## FOREWORD ## Source details **Canonical URL:** [FOREWORD](https://www.imf.org/-/media/files/publications/weo/2023/october/english/foreword.pdf) ## Other formats - [Markdown version](/-/media/files/publications/weo/2023/october/english/foreword.pdf.md) - [Structured JSON version](/-/media/files/publications/weo/2023/october/english/foreword.pdf.json) --- ### Overall assessment - The global economy continues to recover slowly from the pandemic, Russia’s invasion of Ukraine, and the cost-of-living crisis; resilience has been remarkable but growth remains slow and uneven. - The global economy is described as "limping along, not sprinting." ### Recent projections and inflation - Global growth projections: global growth will slow from 3.5 percent in 2022 to 3 percent this year and 2.9 percent next year; this is a 0.1 percentage point downgrade for 2024 from the July projections. - Headline inflation (year-over-year): 9.2 percent in 2022, 5.9 percent this year, and 4.8 percent in 2024. - Core inflation (excluding food and energy): projected to decline to 4.5 percent in 2024. - US labor market projection: unemployment forecast increase from 3.6 to 3.9 percent by 2025. - Projections are increasingly consistent with a "soft landing" scenario—bringing inflation down without a major downturn in activity, especially in the United States. ### Divergences and three global forces shaping outcomes - Divergences: slowdown more pronounced in advanced economies than in emerging market and developing economies; within advanced economies the US showed upside surprise while euro area activity was revised downward; many emerging markets surprised on the upside except China. - Force 1 — Services recovery and inflation: recovery in services is almost complete; strong demand for services supported service-oriented economies (e.g., France and Spain) relative to manufacturing powerhouses (e.g., China and Germany); high demand for labor-intensive services led to tighter labor markets and higher, more persistent services inflation; services activity is now weakening alongside a persistent manufacturing slowdown, suggesting services inflation will decrease in 2024 and labor markets and activity will soften. - Force 2 — Monetary tightening transmission: tighter monetary policy needed to bring inflation down is starting to bite unevenly across countries; tighter credit conditions weigh on housing markets, investment, and activity, especially in countries with a higher share of adjustable-rate mortgages or where households are less willing or able to dip into savings; firm bankruptcies have increased in the US and the euro area, though from historically low levels; countries are at different points in their hiking cycles—advanced economies (except Japan) are near the peak, while some emerging market economies, such as Brazil and Chile, have already started easing. - Force 3 — Commodity price shock incidence: economies dependent on Russian energy imports experienced steeper energy price increases and sharper slowdowns; pass-through from higher energy prices played a large role in driving core inflation upward in the euro area, unlike in the United States where core inflation pressures reflect a tight labor market. ### Labor markets and wages - Labor markets in advanced economies remain buoyant with historically low unemployment rates supporting activity. - Little evidence so far of a "wage-price spiral"; real wages remain below prepandemic levels. - Many countries experienced a sharp compression in the wage distribution; some compression reflects higher amenity value of flexible and remote work for high earners, reducing wage pressures for that group. ### Risks (balance tilted to the downside) - China real estate risk: real estate crisis could deepen, posing complex policy challenges—restructuring struggling developers, preserving financial stability, addressing local public finance strains; rapid real estate price declines could worsen bank and household balance sheets and cause financial amplification; artificially propping prices could crowd out other investment, reduce new construction, and harm local government revenues. - Commodity price volatility: since June, oil prices have increased by about 25 percent due to extended OPEC+ supply cuts; food prices remain elevated and could be disrupted by an escalation of the war in Ukraine; geoeconomic fragmentation has led to a sharp increase in dispersion in commodity prices across regions, including critical minerals, posing macroeconomic risks and risks to the climate transition (see Chapter 3). - Inflation persistence: underlying and headline inflation remain uncomfortably high; near-term inflation expectations have risen markedly above target though they now appear to be turning a corner; bringing near-term inflation expectations back down is critical (see Chapter 2); with tight labor markets, ample excess savings in some countries, and adverse energy price developments, inflation could become more entrenched, requiring more forceful central bank action. - Fiscal vulnerability: fiscal buffers have eroded in many countries—elevated debt levels, rising funding costs, slowing growth, and a mismatch between growing demands on the state and available fiscal resources (see the October 2023 Fiscal Monitor). - Financial repricing risk: despite monetary tightening, financial conditions have eased in many countries (see the October 2023 Global Financial Stability Report); danger of a sharp repricing of risk that would appreciate the US dollar, trigger capital outflows from emerging markets, and increase borrowing costs and debt distress. ### Policies and recommendations - Monetary policy: under the baseline, inflation continues to recede as central banks maintain a tight stance; with many countries near the peak of tightening cycles, little additional tightening is warranted; easing prematurely would squander recent gains; once disinflation is firmly underway and near-term inflation expectations are decreasing, adjusting the policy rate downward will allow the real interest rate to remain unchanged until inflation targets are in sight. - Fiscal policy: fiscal policy should support the monetary strategy and the disinflation process; alignment between fiscal and monetary policy has decreased in 2023 relative to 2022; the United States' fiscal stance has deteriorated substantially—US fiscal policy should not be procyclical at this stage of the inflation cycle; broadly, fiscal policy should focus on rebuilding fiscal buffers eroded by the pandemic and the energy crisis, for instance by removing energy subsidies. - Structural reforms and medium-term focus: medium-term growth prospects are weak, especially for emerging market and developing economies; implications include much slower convergence toward advanced-economy living standards, reduced fiscal space, increased debt vulnerabilities and exposure to shocks, and diminished opportunities to overcome pandemic and war scarring; higher long-term growth can be achieved through a careful sequence of structural reforms focused on governance, business regulations, and the external sector—these "first-generation" reforms unlock growth and make subsequent reforms (to credit markets or for the green transition) more effective. - Multilateral cooperation: avoid policies that contravene World Trade Organization rules and distort international trade; safeguard flows of critical minerals and agricultural commodities—establish "green corridors" to reduce volatility and accelerate the green transition; limit geo-economic fragmentation and restore trust in rules-based multilateral frameworks to enhance transparency, policy certainty, and shared global prosperity. - Global financial safety net: maintain a robust global financial safety net with a well-resourced IMF at its center. *Source: International Monetary Fund, Foreword, World Economic Outlook: Navigating Global Divergences, October 2023* --- _Source: https://www.imf.org/-/media/files/publications/weo/2023/october/english/foreword.pdf_