

US on ‘very narrow path’

On the other hand, the US economy is on a “very narrow path” to avoiding a recession, the chief economist stated.

“A recession is not in our baseline,” Pierre-Olivier Gourinchas told AFP during an interview at the IMF’s headquarters in Washington, ahead of the publication of its updated global growth projections.

“We are cautiously prudent that the US economy could avoid a recession and, you know, glide towards its inflation target without having a recession in its future,” he said.

“But it’s a very, very narrow path,” he warned.

However, the IMF has lifted its outlook for US growth this year to 1.8pc, up 0.2 percentage points from April, citing “resilient consumption growth in the first quarter”. The still-tight labour market in the world’s largest economy “has supported gains in real income and a rebound in vehicle purchases,” the IMF report added.

The fund sees US growth slipping to 1pc next year, as savings accumulated during the pandemic dry up and the economy loses momentum.

As with the April forecast, much of global growth this year is expected to come from emerging market and developing economies (EMDEs) like India and China, with activity in advanced economies predicted to slow substantially this year and next.

The IMF still expects much of the growth this year and next to come from emerging and developing economies, with countries like the United States, Germany and Japan due to grow at a much slower pace than China and India. But the IMF report also noted there are growing risks to China’s economy following its post-pandemic reopening, especially in its troubled real estate sector.

Advanced economies are now anticipated to grow by 1.5pc this year, up 0.2 percentage points from April, and by 1.4 percent in 2024.

Citing positive economic news from the United Kingdom, the IMF has lifted the country’s growth forecast for 2023 to 0.4pc, leaving Germany as the only G7 economy expected to contract this year.

The news is much more positive among the EMDEs, which are forecast to grow by 4.0pc this year, and by 4.1pc next year.

The IMF’s 2023 growth forecast for China remained unchanged at 5.2pc, although it notes there has been a change in composition, with underperformance of investment due to the country’s troubled real estate sector.

Alongside property sector weakness, the IMF said foreign demand remains tepid and warned of rising and elevated youth unemployment, which reached almost 21pc in May.

The IMF lifted India’s 2023 growth prospects to 6.1pc, up 0.2 percentage points from April, citing “momentum from stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment”. The fund now expects Russia’s economy to grow by 1.5pc this year, an upward revision of 0.8 percentage points from April, due to stronger-than-expected economic data fueled by “a large fiscal stimulus”.

Published in Dawn, July 26th, 2023