World Economic Outlook, April 2023: A Rocky Recovery
World Economic Outlook, April 2023
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Bibliographic details
- Published: April 11, 2023
Global outlook and baseline projections
- Baseline forecast: global growth falls from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024.
- Advanced economies: growth slowdown from 2.7 percent in 2022 to 1.3 percent in 2023.
- Global headline inflation in the baseline: falls from 8.7 percent in 2022 to 7.0 percent in 2023, driven by lower commodity prices.
- Underlying (core) inflation: likely to decline more slowly than headline inflation.
- Inflation’s return to target: "unlikely before 2025 in most cases."
- Outlook characterization: "uncertain again amid financial sector turmoil, high inflation, ongoing effects of Russia’s invasion of Ukraine, and three years of COVID."
Alternative scenario and downside risks
- Plausible alternative scenario with further financial sector stress:
- Global growth declines to about 2.5 percent in 2023.
- Advanced economy growth falls below 1 percent.
- Risks to the outlook: "heavily skewed to the downside, with the chances of a hard landing having risen sharply."
- Financial sector developments: "banking sector vulnerabilities have come into focus and fears of contagion have risen across the broader financial sector, including nonbank financial institutions."
Major thematic chapters and their key findings
- Chapter 1: Global Prospects and Policies
- Tentative signs of a soft landing in early 2023 receded amid stubbornly high inflation and recent financial sector turmoil.
- Inflation has declined as central banks raised interest rates and food and energy prices fell, but underlying price pressures remain sticky with tight labor markets in a number of economies.
- Side effects from the fast rise in policy rates are becoming apparent through banking sector vulnerabilities.
- Chapter 2: The Natural Rate of Interest: Drivers and Implications for Policy
- The natural rate of interest is "the real interest rate that neither stimulates nor contracts the economy" and is a reference for monetary policy stance and public debt sustainability.
- Chapter 2 studies the evolution of the natural rate across several large advanced and emerging market economies using complementary approaches to mitigate estimation uncertainty.
- Overall analysis suggests that once the current inflationary episode has passed, interest rates are likely to revert toward pre-pandemic levels in advanced economies.
- Future convergence to pre-pandemic levels depends on whether scenarios with persistently higher government debt and deficit or financial fragmentation materialize.
- Chapter 3: Coming Down to Earth: How to Tackle Soaring Public Debt
- Public debt as a ratio to GDP "soared across the world during COVID-19 and is expected to remain elevated," posing a growing challenge as real interest rates rise.
- Three main conclusions:
- Adequately timed and appropriately designed fiscal consolidations have a high probability of durably reducing debt ratios.
- When a country is in debt distress, a comprehensive approach combining significant debt restructuring, fiscal consolidation, and policies to support economic growth can have a significant and long-lasting impact on reducing debt ratios; coordination among creditors is essential.
- Economic growth and inflation have historically contributed to reducing debt ratios.
- Chapter 4: Geoeconomic Fragmentation and Foreign Direct Investment
- Supply-chain disruptions and rising geopolitical tensions center the policy debate on the risks, benefits, and costs of geoeconomic fragmentation.
- FDI flows are increasingly concentrated among geopolitically aligned countries, particularly in strategic sectors.
- Several emerging market and developing economies are highly vulnerable to FDI relocation due to reliance on FDI from geopolitically distant countries.
- Long-term impact: FDI fragmentation from the emergence of geopolitical blocs can generate large output losses, especially for emerging market and developing economies.
- Policy implication: "Multilateral efforts to preserve global integration are the best way to reduce the large and widespread economic costs of FDI fragmentation."
Policy implications and priorities
- Monetary policy:
- Use the natural rate of interest as a reference to gauge policy stance.
- Recognize that interest rates are likely to revert toward pre-pandemic levels once the inflationary episode passes, conditional on fiscal and financial scenarios.
- Fiscal policy and debt management:
- Pursue adequately timed and appropriately designed fiscal consolidations to durably reduce debt ratios.
- In debt distress, combine debt restructuring, fiscal consolidation, and growth-supportive policies with creditor coordination.
- Multilateral and geopolitical policy:
- Prioritize multilateral efforts to preserve global integration to mitigate large output losses from FDI fragmentation.
- Financial stability:
- Monitor banking sector vulnerabilities and contagion risks across nonbank financial institutions amid rapid policy rate hikes.
Source: World Economic Outlook, April 2023: A Rocky Recovery
Content in this bundle
- weoapr2023-ch2
- WEO Chapter 3 Apr 2023
- dataset overview
- Chapter 1
- Chapter 1 Annex
- Chapter 2
- Chapter 2 Annex
- CHAPTER 3 COMINg DOWN TO EARTh: hOW TO T ACKLE SOARINg PUbLIC DEbT
- Chapter 3 Annex
- Chapter 4
- Chapter 4 Annex
- Executive Summary
- Foreword
- Statistical Appendix
- Table a1
- Table b1
- Full Report
- World Economic Outlook: A rocky recovery; Chapter 1: Global prospects and policies; April 2023, IMF
References
- DataMapper
- Blog by Pierre-Olivier Gourinchas
- April 2023 Database
- Press Conference
- Trancript
- Chart of the Week
- chapter 1 data
- https://www.imf.org/en/blogs/articles/2023/04/10/interest-rates-likely-to-return-towards-pre-pandemic-levels-when-inflation-is-tamed
- https://www.imf.org/en/blogs/articles/2023/04/10/how-to-tackle-soaring-public-debt
- https://www.imf.org/en/blogs/articles/2023/04/05/fragmenting-foreign-direct-investment-hits-emerging-economies-hardest
- Watch Event Replay