World Economic Outlook Update
IMF News, January 31, 2023
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- Published: January 31, 2023
Global outlook and projections
- Global growth: 3.4 percent in 2022; 2.9 percent in 2023; 3.1 percent in 2024.
- Advanced economies: 2.7 percent in 2022; 1.2 percent in 2023. Nine out of ten advanced economies will see growth decelerate in 2023.
- Emerging market and developing economies (group): growth rising to 4 percent in 2023 and 4.2 percent in 2024.
- China: growth rebound to 5.2 percent in 2023 (0.8 percentage point above October forecast).
- China and India together will account for half of global growth in 2023; the United States and the Euro-area combined will account for 10 percent only.
- Euro-area: growth expected to bottom out at 0.7 percent in 2023.
- United States: growth slowing to 1.4 percent in 2023 as federal interest rate hikes work through the economy.
Inflation dynamics
- Global inflation expected to decline in 2023, but by 2024 headline and core inflation will still be above pre-pandemic levels in more than 80 percent of countries.
- Core inflation: revised upwards to 6.9 percent in the fourth quarter of 2022; expected to decline to 4.4 percent by the end of 2023.
- Energy and commodity prices contributed to prior inflation spikes but are projected to decline in 2023 in the Update’s baseline.
Risks to the outlook (tilted to the downside)
- China risks: recovery could stall from greater-than-expected COVID disruptions or a sharper-than-expected slowdown in the property sector.
- Inflation persistence: continued labor market tightness and growing wage pressures could require tighter monetary policy.
- Geopolitical risk: escalation of the war in Ukraine could destabilize energy and food markets and further fragment the global economy.
- Financial risk: sudden repricing in financial markets could tighten conditions, especially in emerging market and developing economies.
- Upside scenarios: strong household balance sheets and solid wage growth could sustain private demand; easing supply-chain bottlenecks and cooling labor markets could allow for a softer landing.
Monetary policy and financial stability guidance
- Where inflation pressures remain elevated, central banks need to raise real policy rates above a neutral stance and keep them there until underlying inflation shows a decisive declining path.
- Easing monetary policy too early risks undoing gains on inflation.
- Monitor and address vulnerabilities building in the housing sector and the less-regulated non-bank financial sector as central banks shrink balance sheets.
Policy recommendations
- Advanced and emerging economies: adopt targeted fiscal measures that conserve fiscal space and allow high energy prices to reduce energy demand, avoiding broad and untargeted support that is costly and unsustainable.
- Emerging market economies: let currencies adjust as much as possible to tighter global monetary conditions; use FX interventions or capital flow management where appropriate to smooth excessive and non-fundamental volatility.
- Supply-side policies: remove key growth constraints, improve resilience, ease price pressures, and foster the green transition to alleviate accumulated output losses since the pandemic—especially in emerging and low-income economies.
- Multilateral cooperation: buttress cooperation on international trade, expand the financial global safety net, public health preparedness, and the climate transition to mitigate geo-economic fragmentation.
Regional and country notes (selected)
- Pakistan: 6 percent growth in 2022; growth of 2 percent projected in 2023 (downgraded by 1.5 percentage points for 2023). Recent central bank policy rate: 17 percent. Inflation in 2023 projected at about 21 percent; convergence to the five to 7 percent target range by mid-2025 envisioned under authorities’ measures.
- Sri Lanka: India has indicated commitment to deliver financing and debt relief consistent with restoring debt sustainability; similar assurances from other official bilateral creditors are needed to unlock IMF financing.
- Argentina: 4.6 percent growth in 2022 (upward revision of 0.5 percentage point); growth projected at 2 percent in 2023 (unchanged from October forecast). Inflation in 2022 close to 100 percent.
- Mexico: 3.1 percent growth in 2022 (0.9 percentage point upward revision); 1.7 percent projected in 2023 (0.5 percentage point above prior forecast). Remittances represent about four percent of GDP.
- United Kingdom: 4.1 percent growth in 2022 (0.5 percentage point upward revision); projected -0.6 percent in 2023 (downward revision of 0.9 percentage point). Inflation: 9.1 percent in 2022; expected 8.2 percent in 2023.
- Singapore: 3.7 percent growth in 2022 (0.7 percentage point upward revision); 1.5 percent projected in 2023 (0.8 percentage point downward revision).
- ASEAN-5: 5.2 percent in 2022; 4.3 percent in 2023; 4.7 percent in 2024. Region affected by fading post-COVID reopening momentum and regional monetary tightening; China reopening expected to support 2024 rebound.
- Sub-Saharan Africa: growth projected around 3.8 percent in 2023; region remains below pre-pandemic typical growth and faces elevated food insecurity.
- Debt distress: about 60 percent of low-income countries are either at risk of debt distress or already in debt distress; several smaller emerging market economies also affected. IMF engagement through financing and restructuring frameworks continues.
Labor market and soft-landing assessment (U.S. focus)
- Baseline: narrow path to avoid recession or to experience a relatively shallow recession in the United States.
- U.S. unemployment projected to rise from 3.5 percent to around 5.2 percent by 2024 in the Update’s baseline—an increase consistent with a significant slowdown but not a deep recession by historical standards.
Source: World Economic Outlook Update, January 31, 2023, IMF Communications Department.