An employee works on an LED lighting assembly line in China.
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The International Monetary Fund on Tuesday raised its growth forecast for the global economy, which turned slightly more positive despite a slowing pace from China.
In the latest update to its World Economic Outlook, the IMF raised its global growth forecast for 2023 by 0.2 percentage points to 3%, from 2.8% in its April assessment. The IMF left its growth forecast for 2024 unchanged at 3%.
In terms of inflation, the fund also expects an improvement compared to last year. Headline inflation is expected to reach 6.8% this year, down from 8.7% in 2022. However, core inflation, which strips out volatile items, is falling more slowly to 6% this year from 6.5% last year.
“The global economy continues to gradually recover from the pandemic and the Russian invasion of Ukraine. In the near term, the signs of progress are undeniable,” IMF chief economist Pierre-Olivier Gourinchas said in an accompanying blog post on Tuesday. “However, many challenges still cloud the horizon and it is too early to celebrate,” he added.
The IMF highlighted concerns over tighter credit conditions, depleted US household savings and a shallower-than-expected economic recovery in China following severe Covid-19 restrictions.
“In the United States, excess savings from pandemic-related remittances that helped households weather the cost-of-living crisis and tighter credit conditions are nearly exhausted. In China, the recovery after the reopening of the economy shows signs of losing momentum due to continued concerns about the real estate sector with implications for the global economy,” Gourinchas said.
The US, the world’s largest economy, is expected to grow by 1.8% this year and 1% in 2024, according to the IMF. In China, gross domestic product is falling from 5.2% this year to 4.5% in 2024.
“Continuing weakness in [Chinese] the real estate sector weighs on investment, foreign demand remains weak and rising, and increased youth unemployment to 20.8% in May 2023 suggests weakness in the labor market,” the IMF said in its report. It added that “high-frequency data through June confirm a softening of momentum through the second quarter of 2023.”
Comments follow Chinese stocks rallied on Tuesday on the back of comments by the country’s authorities that they are preparing more stimulus. Beijing is reportedly working on new measures to boost domestic demand, according to Reuters, citing China’s state news agency.
Germany
Among the major European economies, Germany is the only country where the IMF lowered its growth expectations for this year. The fund expects the German economy to contract by 0.3% this year, down 0.2 percentage points from its April forecast. This is due to weaker manufacturing output and lower growth during the first quarter of this year, the IMF said.
Data released on Monday showed that business activity in the eurozone fell faster than expected in July. In Germany, data pointed to an economic contraction, with manufacturing output falling for the third month in a row and at the fastest pace since May 2020.
“This is a bad start to the third quarter for the German economy, with the flash PMI falling into contraction territory. The decline continues to be driven by the manufacturing sector, while the slowdown in service sector growth that started last month has extended into July,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said of the data release.
