The International Monetary Fund (IMF) has stated that it is likely that central banks will be able to find and implement solutions that will allow them to contain the process of spreading and scaling inflation and at the same time avoid a recession of the world economy.
This organization believes that economic growth will be weak. Also, according to IMF analysts, this process will not be uniform.
The agency predicts that by the end of this year, the world economy will show growth of 3%. These assumptions correspond to the opinion on the prospects of the global economic system, which was made public in July. The forecast is based on the fact that growth in the United States, which turned out to be stronger than expected, will compensate for the deterioration of the situation in Europe and China.
The IMF also believes that the dynamics of the global economy will weaken slightly in 2024. Experts of the organization predict that next year the growth will be 2.9%.
The IMF, repeating the assessment of the state of the world economy, published in July, states that in the global dimension, this system has proved to be stable concerning the challenges of our time. Separately, experts noted that the risks are still shifted downward.
IMF Chief Economist Pierre-Olivier Gourinchas said in his blog that against the background of interstate military confrontations and their material consequences, unprecedented tightening of monetary policy as part of measures to combat high inflation, economic activity slowed down, but did not stop. According to him, the world economy is limping forward.
Pierre-Olivier Gourinchas also says that the IMF forecasts are increasingly consistent with the so-called soft landing scenario. According to him, this prospect is most likely for the United States. At the same time, he emphasized that the process of economic growth is characterized by a slow pace and is not uniform. The IMF’s chief economist said that a weaker recovery is now expected in most of Europe and China compared to the forecasts made three months ago.
The Fund expects that the combined economic growth of the 20 countries that use the euro this year will be equal to 0.7%. In 2024, this indicator, according to IMF experts, will be 1.2%. The expected level for this and next years is lower than the July assessment of the prospects for the development of the situation by 0.2 and 0.3 percentage points, respectively.
The IMF predicts that China’s economic growth will be 5% by the end of this year. Next year, according to the experts of this organization, the mentioned indicator will be equal to 4.2%. The July forecast predicted China’s economic growth of 5.2% this year and 4.5% next year. The IMF notes that the crisis in the real estate sector of this country can aggravate the overall situation, causing large-scale side effects, which is especially actually for commodity exporters.
Fund’s autumn forecast on the dynamics of the United States economy turned out to be more positive compared to July estimates. Experts believe that in 2023, growth will be recorded at the level of 2.1% in this country, and next year the indicator will decrease to 1.5%, which is an improvement of the previous vision of prospects by 0.3 and 0.5 percentage points, respectively. The IMF says the strongest recovery among major economies has been recorded in the United States.
The Agency expects a continued decline in inflation. This forecast strengthens the arguments in favor of the probability of the mentioned soft landing scenario in large economies. At the same time, the IMF believes that the inflation target will return to the levels set by central banks by 2025.
The agency also made adjustments to its forecasts for the global inflationary process. It is expected that this year the corresponding figure will be 6.9%, and in 2024 it will decrease to 5.8%. The forecast for 2023 in the autumn version is 0.1% higher than the July estimate. The current vision of the prospects for inflationary trends for the next year indicates an increase of 0.6% in the overall growth of prices for goods and services compared to the estimate that was published in the summer.
Pierre-Olivier Gourinchas says that the cost of commodities is a serious risk to the inflation forecast and may become more volatile in the background of climatic and geopolitical shocks. He also stated that the cost of food remains elevated.
High oil and natural gas prices have become one of the main factors of inflation growth in many countries, in some of which this indicator has reached a multi-year high.
Bond investors are currently demonstrating concern about the prospects for further development of the economic situation. Last week, they began to abandon government-issued securities, believing that the largest central banks in the world would keep interest rates at a higher level than expected, to reduce inflation to targets.
The IMF also states concerns that high inflation could become a self-fulfilling prophecy. The Agency believes that in a situation where households and businesses expect continued price growth, they will increase the cost of goods and services or demand an increase in the amount of wages.
The IMF notes that the belief in the continuation of the inflationary trend may have an impact on the current pace of the process. The agency states that the expectations channel is crucial for the ability of central banks to reduce the inflation rate to the target, avoiding a recession.
As we have reported earlier, Bank of America CEO Expects Soft Landing for Economy.