Le perspectives ofworld economy for this year they have decreased due to chronically high inflation, rising interest rates and the uncertainties arising from the bankruptcy of two major US banks. This is what we read in the quarterly update of World Economic Outlook of the International Monetary Fund, which has revised downwards its prospects for global economic growth. In the near term, the IMF now expects 2,8% growth this year, down from 3,4% in 2022 and 2,9% estimated for 2023 in its previous January forecast.
But not only. The Washington institute has highlighted that the global economy is on its way to growth weakest since 1990: in five years it should be around 3%, the lowest medium-term forecast in a World Economic Outlook for over 30 years.
Why did the IMF adjust the outlook for the world economy?
Over the past three years, the world economy has experienced one shock after another. First the Covid-19 pandemic which brought world trade to a near halt in 2020. Then came an unexpectedly strong recovery, fueled by huge public aid, especially in the US. This surprisingly strong recovery, however, triggered a resurgence in inflation, which had exacerbated after the Russian invasion of Ukraine sent up energy and grain prices.
The Fed and other central banks have responded by aggressively raising rates. Inflation slowed down but remained well above the central banks' targets, leading them towards an aggressive monetary policy. The rising cost of borrowing has put pressure on the financial system, which it had become accustomed to interest rates extraordinarily low. The battle to ensure price stability, in other words, could jeopardize financial stability and consequently weaken economic growth.
In all of this, the turmoil in the financial sector – the collapse of Silicon Valley Bank in the United States and the rescue of the Credit Suisse in Switzerland – have made the Washington institute even more cautious about the prospects that 2023 could see the end of the series of setbacks that have afflicted the global economy for the past three years.
IMF: "Deglobalization could have a cost"
But it's not just the short-term outlook for the global economy that worries the IMF. There are also concerns about the medium-term outlook, where there has been a marked one slowdown over the last ten years or so. The Fund's forecast for five-year growth has declined steadily since 2011, said its economic adviser, Pierre-Olivier Gourinchas.
Part of this slowdown was caused by the expected moderation of growth rates in China and South Korea. But that's not all.
According to Gourinchas, the most recent slowdown in the medium-term outlook could also reflect more "disturbing" forces, such as: the scarring impact of the pandemic, the slowdown in structural reforms, as well as the growing threat of geoeconomic fragmentation leading to protectionism and tensions trade, the decrease in direct investments, the slowdown of innovation and the adoption of technologies in fragmented "blocks".
According to the World Economic Outlook, Brexit, the Cold War between the US and China and Russia's invasion of Ukraine are signs of this fragmentation.
The IMF was one of the proponents of globalization when it seemed unstoppable in the 90s and early 2000s. It now warns that deglobalization it may come at a cost.
“A fragmented world is unlikely to achieve progress for all or enable us to tackle global challenges such as climate change or pandemic preparedness,” Gourinchas said. "We must avoid this road at all costs."
IMF slightly raises Italy's growth in 2023 but limits that of 2024 downwards
The Fund revised upwards its economic growth forecasts for theItaly of this year, but downwards those of 2024: +0,1 points compared to the value estimated in January and +0,9 on last October's forecast and -0,1% on January and -0,5% on October. Again for Italy, the IMF predicts that l'inflation, from 8,7% last year, slow down on the whole of 2023 to 4,5% and continue the dynamics of calming down next year at an average of 2,6%. Finally, a slight increase for unemployment which in the three-year period 2022-24 sees values of 8,1%, 8,3% and 8,4% respectively.
