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IMF predicts modest global growth, slowly receding inflation

April 11, 2023

The International Monetary Fund said most countries would avoid a recession in 2023, but again forecast some of the slowest global growth in decades. "Inflation's return to target is unlikely before 2025," it said.

A view of the sign for the 2023 Spring Meetings of the World Bank/International Monetary Fund in Washington
The International Monetary Fund has downgraded its economic forecast for 2023Image: Celal Gunes/AA/picture alliance

The International Monetary Fund (IMF) on Tuesday warned that financial turmoil in 2023 could limit economic growth.

"Serious financial stability related downside risks have emerged," IMF chief economist Pierre-Oliver Gourinchas told a press conference on Tuesday.

The organization predicted that most countries would avoid a recession this year despite the volatility.

The IMF is launching spring meetings alongside the World Bank this week in Washington.

"A rocky recovery" was the name given to the April 2023 edition of its quarterly World Economic Outlook published on Tuesday. 

What were the forecasts?

The IMF is forecasting global real GDP growth at 2.8% for 2023 and 3.0% for 2024, down from 3.4% in 2022. This is one percentage point less than the estimates made by the Fund in January.

The organization changed its forecast due to weaker performances in some large economies and expected monetary tightening as a reaction to inflation.

IMF managing director Kristalina Georgieva said in a speech last week that the medium term growth forecasts were flatter than they had been since the 1990s.

As usual, growth in developed economies was predicted to be lower than in developing markets. 

It forecast headline inflation of 7.0% this year, down from 8.7%, and predicted a further dip to 4.9% globally in 2024. 

"Inflation's return to target is unlikely before 2025 in most cases," it said. Most countries target inflation in the region of 2%.

The IMF's chief economist Gourinchas also warned that the figures were flattering and that core underlying inflation, more directly felt by consumers, was generally higher.

"Monetary policy needs to stay focused on price stability," Gourinchas said, seemingly encouraging central banks not to dip interest rates too soon.

"The global economy remains on track for a gradual recovery from the pandemic and Russia's war in Ukraine," he said, adding that increasing interest rates and reduced money printing by the world's central banks had had a dampening effect on inflation.

What did the IMF say about the bank failures?

The IMF said in its latest World Economic Outlook report that banking contagion risks following the failures of two US regional banks and the forced merger of Credit Suisse had been contained by policy actions.

However, there continued to be economic "volatility," according to the Fund.

"With the recent increase in financial market volatility, the fog around the world economic outlook has thickened," the IMF said. "Uncertainty is high and the balance of risks has shifted firmly to the downside so long as the financial sector remains unsettled," the Fund added.

The IMF is forecasting global real GDP growth at 2.8% for 2023 and 3.0% for 2024, down from 3.4% in 2022. This is one percentage point less than the estimates made by the Fund in January.

World Bank's Yellen says pessimism overblown

US Treasury Secretary Janet Yellen said she was optimistic about the outlook as many eocnomies were showing resilience.

"I wouldn't overdo the negativism about the global economy," Yellen said. "I think the outlook is reasonably bright."

The IMF and World Bank are holding their Spring Meetings all week, and Yellen has wants to explore an expanded role for the World Bank's development lending projects. 

The US Treasury said in a statement that the talks woud look at "ways to maintain momentum to evolve the multilateral development banks to better meet current challenges." 

The Bank proposed balance sheet changes it said would allow it to lend more money while still maintaining its AAA credit rating in future. It estimated this could free up as much as $50 billion over a 10-year period.

Officials also mooted a desire to involve private stakeholders in the bank's operations — currently it's loans are effectively underwritten by governments and taxpayers.

sdi/msh (Reuters, AFP)