IMF warns of Global slowdown, Core Inflation will fall slowly

IMF World Economic Outlook Latest Analysis

  • World output is seen falling to 2.8% this year from 3.4% in 2022.
  • Advanced economies’ output slashed to 1.3% in 2023 from 2.7% last year.

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The latest IMF World Economic Outlook warns that global growth will turn lower in 2023 with advanced economies’ output less than half the rate seen last year. The US economy is seen growing by 1.6% this year, and by 1.1% in 2024, while the German and UK economies are set to contract this year by 0.1% and 0.3% respectively.

The picture for Emerging Market and Developing Economies is slightly brighter with a small downturn in 2023 before stronger growth in 2024. China is seen expanding by 5.2% this, compared to 3% last year, while the Indian economy is seen growing by 5.9% this year, compared to 6.8% in 2022, and 6.3% in 2024.

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The IMF report “A Rocky Recovery” published today also notes that core inflation may be declining more slowly than previously thought.

First, inflation is much more stable than expected a few months ago. While headline inflation has fallen, this is mainly due to the sharp reversal in energy and food prices. However, core inflation, which excludes energy and food, has not yet peaked in many countries. We expect core inflation to decelerate to 5.1 per cent from year-end to year-end this year, a significant upward revision of 0.6 percentage points from our January update and well above target.

The IMF analysis also suggests that “interest rates in advanced economies are likely to return to pre-pandemic levels once the current inflation episode is over”. The level to which interest rates will fall will depend on “whether alternative scenarios of persistently higher government debt and deficit or financial fragmentation materialize”.

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