Global economic outlook a bit ‘less bleak’, Europe continues to grow

Julia Horowitz, CNN

The global economy will weaken this year as rising interest rates and Russia’s war in Ukraine continue to dampen activity. But economists are more optimistic than just a few months ago.

The International Monetary Fund said on Monday that it now expects global growth to slow from 3.4% in 2022 to 2.9% in 2023. This is higher than the forecast of 2.7% in October.

The upgrade reflects the “sudden opening of China” which the IMF says “is paving the way for a rapid recovery in activity.” It also cites the unexpected resilience of many economies in the second half of 2022, as well as the improvement in global financial conditions as inflation begins to ease and the US dollar falls from highs.

Official data released on Tuesday showed that the European economy managed to grow in the fourth quarter of 2022. GDP growth in countries using the euro was 0.1% compared to the third quarter of the year, easing fears of a recession. The annual growth rate for 2022 was 3.5%, which is estimated to be stronger than in the US or China.

“The outlook is less bleak than our October forecast and could represent a turning point with economic growth bottoming out and inflation falling,” Pierre-Olivier Gurinsha, IMF research director, wrote in a blog post.

The IMF stressed that growth this year “remains weak by historical standards.” (The annual average was 3.8% between 2000 and 2019).

Central banks will need to continue their aggressive campaign to bring down inflation, which has been high in recent decades, leading to a slowdown in economic activity. He predicted that “nine out of ten advanced economies are likely to decline.”

In the United States, growth is expected to slow from 2% in 2022 to 1.4% in 2023. Europe, whose economy has proved remarkably resilient despite the energy crisis in the region, due in part to a so far mild winter, growth among the 20 euro-using countries is forecast to ease from 3.5% to 0.7%.

UK outlook worsens

The United Kingdom is expected to contract by 0.6%. It is the only G7 economy that is projected to contract this year. A thorough survey of executives released last week showed the sharpest decline in business activity since the nation’s lockdown two years ago.

Higher interest rates and weak consumer confidence are dampening activity in the dominant services sector, while the public sector has been hit by the worst wave of strikes in decades.

However, the IMF sees some improvement in the global worldview. The main reason is China.

Beijing ended its strict “zero Covid” policy late last year, reopening its borders and abandoning the tight lockdown and testing policies that have stifled growth in the world’s second-largest economy. Its 3 percent growth in 2022 was one of the country’s worst performances in decades.

The IMF now projects that growth in China will rebound to 5.2% this year, notably higher than its previous estimate.

Inflationary trends are also encouraging. The IMF noted that “general measures [are] is currently declining in most countries,” even though price increases for goods and services, with the exception of food and energy, have in many cases not yet peaked. Header of the annual Inflation in the US peaked in June, while inflation in Europe has declined since October, when it hit a record high.

According to IMF forecasts, global inflation will decrease from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024. Before the pandemic, it was about 3.5%.

Meanwhile, the depreciation of the US dollar since November has helped emerging market and developing economies. The surge in the dollar has made it more expensive to import goods, including food and energy, and has raised the cost of paying interest on some debt.

The IMF warned that risks to the outlook remain significant. China’s recovery could slow if future waves of the coronavirus keep people at home or the vulnerability of the real estate sector slows sharply. Inflation could remain high for longer than central banks would like, requiring tighter monetary policy. The war in Ukraine remains a key source of uncertainty. Escalation could exacerbate disruptions in food and energy markets.

For now, however, he is feeling slightly better over the next 12 months – while emphasizing that they will not be easy.

“This time around, the global economic outlook has not worsened,” Gurinshas wrote. “That’s good news, but it’s not enough. The road back to a full recovery with strong growth, stable prices and progress for all is just beginning.”

The-CNN-Wire
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The post-World Economic Outlook is a bit “less bleak”, with Europe on the rise, first appearing on KION546.

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