Global Economy Resilient Amid Threats
The global economy shows resilience despite inflation and China’s slow recovery, IMF stated, increasing hopes to avoid a global recession unless unexpected crises arise. The latest World Economic Outlook’s optimism boosts confidence in containing inflation without severe economic damage.
However, global growth has remained modest historically, with lingering risks. IMF’s chief economist Pierre-Olivier Gourinchas highlighted ongoing recovery but cautioned against being complacent. IMF raised the 2023 global growth forecast to 3% from 2.8%, predicting reduced inflation and higher interest rates effects.
Global Economy Resilient Amid Threats: The improved outlook
The improved outlook owes much to stabilized financial markets following major bank collapses and Congress preventing financial risks by raising the U.S. borrowing cap. The I.M.F.’s new data coincides with expectations of a Federal Reserve interest rate increase, reflecting a shift from near-zero rates to 5% – 5.25%. The Fed aims to curb inflation while avoiding economic harm and assesses the impact of approved borrowing cost increases.
Amid ongoing inflation challenges, the I.M.F. urged central banks to prioritize price stability and financial oversight. Despite hopes for receding inflation, Mr. Gourinchas highlighted the challenge of policy execution. He stressed avoiding monetary easing until underlying inflation shows sustained cooling.
Global Economy Resilient Amid Threats: another 2023 rate hike
Fed’s July rate decision is followed by a news conference with Jerome H. Powell. Officials previously hinted at another 2023 rate hike. IMF predicts U.S. growth to decline: 1.8% in 2023, and 1% in 2024, due to waning consumption and rising rates. Eurozone growth at 0.9% this year, with ECB expected to raise rates. The weak economic outlook suggests ECB could pause rate hikes. Eurozone’s economic activity index dropped in July, manufacturing contracted, and services slowed.
Next week, the Bank of England to raise rates 14th time in a bid to curb UK inflation; June saw prices surge 7.9% YoY. UK has defied IMF projections, avoiding a recession, yet challenges persist in inflation due to the tight labor market driving wages up; high-interest rates concern households with mortgage reset cycles.
China’s slower-than-expected recovery affects global output. IMF cites real estate contraction, weak consumption, and low consumer confidence as China’s worrisome outlook. China’s economy slowed this spring, exports fell, real estate slump deepened, and some local governments cut spending due to financial constraints.
Mr. Gourinchas views China’s property sector confidence restoration measures positively, suggesting targeted family support to boost confidence and consumption.
The I.M.F. report
Despite some reasons for optimism, the I.M.F. report emphasizes that the global economy is not yet out of danger.
The ongoing conflict between Russia and Ukraine remains a looming threat that could lead to higher global food and energy prices. The recent termination of an agreement allowing Ukrainian grain exports could worsen the situation. The I.M.F. predicts that this termination might cause grain prices to increase by up to 15 percent.
The report highlights the potential for the war in Ukraine to escalate, leading to elevated costs for food, fuel, and fertilizers. The suspension of the Black Sea Grain Initiative is noted as a concerning development in this context.
The I.M.F. also reiterates its warning against allowing conflicts like the Ukraine war and other geopolitical tensions to further fragment the global economy. Such developments could result in increased volatility in commodity prices and hinder international cooperation in providing global public goods, as per the I.M.F.’s assessment.
Read the original article on nytimes.
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