WEO Update July 2023 Press Briefing Transcript
IMF News, July 25, 2023
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- Published: July 25, 2023
Global outlook and key projections
- Global growth will slow from 3.5 percent last year to 3 percent this year; this represents a 0.2 percentage point upward revision for 2023.
- Advanced economies: growth falls from 2.7 percent last year to 1.5 percent this year.
- Emerging market and developing economies: growth remains stable at 4 percent this year and 4.1 percent next year.
- Regional detail highlighted:
- Emerging and developing Asia: 5.3 percent growth this year.
- Global inflation:
- Headline inflation projected to decline from 8.7 percent last year to 6.8 percent this year; a 0.2 percentage point downward revision since April.
- Core inflation (advanced economies): expected to remain unchanged at 5.1 percent this year and decline to 3.1 percent in 2024.
- Longer horizon: five-year average growth around about 3 percent, signaling concerns about slowing underlying productivity and weaker prospects for income per capita convergence.
Inflation, monetary policy, and financial conditions
- Monetary tightening has:
- Brought interest rates into contractionary territory.
- Started to slow credit growth to the nonfinancial sector.
- Increased households' and firms' interest payments and pressured real estate markets.
- Role of monetary policy:
- Important in anchoring inflation expectations; without tightening the environment would likely be worse.
- Recommendation: avoid easing monetary policy until underlying inflation shows clear signs of sustained cooling.
- Central banks should monitor financial stability and stand ready to use other tools as needed.
- Labor, wages, and profits:
- Wage inflation has increased but generally lags price inflation; real wages have declined.
- Gap between nominal wage growth and price inflation has started to close.
- Firms' profit margins have grown robustly in the last two years, suggesting room to accommodate a rebound in real wages without triggering a wage-price spiral.
- Financial conditions since March banking stress:
- Financial conditions have eased (equity valuations surged, dollar depreciated) but risk of sharp repricing remains if inflation surprises upside or risk appetite deteriorates.
Fiscal policy, debt, and structural reform
- Debt service is increasing as a share of government revenues in both advanced and emerging markets after years of heavy fiscal support and rising interest rates.
- Recommendation: gradually restore fiscal buffers and put debt dynamics on a more sustainable footing—this is not a call for generalized austerity; pace and composition should consider private demand strength and protect the most vulnerable.
- Specific fiscal advice:
- Phase out energy subsidies where energy prices are back to pre-pandemic levels.
- Preserve fiscal space to support structural reforms (labor force participation, education/human capital, investment for green transition).
- Multilateral cooperation emphasized as critical to manage geoeconomic fragmentation and climate challenges.
Country and regional highlights (selected)
- Argentina:
- Revised growth for 2023: -2.5% [NOTE: THIS NUMBER WAS CORRECTED TO -2.5 DURING THE PRESS CONFERENCE].
- Projected rebound of growth in 2024 to 3% [NOTE: THIS NUMBER WAS CORRECTED TO 2.8].
- Projected inflation: "at 120 at the end of the year" (predicated on implementing agreed macroeconomic policies).
- Brazil:
- Growth 2022: 2.9.
- Growth 2023: 2.1 (upward revision of 1.2).
- Growth 2024: 1.2.
- Inflation: headline turned down; core more sticky but expected to converge gradually to target.
- India:
- Growth 2022: 7.2%.
- Forecast 2023 growth: 6.1% (0.2 percentage point upside revision).
- Forecast 2023 inflation: 4.9% (inside 2 to 6 target band).
- India accounts for about 1/6 of total global growth in the year.
- China:
- Chinese inflation revised down by almost 0.9 percentage points to 1.1 percent in 2023.
- Forecast 2024 inflation: 1.9 percent.
- Subdued core inflation and significant slack (consumption below pre-pandemic trend; youth unemployment above 20 percent).
- Japan:
- Forecast 2023 growth: 1.4 percent.
- Inflation has moved above target after long undershooting; monetary policy should remain accommodative but prepare to tighten and consider easing yield curve control.
- Spain:
- Forecast 2023 growth: 2.5 percent (1 percentage point upward revision).
- Headline inflation projected at 3.2 percent this year.
- Tourism-driven demand has contributed to the upgrade.
- Germany:
- Growth 2022: 1.8.
- Forecast 2023: -0.3 (downgrade).
- Forecast 2024: 1.3.
- Drivers of slowdown: negative real income effects from inflation and euro-area monetary tightening.
- Egypt:
- Growth 2022: 6.7.
- Forecast 2023 growth: 3.7 (unchanged from April).
- Forecast 2024 growth: 4.1.
- Inflation forecast 2023: 24.4 percent; projected to rise to 32 in 2024 (driven by currency depreciation and FX market inflexibility).
- Sub-Saharan Africa:
- Growth slowing from 3.9 to 3.5 percent (2022 to 2023); mild downward revision of 0.1 percentage points.
- Climate shocks and extreme events are material macroeconomic risks, exacerbating food insecurity and limiting countries with limited fiscal space.
Risks, scenarios, and policy priorities
- Downside tilt to risks despite moderation of some adverse factors.
- Main risks:
- Persistent core inflation above targets leading to further monetary tightening.
- Resurgence of food price pressures (e.g., suspension of Black Sea Grain Initiative could put upward pressure on food prices).
- Geoeconomic fragmentation (trade restrictions, redirected FDI, disrupted commodity/critical-mineral supply chains) harming emerging and developing economies.
- Climate-related shocks with outsized effects on poorer countries.
- Policy priorities:
- Maintain restrictive monetary policy until underlying inflation is clearly cooling.
- Gradual, well-sequenced fiscal consolidation to rebuild buffers while protecting vulnerable groups.
- Remove harmful export restrictions and trade measures to avoid exacerbating global volatility.
- Advance structural reforms to raise labor force participation, schooling and human capital, and investment (including for the green transition).
- Strengthen multilateral cooperation (G20 and other fora) to address fragmentation and coordinate on critical supply chains and climate transition.
Transcript: WEO Update July 2023 Press Briefing Transcript — July 25, 2023