IMF Issues Growth Warning as it Lowers 2023 Forecast

A man carrying bags of vegetables walk through an underpass in Beijing on April 11, 2023. (AFP)
A man carrying bags of vegetables walk through an underpass in Beijing on April 11, 2023. (AFP)
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IMF Issues Growth Warning as it Lowers 2023 Forecast

A man carrying bags of vegetables walk through an underpass in Beijing on April 11, 2023. (AFP)
A man carrying bags of vegetables walk through an underpass in Beijing on April 11, 2023. (AFP)

The International Monetary Fund slightly lowered its outlook for the global economy on Tuesday, while predicting that most countries will avoid a recession this year despite economic worries and geopolitical tension.

Concerns over high inflation, rising geopolitical tension and financial stability all hang over the updated forecasts, with the impact of the war in Ukraine continuing to dampen growth and drive up consumer prices in many countries.

Persistent economic concerns could overshadow plans by the IMF and World Bank to promote an ambitious reform and fundraising agenda at this year's spring meetings.

In its World Economic Outlook (WEO) report, the IMF predicts the global economy will grow by 2.8 percent this year and three percent in 2024, a decline of 0.1 percentage point from its forecasts in January.

The IMF's forecasts for the United States were slightly rosier: the world's largest economy was expected to grow by 1.6 percent in 2023, marginally higher than the previous forecast.

"The global economy remains on track for a gradual recovery from the pandemic and Russia's war in Ukraine," IMF chief economist Pierre-Olivier Gourinchas told a press conference Tuesday, adding that "the massive and synchronized tightening of monetary policy by most central banks" had begun to bring inflation back towards its target.

"At the same time, serious financial stability related downside risks have emerged," he said, referring to the banking turmoil unleashed last month after the dramatic collapse of Californian high-tech lender Silicon Valley Bank.

Advanced economies drag down growth

The overall picture painted by the WEO is gloomy, with global growth forecast to slow in both the short and medium terms.

Close to 90 percent of advanced economies will experience slowing growth this year, while Asia's emerging markets are expected to see a substantial rise in economic output -- with India and China predicted to account for half of all growth, IMF managing director Kristalina Georgieva said last week.

Low-income countries, meanwhile, are expected to suffer a double shock from higher borrowing costs due to high interest rates, and a decline in demand for their exports, Georgieva said. This could worsen poverty and hunger.

The IMF expects global inflation to slow to seven percent this year, down from 8.7 percent last year, according to the WEO forecasts. It is then expected to fall to 4.9 percent in 2024.

Both 2023 and 2024 inflation forecasts were revised upwards, and remain significantly above the two percent target set by the US Federal Reserve and other central banks around the world, suggesting policymakers have a long way to go before inflation is brought back under control.

Germany on brink of recession

While the picture is one of slowing growth, almost all advanced economies are still expected to avoid a recession this year and next.

Alongside growth in the United States, the Euro area is also forecast to grow by 0.8 percent this year, and 1.4 percent next year -- led by Spain, which will see 1.5 percent growth in 2023 and two percent growth in 2024.

But the area's biggest economy, Germany, is now expected to contract by 0.1 percent this year, joining the United Kingdom, the only other G7 country expected to enter recession in 2023.

The picture is more positive among emerging market economies, with China forecast to grow by 5.2 percent this year. But its growth is predicted to slow to 4.5 percent in 2024, as the impact of its reopening from the Covid-19 pandemic fades.

India's economic forecast has been downgraded compared to January, but it is still predicted to grow by 5.9 percent this year and 6.3 percent in 2024, providing some much-needed stimulus to the global economy.

And Russia is now expected to grow by 0.7 percent this year, up 0.3 percentage point on January's forecast, despite its invasion of Ukraine.

Poor productivity saps outlook

Looking forward, the IMF forecasts that global growth will fall to three percent in 2028, its lowest medium-term forecast since the 1990s.

Slowing population growth and the end of the era of economic catch-up by several countries including China and South Korea are a large part of the expected slowdown, as are concerns about low productivity in many countries, according to Daniel Leigh, who heads the World Economic Studies division in the IMF's Research Department.

"A lot of the low hanging fruit was picked," he told reporters ahead of the publication of the World Economic Outlook.

"On top of that now, with the geopolitical tensions and fragmentation, this is going to also weigh on growth," he said.



Firm Dollar Keeps Pound, Euro and Yen Under Pressure

US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/ File Photo
US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/ File Photo
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Firm Dollar Keeps Pound, Euro and Yen Under Pressure

US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/ File Photo
US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/ File Photo

The US dollar charged ahead on Thursday, underpinned by rising Treasury yields, putting the yen, sterling and euro under pressure near multi-month lows amid the shifting threat of tariffs.

The focus for markets in 2025 has been on US President-elect Donald Trump's agenda as he steps back into the White House on Jan. 20, with analysts expecting his policies to both bolster growth and add to price pressures, according to Reuters.

CNN on Wednesday reported that Trump is considering declaring a national economic emergency to provide legal justification for a series of universal tariffs on allies and adversaries. On Monday, the Washington Post said Trump was looking at more nuanced tariffs, which he later denied.

Concerns that policies introduced by the Trump administration could reignite inflation has led bond yields higher, with the yield on the benchmark 10-year US Treasury note hitting 4.73% on Wednesday, its highest since April 25. It was at 4.6709% on Thursday.

"Trump's shifting narrative on tariffs has undoubtedly had an effect on USD. It seems this capriciousness is something markets will have to adapt to over the coming four years," said Kieran Williams, head of Asia FX at InTouch Capital Markets.

The bond market selloff has left the dollar standing tall and casting a shadow on the currency market.

Among the most affected was the pound, which was headed for its biggest three-day drop in nearly two years.

Sterling slid to $1.2239 on Thursday, its weakest since November 2023, even as British government bond yields hit multi-year highs.

Ordinarily, higher gilt yields would support the pound, but not in this case.

The sell-off in UK government bond markets resumed on Thursday, with 10-year and 30-year gilt yields jumping again in early trading, as confidence in Britain's fiscal outlook deteriorates.

"Such a simultaneous sell-off in currency and bonds is rather unusual for a G10 country," said Michael Pfister, FX analyst at Commerzbank.

"It seems to be the culmination of a development that began several months ago. The new Labour government's approval ratings are at record lows just a few months after the election, and business and consumer sentiment is severely depressed."

Sterling was last down about 0.69% at $1.2282.

The euro also eased, albeit less than the pound, to $1.0302, lurking close to the two-year low it hit last week as investors remain worried the single currency may fall to the key $1 mark this year due to tariff uncertainties.

The yen hovered near the key 160 per dollar mark that led to Tokyo intervening in the market last July, after it touched a near six-month low of 158.55 on Wednesday.

Though it strengthened a bit on the day and was last at 158.15 per dollar. That all left the dollar index, which measures the US currency against six other units, up 0.15% and at 109.18, just shy of the two-year high it touched last week.

Also in the mix were the Federal Reserve minutes of its December meeting, released on Wednesday, which showed the central bank flagged new inflation concerns and officials saw a rising risk the incoming administration's plans may slow economic growth and raise unemployment.

With US markets closed on Thursday, the spotlight will be on Friday's payrolls report as investors parse through data to gauge when the Fed will next cut rates.