IMF cuts forecasts – growth: moderate outlook for global economy

By way of comparison: Wifo and IHS estimate domestic GDP growth of 0.3 percent and 0.5 percent (2023) and of 1.8 percent and 1.4 percent (2024) in their spring forecast at the end of March.

War in Ukraine is slowing down industrialized countries
In any case, the global economy will find a bottom this year, even if the medium-term outlook is subdued. The war in Ukraine is slowing down industrialized countries in particular. India and China in particular are the driving forces worldwide after the People’s Republic eased strict corona restrictions. Germany is one of the few countries that, according to the IMF, will not grow this year. The financial organization that helps countries in need is also concerned about the stability of the financial system.

The sharp rate hikes to combat high inflation since the Russian attack on Ukraine more than a year ago continue to take their toll. According to the IMF’s new World Economic Outlook published in Washington, the US economy is likely to grow by only 1.6 and 1.1 percent in 2023 and 2024. Compared to the previous estimate in January, the IMF is slightly more optimistic, even if values ​​are meager in a long-term comparison. The eurozone is expected to grow by 0.8 and 1.4 percent respectively. The IMF is more pessimistic for Germany and expects a minus of 0.1 percent this year and then an increase of 1.1 percent in 2024. The British economy is also likely to shrink this year, but by 0.3 percent less than in January. feared.

The Chinese economy is picking up again
“Many emerging and developing countries are accelerating,” said Pierre-Olivier Gourinchas, chief economist of the IMF. The IMF believes China can achieve growth rates of 5.2 and 4.5 percent this year and next, following the release of strict corona measures, after just 3.0 percent in 2022. “China’s reopened economy is recovering strongly .” India is likely to rise by 5.9 and 6.3 percent respectively.

According to the IMF, the Russian economy will grow noticeably despite extensive sanctions from the West. The International Monetary Fund forecasts increases of 0.7 and 1.3 percent for this year and next. This means that the January estimate for 2023 has been increased by 0.4 percentage point, but has been reduced by 0.8 percentage point for 2024. Compared to 2022, the prospects for Russia are significantly better. Last year, the Russian economy contracted by 2.1 percent.

The financial sector remains vulnerable
According to the IMF, the most recent bank collapses in the US and Switzerland, which necessitated bailouts by the state and competitors, show how fragile the sector still is. Turbulence is brewing beneath the surface and the situation is quite fragile. This is one of the side effects of the sharp rise in interest rates to curb inflation. In addition, high inflation, driven by higher energy and food prices, remains a problem. The financial sector is too complacent and has repeated structural problems on balance sheets that can lead to liquidity problems. This has recently been shown in Britain and the US, but action by regulators and central banks has prevented worse. There are still “significant weaknesses”. It is in the nature of nervous investors in the stock markets to test and expose these weaknesses. This may have consequences for banks with certain credit risks, interest rate dependencies or short-term refinancing, for example.

If the financial sector has to become more cautious because its own refinancing costs rise, global economic growth could be a further 0.3 point lower in 2023. In an even worse scenario, with suddenly changing financing conditions, global growth could be as little as 1 percent. “We estimate the probability of this to be about 15 percent,” said IMF expert Gourinchas. The global economy as a whole is in a predicament, also because inflation is not yet under control and is still well above central bank targets.