The International Monetary Fund (IMF) cut its growth forecasts for China and the eurozone today, saying overall global growth remained low and uneven despite the "extraordinary strength" of the U.S. economy.
In its latest World Economic Outlook report, the IMF left its forecast for global real gross domestic product growth of 3.0 percent in 2023 unchanged, but lowered its forecast for 2024 by 0.1 percentage point to 2.9 percent from its July forecast. World output will grow by 3.5% in 2022.
IMF chief economist Pierre-Olivier Guranza told reporters that the global economy continues to recover from the coronavirus pandemic, the Russia-Ukraine conflict and last year's energy crisis, but growth trends are increasingly diverging across the world and medium-term growth prospects are "mediocre."
Guranza said forecasts generally point to a soft landing, but the IMF remains concerned about the risks associated with China's property crisis, volatile commodity prices, geopolitical fragmentation and a rebound in inflation.
As finance and finance officials from 190 countries gather in Marrakesh for the annual meetings of the IMF and World Bank, an unexpected new risk has emerged in the form of the Israeli-Palestinian conflict.
Guransha told Reuters it was too early to say how a major escalation of the long-running conflict would affect the global economy.
"There are a lot of different scenarios that we have not even begun to explore, depending on how the situation unfolds, so we cannot make any assessment at this point," he said.
The IMF said stronger growth was being held back by the ongoing impact of the pandemic, Russia's war in Ukraine, increasing fragmentation and factors such as rising interest rates, extreme weather events and shrinking fiscal support. Total global output in 2023 is projected to be 3.4 percent lower than pre-pandemic projections, or about $3.6 trillion.
"The global economy is showing resilience, not being knocked down by the big shocks we've had in the last two or three years, but it's not doing too well either," Guransha told Reuters in an interview.
"We see the global economy limping along, not firing on all cylinders," he said.
The medium-term outlook is not much better. The IMF expects the global economy to grow by 3.1% in 2028.
"The medium-term growth outlook for the global economy is uncertain," he told Reuters. "The combination of geoeconomic fragmentation, low productivity growth and low population growth is going to slow growth over the medium term."
Global inflation continues to decline due to lower energy and food prices and is expected to fall from 8.7% in 2022 to 6.9% in 2023 and 5.8% in 2024.
With the Labour market still tight and services inflation stickier than expected, core inflation, which excludes food and energy prices, is falling more slowly, falling to 6.3 per cent in 2023 from 6.4 per cent in 2022 and 5.3 per cent in 2024, the IMF said.
"We are not there yet," Guransha said in a separate meeting with reporters. He also said the IMF warned monetary authorities not to cut interest rates too soon.
In most advanced economies, labor markets are generally quite buoyant, with unemployment at historic lows. But even in the event of a massive strike by US auto workers, there is not much evidence that a wage-price spiral could trigger a second round of inflation.
"We don't see strong signs of a runaway sequence of wages chasing prices and prices chasing wages," he said.
The IMF said uncertainty had diminished considerably since its forecasts were released in April, but that downside risks to the global economy in 2024 still outweighed upside risks. There is now a 15 per cent chance that global growth will fall below 2 per cent - something that has happened only five times since 1970 - compared with a 25 per cent forecast in April.
The IMF noted that investment was generally lower than before the pandemic, with firms less willing to expand and take risks amid rising interest rates, weaker fiscal support and tighter lending conditions.
The IMF advises countries to remain vigilant in monetary policy until inflation falls to target levels on a sustained basis, while urging countries to rebuild thin fiscal buffers to cope with future challenges or shocks, Mr. Guransha said.
Citing stronger business investment and rising consumption, the IMF raised its growth forecast for the world's largest economy by 0.3 percentage points to 2.1 per cent in 2023 and by half a percentage point to 1.5 per cent next year.
That leaves the United States as the only major economy to exceed pre-pandemic forecasts.