{
  "title": "Resilient Global Economy Still Limping Along, With Growing Divergences",
  "publication": "IMF Blog, October 10, 2023",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2023/10/10/resilient-global-economy-still-limping-along-with-growing-divergences",
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  "summary": "Likelihood of a soft landing has increased, but growth forecast is lowest in decades",
  "sections": [
    {
      "heading": "Global outlook and growth projections",
      "content": "- World economic growth is projected to slow from 3.5 percent in 2022 to 3 percent in 2023 and 2.9 percent in 2024, a 0.1 percentage point downgrade for 2024 from July.\n- Growth remains well below the historical average.\n- The likelihood of a soft landing has increased: projections are increasingly consistent with bringing inflation down without a major downturn in activity.\n- Advanced economies are experiencing a more pronounced slowdown than emerging market and developing counterparts.\n  - The United States growth outlook was revised up due to resilient consumption and investment.\n  - Euro area activity was revised downward.\n  - Many emerging market economies proved unexpectedly resilient, with the notable exception of China."
    },
    {
      "heading": "Inflation, labor markets, and sectoral forces",
      "content": "- Headline inflation path:\n  - 9.2 percent in 2022 (year-over-year basis)\n  - 5.9 percent in 2023\n  - 4.8 percent in 2024\n- Core inflation (excluding food and energy) is projected to decline more gradually, to 4.5 percent in 2024.\n- Most countries are not likely to return inflation to target until 2025.\n- Labor markets in advanced economies remain buoyant with historically low unemployment rates supporting activity.\n  - U.S. unemployment forecast: modest increase from 3.6 percent to 3.9 percent by 2025.\n- Real wages are catching up; little evidence of a wage-price spiral.\n- Three forces shaping the outlook:\n  - The recovery in services is almost complete and demand supporting services-oriented economies is softening.\n  - Tighter credit conditions are weighing on housing markets, investment, and activity—more so in countries with a higher share of adjustable-rate mortgages or lower willingness/ability of households to draw down savings.\n    - Firm bankruptcies are increasing in some economies, although from historically low levels.\n    - Countries are at different points in their hiking cycle: advanced economies (except Japan) are near the peak; some emerging markets that started earlier (e.g., Brazil and Chile) have already started easing.\n  - Last year’s commodity price shock shaped inflation and activity:\n    - Economies heavily dependent on Russian energy imports saw a steeper increase in energy prices and a sharper slowdown.\n    - The passthrough from higher energy prices played a large role in driving core inflation higher in the euro area—unlike the United States, where core inflation pressures reflect a tight labor market."
    },
    {
      "heading": "Key risks and vulnerabilities",
      "content": "- Overall balance of risks remains tilted to the downside despite moderation of some extreme risks such as severe banking instability since April.\n- China’s real-estate crisis risks:\n  - Could intensify and pose a complex policy challenge.\n  - Restoring confidence requires promptly restructuring struggling property developers, preserving financial stability, and addressing strains in local public finance.\n  - Rapid declines in real estate prices could worsen bank and household balance sheets, risking serious financial amplification.\n  - Artificially supporting real estate prices would crowd out other investment, reduce new construction, and hurt local government revenues through reduced land sales.\n  - China’s economy must pivot away from growth that relies on credit for the real estate sector.\n- Commodity price volatility risks from climate and geopolitical shocks could derail disinflation:\n  - Between June and late September, oil prices increased by about 25 percent amid extended supply cuts by OPEC Plus, before falling back by about 11 percent.\n  - Food prices remain elevated and could be further disrupted by an escalation of the war in Ukraine, harming many low-income countries.\n  - Geoeconomic fragmentation has increased dispersion in commodity prices across regions, including critical minerals, posing macroeconomic risks and risks to the climate transition.\n- Inflation expectations and fiscal risks:\n  - Near-term inflation expectations have risen markedly above target, though they now appear to be turning a corner.\n  - Fiscal buffers have eroded in many countries: elevated debt levels, rising funding costs, slowing growth, and increasing mismatch between demands on the state and available fiscal resources.\n  - Financial conditions have eased in many countries despite tighter monetary policy, raising the danger of a sharp repricing of risk that could strengthen the U.S. dollar, trigger capital outflows, and increase borrowing costs and debt distress—especially for emerging markets."
