G-20 Report on Strong, Sustainable, Balanced, and Inclusive Growth

November 2023

Prepared by IMF Staff 

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Executive Summary

Global growth momentum is slowing amid widening growth divergences across regions. Despite an upside surprise relative to the April WEO projections in the first half of 2023, global growth remains modest due to a combination of cyclical—including tighter macroeconomic policy, withdrawal of fiscal support, and high debt—and non-cyclical factors, such as the war in Ukraine and increasing geoeconomic fragmentation. At the same time, global headline inflation has eased owing to tighter monetary policy and declining commodity prices. However, core inflation is proving more persistent, staying above target in most economies, and headline inflation is not expected to return to target until at least 2025 in most cases. Such persistence raises the prospect of higher-for-longer rates. The cost-of-living crisis has receded on the back of moderating food and energy prices but remains pressing in the poorest economies. Amid rising debt servicing costs and the strong dollar, debt vulnerabilities are mounting in some emerging market economies.

Near-term risks are more balanced than they were but remain skewed to the downside. The likelihood of a hard landing moderated following the resolution of the US debt ceiling standoff in early June and receding banking sector risks earlier this year. But the balance of risks remains tilted to the downside. Further adverse inflation shocks could trigger more restrictive monetary policies, weighing on economic activity and leading to disruptive repricing in financial markets and tighter global financial conditions, which could eventually trigger sovereign debt distress in a wider group of economies. China’s growth momentum could weaken further should the property sector crisis deepen, with negative cross-border spillovers. Climate and geopolitical shocks could cause additional food and energy price spikes. Broader geoeconomic fragmentation risks greater distortions and policy uncertainty. On the upside, inflation could fall faster than expected and domestic demand could prove more resilient, while labor markets could ease through fewer vacancies rather than more unemployment.

G-20 policymakers should remain focused on achieving inflation goals, while striving to restore growth prospects. The growth path has become more divergent across countries. The stance of monetary policy should reflect a country-specific pace of economic recovery and disinflationary processes. More ambitious fiscal consolidation efforts are needed in some economies, while financial stability must be safeguarded. Such policies would help improve the effectiveness of monetary policy by ensuring financial stability and debt sustainability, providing fiscal room for investments and reforms to support growth.

Multilateral efforts by G-20 policymakers are required to solve global challenges. The main medium-term risks threatening the global economy—supporting vulnerable economies, resisting further geoeconomic fragmentation, fighting climate change—are global in nature and therefore must be tackled in a collaborative manner. More efficient coordination on debt resolution, including through the G-20 Common Framework supported by the Global Sovereign Debt Roundtable, is needed. Countries should reduce trade tensions, strengthen the multilateral trading system, and address food and energy security. Net-zero carbon emissions require coordination on carbon pricing or equivalent policies.