Transcript of October 2023 World Economic Outlook Press Briefing
IMF News, October 10, 2023
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- Published: October 10, 2023
Global outlook: growth and inflation
- Global growth under the baseline:
- 3.5 percent last year
- 3 percent this year
- 2.9 percent next year (a 0.1 percentage point downgrade for 2024)
- Inflation:
- Headline inflation continues to decelerate.
- Core inflation (excluding food and energy) projected to decline more gradually.
- Most countries are not expected to return to inflation target until 2025.
- Soft‑landing assessment:
- Projections increasingly consistent with a soft‑landing scenario (bringing inflation down without a major downturn in activity), notably in the U.S. where the unemployment rate is expected to increase only mildly between now and 2025.
- Labor markets and wages:
- Labor markets in advanced economies remain tight but are softening, with no signs of a wage‑price spiral.
- Many countries experiencing compression in the distribution of earnings, with wages growing faster at the bottom of the distribution—potentially linked to amenity value of flexible and remote work reducing wage pressures for high earners.
Regional and country projections and developments
- Advanced economies vs. emerging markets:
- Slowdown more pronounced in advanced economies than in emerging markets and developing economies.
- U.S. revised up (resilient consumption and investment); euro area revised down (tighter monetary policy, energy crisis).
- Euro area and selected European economies:
- Euro area: 0.7 percent growth this year; rebound to 1.2 percent in 2024 (downward revision of about 0.2 percentage points).
- Germany: expected to grow at about 0.9 percent next year.
- Spain: expected to grow at 1.7 percent next year.
- France: expected to grow at 1.3 percent next year.
- United Kingdom:
- Growth: 4.1 percent last year to 0.5 percent this year (a slight upward revision vs July); 0.6 percent in 2024.
- Inflation: about 7.7 percent headline inflation for 2023 (revised down slightly).
- Monetary policy assumption: WEO assumptions made in August included a Bank of England peak at about 6 percent; the U.K. team used a number closer to 5.5 percent in finalizing projections.
- China:
- Growth projections: 5 percent in 2023 (revised down by 0.2 percentage points), 4.2 percent in 2024 (revised down by 0.3 percentage points).
- Real estate crisis identified as a major headwind; need for prompt, forceful, and large‑scale measures to restructure developers, preserve financial stability, and restore household confidence.
- WEO risk scenario: an additional downturn where China’s output level falls by 1.6 percent would translate into about 0.6 percent lower output in the rest of the world.
- Transmission estimate: a 1 percentage point lower growth in China typically implies about 0.3 percentage‑point lower growth in the rest of the world.
- Sub‑Saharan Africa and Nigeria:
- Sub‑Saharan Africa: 3.3 percent growth this year (0.2 percentage point downward revision) and about 4 percent next year.
- Nigeria: forecast path quoted as "3.3 percent this year [2022] to 2.9 percent next year [2023], before going up to 3.1 percent in 2024." Reforms noted: ending fuel subsidies and unifying the official exchange rate.
- Regional risks: inflation peaking but still in double digits for more than 40 percent of economies; shocks from higher food and fertilizer prices, funding squeeze, high spreads, and exchange rate pressures.
- Sri Lanka:
- Inflation down from a peak of about 70 percent (September 2022) to below 2 percent in September 2023.
- Real GDP in Q2 contracting by 3.1 percent year‑on‑year.
- Tentative stabilization and increased reserves noted; sustained reform implementation required for lasting recovery.
- Argentina:
- Output: contraction this year of 2.5 percent, followed by resumption of growth of 2.8 percent in 2024 (forecasts unchanged since July).
- Inflation: forecast increased to over 135 percent year end.
- Recommended policy response: tighter fiscal policy and tight monetary policy to address imbalances.
- Italy:
- Growth: 0.7 percent for 2023 and 0.7 percent for 2024 (revisions down).
- Drivers: strong Q1 followed by Q2 contraction due to weak domestic demand, expiration of home renovation incentives, collapse in construction investment, and weaker trade.
- Inflation: projected to fall as energy price effects unwind and tighter monetary policy/financing conditions take effect.
