IG news Update,
WASHINGTON (AP) – The outlook for the global economy is brightening a bit as China eases its zero-COVID policies and the world prepares for a surprising turn of events in the face of high inflation, high interest rates and Russia’s ongoing war against Ukraine. Shows flexibility.
That is the view of the International Monetary Fund, which now expects the world economy to grow by 2.9% this year. This forecast is better than the 2.7% expansion for 2023 the IMF predicted in October, though less than the 3.4% growth projected in 2022.
The IMF, a 190-country lending organization, expects inflation to moderate this year, the result of aggressive interest rate hikes by the Federal Reserve and other major central banks. Those rate hikes are expected to slow consumer demand, leading to a rise in prices. Globally, the IMF expects consumer inflation to fall from 8.8% last year to 6.6% in 2023 and 4.3% in 2024.
“Global conditions have improved with easing inflation pressures,” Pierre-Olivier Gaurinchas, IMF chief economist, told a news conference in Singapore. “The road to a full recovery with sustainable growth, stable prices and progress for all has just begun.”
A big factor in the upgrade to global growth was China’s decision late last year to lift anti-virus controls that have kept millions at home. The IMF said China’s “recent reopening has paved the way for a faster-than-expected recovery.”
The IMF now expects China’s economy – the world’s second largest after the United States’ – to grow 5.2% this year, up from its October forecast of 4.4%. Beijing’s economy projects growth of just 3% in 2022 – the first year in more than 40, the IMF said, that China expanded more slowly than the rest of the world. But activity is expected to resume in 2023 with the end of virus restrictions.
According to Gorinchas, China and India together should contribute half of this year’s global growth, while the United States and Europe account for 10% each.
“The reopening of China is definitely a favorable factor that’s going to lead to more activity,” Gourinchas said. “But this is in a context in which the global economy itself is slowing down.”
The IMF’s 2023 growth outlook has improved for the United States (projected to grow 1.4%) as well as for the 19 countries that share the euro currency (0.7%). The IMF said Europe, although suffering from energy shortages and high prices as a result of Russia’s invasion of Ukraine, proved “more resilient than expected”. The European economy benefited from a warmer-than-expected winter, which reduced demand for natural gas,
Russia’s economy, hit by sanctions following its invasion of Ukraine, has also proved stronger than expected: the IMF estimates Russia will post 0.3% growth this year. This would mark an improvement from the 2.2% contraction in 2022. And that’s well above the 2.3% contraction for 2023 that the IMF forecast for Russia in October.
The United Kingdom is a notable exception to the IMF’s bright outlook for 2023. It has forecast that its economy will shrink by 0.6% in 2023; In October, the IMF had expected growth of 0.3%. High interest rates and tighter government budgets are squeezing the British economy.
Responding to the IMF forecast, Chancellor of the Exchequer Jeremy Hunt said, “These figures confirm that we are not immune to the pressures facing almost all advanced economies.” “Short-term challenges should not obscure our long-term prospects – the UK outperformed many forecast last year, and if we stick to our plan to halve inflation, the UK will still be ahead of Germany and Japan in the coming years to grow faster than predicted.”
The IMF said that the world economy still faces serious risks. They include the possibility that Russia’s war against Ukraine will intensify, that China will face a sharp increase in COVID cases and that higher interest rates will lead to a financial crisis in debt-ridden countries.
Asked about the impact of U.S. efforts to limit Chinese access to advanced processor chip technology due to security concerns, Gouryinchas cautioned that restrictions on semiconductor trade and government pressure are likely to pull industries back within their borders and rely on foreign partners. To limit the dependency “could potentially happen. Harmful to the global economy. ,
“Rather than moving to re-shoring or ‘friend shoring’, diversification of supply chains is more important in trying to improve resilience, improve growth, improve quality of life,” Gaurinchas said.
The global outlook has been shrouded in uncertainty since the outbreak of the coronavirus pandemic in early 2020. Forecasters have been confounded by repeated events: a severe if brief recession in early 2020; strong recovery expected to be fueled by huge government stimulus; Inflation then increased when Russia’s invasion of Ukraine nearly a year earlier disrupted world trade in energy and food.
Three weeks ago, the World Bank, a sister agency of the IMF, issued a more bearish outlook for the global economy. The World Bank slashed its forecast for international growth this year by almost half – to 1.7% – and warned that the global economy would come “dangerously close” to recession.
AP Business Writer Joe McDonald in Beijing and AP Writer Danica Kirka in London contributed to this report.
Paul Wiseman, The Associated Press
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