Transcript of April 2023 World Economic Outlook Press Briefing
IMF News, April 11, 2023
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- Published: April 11, 2023
Global outlook and near-term projections
- Global growth will bottom out at 2.8 percent this year before rising to 3 percent next year.
- Global inflation is projected to ease from 8.7 percent last year to 7 percent this year and 4.9 percent next year.
- Core inflation (excluding energy and food) is expected to decline to 6.2 percent this year.
- Activity outlook:
- This year's slowdown is concentrated in economies where growth is expected to fall to 1.3 percent this year before increasing modestly next year.
- Emerging market and developing economies: growth accelerating to 4.5 percent this year from 2.8 percent last year.
- Five-year-ahead growth projections declined from 4.9 percent in 2011 to 3 percent this year.
Financial stability risks and downside scenarios
- Recent financial turbulence highlighted maturity and liquidity mismatches after a prolonged period of muted inflation and low interest rates.
- Rising bank funding costs and losses on long-term fixed income assets have revealed vulnerabilities in banks and nonbank financial institutions.
- Scenario findings:
- A contraction in bank lending could lead to an additional 0.3 percent reduction in output this year.
- A severe "risk-off" event could reduce global growth this year to about 1 percent.
- Reaching a global growth rate of about 1 percent is estimated to have "a of about 15 percent" (probability assessment described in the briefing).
- Possible contagion channels in a sharp tightening of global financial conditions: large capital outflows, sudden rise in risk premia, dollar appreciation, declines in global activity and confidence.
- Noted episodes and responses: U.K. gilt market instability and recent U.S. banking turbulence were contained by forceful actions from financial and monetary authorities.
Inflation dynamics, wages, and corporate margins
- No evidence of an uncontrolled wage-price spiral; nominal wage inflation lags price inflation, implying a decline in real wages but labor markets remain tight in many countries.
- Corporate margins have surged and have absorbed much of rising labor costs on average.
- If inflation expectations remain well anchored, the wage–price interaction should not spin out of control.
- However, stickier-than-expected inflation and stronger-than-expected global demand may require monetary policy to tighten further or stay tighter for longer than currently anticipated.
Policy guidance and recommendations
- Monetary policy:
- With financial instability contained, monetary policy should remain focused on bringing inflation down but stand ready to adjust promptly as financial developments demand.
- Central banks must avoid prematurely surrendering the inflation fight, as doing so could lower yields, support excessive activity, and complicate achieving price stability.
- If systemic financial crisis emerges, objectives of financial stability would take precedence over price stability in the near term (while maintaining nominal anchors).
- Fiscal policy:
- Tighter fiscal policy can cool activity and support monetary objectives.
- Appropriately designed fiscal consolidations can help rebuild fiscal buffers and strengthen financial stability (explored in Chapter 3 of the WEO).
- More could be done in many countries to regain fiscal space as fiscal policy turns less expansionary this year.
- Financial sector oversight and safety nets:
- Regulators and supervisors should strengthen oversight to prevent remaining fragilities from becoming a full-blown crisis.
- For emerging market and developing economies, ensure proper access to the global financial safety net, including the IMF's Precautionary Arrangements, access to central bank swap lines where relevant, and adequate foreign exchange reserves.
- Exchange rates should be allowed to adjust as much as possible unless doing so raises financial stability risks or threatens price stability (consistent with the integrated policy framework).
Country and regional notes (select highlights)
- Russia:
- Projection revised up for 2023 to 0.7 percent (upward revision by 0.4 percentage points).
- 2024 projection revised down to 1.3 percent (downward revision by about 0.8 percentage points).
- 2022 growth was -2.1 percent; recovery this year partly a base effect and earlier strong fiscal impulse; medium-term potential growth projected at about 0.8 and level of output expected to be lower by 7 percent in the medium term.
- China:
- Projected growth of 5.2 percent in 2023, up from 3 percent last year.
- Inflation expected around 2 percent this year and about 2.2 percent next year.
- Risks: property sector weakness; rebound concentrated in domestic services (smaller external spillovers).
- India:
- FY2024 growth down revised by 0.5 percentage points to 6.3 percent (historical revisions and smaller catch-up effects).
- 2022 growth 6.8 percent; 2023 moderated to 5.9 percent (a -0.2 revision compared to January).
- United Kingdom:
- Upward revision to 2023 projection but still negative at -0.3 percent (about a 0.3 percentage point upward revision).
- UK hit by terms-of-trade shock from imported energy; tight labor market and aggressive monetary tightening noted.
- United States and advanced economies:
- Tightening cycle has not produced expected softening in output and employment so far; stronger-than-expected global demand noted.
- Argentina:
- Projected modest uptick in GDP of 0.2 percent (2023); drought cited as cause of large downward revision for 2023.
- Inflation projection revised upward to 88 percent annual by the end of the year (inflation ended last year at 94.8 percent).
- IMF emphasizes tight monetary and fiscal policies consistent with the Fund-supported program.
- Egypt:
- Forecast downgraded by 0.3 for this year and by 0.3 for the coming year.
- Growth projected at 3.7 percent this year and 5 percent in 2024.
- Drivers of downgrade: high financing costs, currency depreciation, backlog of imports, FX rationing reducing confidence; EFF program first review preparations underway.
- Sub-Saharan Africa:
- Regional growth slowing to about 3.6 percent in 2023 from 3.9 percent last year.
- Inflation expected to decline from roughly 16 percent to about 12.3 percent but remain double-digit.
- Estimated about 130 million people facing food insecurity.
- Nigeria:
- Forecasts: 3.3 percent in 2022 (upward revision), about 3.2 percent in 2023, and 3.3 percent in 2024.
- High inflation: forecast about 20 percent for 2023; recommendation to tighten monetary policy.
- South Africa:
- Sharp slowdown to about 0.1 percent growth this year (a -1.1 percentage point revision); recovery to 1.8 percent next year as more power comes online.
- Inflation projected to be 5.8 percent in 2023 and 4.8 percent subsequently; recent policy rate at 7.75 percent welcomed.
- Low-income and developing countries:
- About 60 percent of low-income countries are in debt distress or at high risk of distress.
- About 25 percent of emerging market economies are at high risk and facing default-like spreads.
- IMF involvement: debt-dialogue vehicles such as the Common Framework (one completed case: Chad; ongoing discussions for Zambia, Ethiopia, Gambia).
Transcript of April 2023 World Economic Outlook Press Briefing