    },
    {
      "heading": "Policy priorities and recommendations",
      "content": "- Monetary policy:\n  - Under the baseline, inflation recedes as central banks maintain a tight stance and avoid easing prematurely.\n  - Once disinflation is firmly established, with decreasing near-term inflation expectations and inflation targets coming into sight, gradually cutting the policy rate will be appropriate while maintaining a commitment to price stability.\n- Fiscal policy:\n  - Fiscal policy needs to rebuild buffers, including by removing energy subsidies, while still protecting the vulnerable.\n  - Rebuilding buffers will also aid disinflation.\n  - The substantial widening of the fiscal deficit in the United States is highlighted as particularly worrying; fiscal policy should not be pro-cyclical at this stage of the inflation cycle.\n- Structural reforms and medium-term focus:\n  - Return focus to the dimming medium-term outlook: global growth prospects are weak, especially for emerging market and developing economies, with implications for convergence, fiscal space, debt vulnerabilities, and scarring from the pandemic and the war.\n  - Structural reforms are key to higher long-term growth; sequence reforms carefully:\n    - Start with reforms focused on governance, business regulation, and the external sector (first-generation reforms) to unlock growth and make subsequent reforms—whether to credit markets or for the green transition—more effective.\n- Multilateral cooperation:\n  - Avoid policies that contravene World Trade Organization rules and distort international commerce.\n  - Safeguard flows of critical minerals and agricultural commodities; establish “green corridors” to reduce volatility and accelerate the green transition.\n  - Prevent geoeconomic fragmentation that impedes shared prosperity and work to restore trust in rules-based multilateral frameworks that enhance transparency and policy certainty.\n  - Maintain a robust global financial safety net with a well-resourced IMF at its center.\n\nSource: IMF blog post by Pierre-Olivier Gourinchas, October 10, 2023.\n\n---\n\n\n References\n\n- latest projections\n- wage-price spiral\n- China’s economy must pivot\n- become more volatile\n- Chapter 3\n- Chapter 2\n- fiscal resources\n- Global Financial Stability Report\n- reforms,\n- geoeconomic fragmentation\n\nSource: https://www.imf.org/en/blogs/articles/2023/10/10/resilient-global-economy-still-limping-along-with-growing-divergences"
    }
  ],
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    "Authors: Pierre-Olivier Gourinchas",
    "Published: October 10, 2023",
    "World economic growth is projected to slow from 3.5 percent in 2022 to 3 percent in 2023 and 2.9 percent in 2024, a 0.1 percentage point downgrade for 2024 from July.",
    "Growth remains well below the historical average.",
    "The likelihood of a soft landing has increased: projections are increasingly consistent with bringing inflation down without a major downturn in activity.",
    "Advanced economies are experiencing a more pronounced slowdown than emerging market and developing counterparts.",
    "Headline inflation path:",
    "Core inflation (excluding food and energy) is projected to decline more gradually, to 4.5 percent in 2024.",
    "Most countries are not likely to return inflation to target until 2025.",
    "Labor markets in advanced economies remain buoyant with historically low unemployment rates supporting activity.",
    "Real wages are catching up; little evidence of a wage-price spiral.",
    "Three forces shaping the outlook:",
    "Overall balance of risks remains tilted to the downside despite moderation of some extreme risks such as severe banking instability since April.",
    "China’s real-estate crisis risks:",
    "Commodity price volatility risks from climate and geopolitical shocks could derail disinflation:",
    "Inflation expectations and fiscal risks:",
    "Monetary policy:",
    "Fiscal policy:",
    "Structural reforms and medium-term focus:",
    "Multilateral cooperation:",
    "[latest projections](https://www.imf.org/en/Publications/WEO/Issues/2023/10/10/world-economic-outlook-october-2023?cid=bl-com-AM2023-WEOEA2023002)",
    "[wage-price spiral](https://www.imf.org/en/Blogs/Articles/2023/02/24/wage-price-spiral-risks-still-contained-latest-data-suggests)",
    "[China’s economy must pivot](https://www.imf.org/en/News/Articles/2023/02/02/cf-chinas-economy-is-rebounding-but-reforms-are-still-needed)",
    "[become more volatile](https://www.imf.org/en/Blogs/Articles/2023/03/28/volatile-commodity-prices-reduce-growth-and-amplify-swings-in-inflation)",
    "[Chapter 3](https://www.imf.org/en/Blogs/Articles/2023/10/03/geoeconomic-fragmentation-threatens-food-security-and-clean-energy-transition)",
    "[Chapter 2](https://www.imf.org/en/Blogs/Articles/2023/10/04/how-managing-inflation-expectations-can-help-economies-achieve-a-softer-landing)",
    "[fiscal resources](https://www.imf.org/en/Publications/FM/Issues/2023/10/10/fiscal-monitor-october-2023)",
    "[Global Financial Stability Report](https://www.imf.org/en/Publications/GFSR/Issues/2023/10/10/global-financial-stability-report-october-2023)",
    "[reforms,](https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2023/09/21/Structural-Reforms-to-Accelerate-Growth-Ease-Policy-Trade-offs-and-Support-the-Green-538429)",
    "[geoeconomic fragmentation](https://www.imf.org/en/Blogs/Articles/2023/08/28/the-high-cost-of-global-economic-fragmentation)"
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