China’s Reopening Boosts World Economy: IMF Report
The International Monetary Fund (IMF) recently updated its 2023 global growth outlook, citing “resilient” demand in Europe and the US, as well as China’s recovery from the COVID-19 pandemic. The IMF forecasts that the global growth rate will decrease from 3.4% in 2022 to 2.9% in 2023, although this marks an improvement over its previous estimate of 2.7% growth in 2023. For 2024, the IMF predicts a slight increase in growth to 3.1%, however, this is a slight decrease from its October prediction.
IMF Chief Economist Pierre-Olivier Gourinchas highlighted that the risk of recession has declined, but central banks still need to work towards controlling inflation and remain vigilant to new disruptions such as the ongoing conflict in Ukraine and COVID-19 outbreaks. The IMF predicts that the US will see a growth rate of 1.4% in 2023, higher than its previous prediction, due to strong consumer spending and investment, a robust job market, and strong consumer finances. Europe is also expected to see growth, with the euro zone estimated at 0.7% in 2023, following 3.5% growth in 2022. However, Britain is the only advanced economy predicted to be in a recession this year, with a decline in GDP of 0.6%.
China’s growth outlook has been revised upward to 5.2% in 2023, due to its successful handling of the pandemic, although this growth is expected to decline to 4.5% in 2024 and settle below 4% in the medium term. India’s outlook remains steady with a decrease in growth to 6.1% in 2023, but a rebound to 6.8% in 2024. The IMF predicts that China and India will provide over 50% of global growth in 2023.
While the IMF sees both upside and downside risks to its outlook, it cautions against the more significant downside risks, including further COVID-19 outbreaks in China and a worsening of China’s real estate market. The escalation of conflict in Ukraine could also result in increased energy and food prices, as well as a cold winter in Europe that would lead to increased competition for natural gas supplies. The IMF also warns that a premature easing of financial conditions could result in sudden repricings if core inflation readings do not decrease.
In conclusion, the IMF predicts that growth will decline in 2023, but the outlook has improved over its previous predictions. While there are both upside and downside risks to this outlook, central banks must remain vigilant to maintain control over inflation and prevent overtightening.