- Morocco:
- Growth: 1.3 percent in 2022; 2.4 percent in 2023; rising to 3.6 percent next year.
- Reconstruction support noted, including voluntary contributions equivalent to 1 percent of GDP.
- Inflation in Morocco expected to come down toward 4 percent by the end of this year.
- India:
- Growth: fiscal year forecast raised to 6.3 percent (0.2 percentage point upward revision for this year); next fiscal year unchanged at 6.3 percent.
- Inflation: upward revision to 5.5 percent; projections discussed as coming down to "5, 5.5 percent," well inside the target range of 2 to 6 percent this year, and 4.6 percent next year (conditional on policy).
- Policy guidance: monetary policy should remain data dependent and focused on price stability; medium‑term fiscal consolidation would support monetary efforts.
- Argentina, China, and other country snapshots noted above reflect the discussions and country‑specific forecasts cited in the brief.
Key risk factors and scenario estimates
- China real estate crisis: deepening real estate crisis is a major downside risk; restoring confidence requires restructuring developers, preserving financial stability, and addressing strained local public finances.
- Commodity price volatility:
- Between June and September, oil prices increased by about 27 percent (driven by extended OPEC Plus supply cuts), before falling back more recently by about 8 percent.
- Food prices remain elevated and could be further disrupted by escalation of the war in Ukraine.
- Geoeconomic fragmentation has increased dispersion in commodity prices across regions, including critical minerals, posing macroeconomic and climate transition risks.
- Conflict risk (Israel–Gaza):
- Short‑term oil price increase observed (~4 percent over a few days).
- Research Department estimate: a 10 percent increase in oil prices would weigh down global output by about 0.15 percent in the following year and increase global inflation by about 0.4 percentage points.
- Inflation expectations and persistence:
- Near‑term inflation expectations have risen markedly above target in many economies; bringing expectations back down is critical to disinflation.
- Fiscal vulnerabilities:
- Fiscal buffers have eroded in many countries: elevated debt levels, rising funding costs, slowing growth, and mismatch between state demands and fiscal resources.
- U.S. fiscal deficits described as having deteriorated substantially in 2023; fiscal policy in the U.S. should avoid being procyclical at this stage of the inflation cycle.
- Financial conditions:
- Despite monetary tightening, financial conditions have eased in many countries, raising the risk of sharp repricing of risk, US dollar appreciation, capital outflows, higher borrowing costs, and increased debt distress—especially for emerging markets.
Policy recommendations and priorities
- Monetary policy:
- Central banks should avoid premature easing; with still tight labor markets, excess savings in some countries, adverse oil movements, and non‑normalized inflation expectations, central banks have more work to do to secure sustained returns to target.
- Monetary policy should be data dependent and focused on delivering price stability while preserving financial stability.
- Fiscal policy:
- Renew focus on managing fiscal risks and rebuilding buffers, including phasing out energy subsidies while protecting the vulnerable.
- Fiscal and monetary alignment helped disinflation last year; that alignment has weakened and should be restored.
- For countries with rising imbalances (e.g., Argentina), tighter fiscal policy supported by tight monetary policy is advised.
- Structural reforms and medium‑term growth:
- Medium‑term growth prospects have weakened since the global financial crisis, particularly for emerging markets and developing economies.
- Higher long‑term growth requires a careful sequence of reforms—first‑generation reforms focused on governance, business regulations, and the external sector—to unlock growth and make subsequent reforms (credit markets, labor markets, green transition) more effective.
- China-specific:
- Forceful, large‑scale actions to restructure property developers, preserve financial stability, and restore household confidence; monetary easing and fiscal support targeted at households and housing sector warranted given low inflation pressures in China.
- Multilateral cooperation:
- Avoid policies that contravene the World Trade Organization's role and distort international trade.
- Safeguard flows of critical minerals and agricultural commodities—proposed "green corridors" to reduce volatility, food insecurity, and accelerate the green transition.
- Aim to limit geoeconomic fragmentation; strengthen a robust global financial safety net with a well‑resourced IMF at its center.
Transcript of October 2023 World Economic Outlook Press Briefing — IMF Communications Department