The IMF announced on April 11, 2023 in the World Economic Outlook’s press briefing that the baseline forecast for global output growth is 0.1 percentage point lower than predicted in the January 2023 WEO Update, before rising to 3.0 percent in 2024. According to the IMF’s World Economic Outlook update, global growth would fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5 percent in 2023 with advanced economy growth falling below 1 percent. Global headline inflation in the baseline is set to fall from 8.7 percent in 2022 to 7.0 percent in 2023 on the back of lower commodity prices but underlying (core) inflation is likely to decline more slowly. Inflation’s return to target is unlikely before 2025 in most cases.
Risks
Risks to the outlook are heavily skewed to the downside, with the chances of a hard landing having risen sharply. Financial sector stress could amplify and contagion could take hold, weakening the real economy through a sharp deterioration in financing conditions and compelling central banks to reconsider their policy paths. Pockets of sovereign debt distress could, in the context of higher borrowing costs and lower growth, spread and become more systemic. The war in Ukraine could intensify and lead to more food and energy price spikes, pushing inflation up. Core inflation could turn out more persistent than anticipated, requiring even more monetary tightening to tame. Fragmentation into geopolitical blocs has the scope to generate large output losses, including through its effects on foreign direct investment.
Chief economist of IMF Pierre-Olivier Gourinchas said while the global economy’s gradual recovery is on track, the recent banking instability has highlighted the fragilities in the rebound story. He said, “We forecast in our latest World Economic Outlook that growth will bottom out at 2.8 percent this year before rising modestly to 3 percent next year—0.1 percentage points below our January projections”. Global inflation will fall, though more slowly than initially anticipated, from 8.7 percent last year to 7 percent this year and 4.9 percent in 2024,” he said in a blog. “China’s reopened economy is rebounding strongly. Supply chain disruptions are unwinding, while dislocations to energy and food markets caused by the war are receding. Simultaneously, the massive and synchronised tightening of monetary policy by most central banks should start to bear fruit, with inflation moving back towards targets.”
Outlook for India
IMF estimates India’s GDP growth rate at 5.9% in FY 2023 as India maintains its position as a fastest growing economy, despite the many headwinds, uncertainties, vulnerabilities at the global level. Notably, days after the Reserve Bank of India’s (RBI) raised its growth forecast, the International Monetary Fund (IMF) cut its GDP growth forecast for India for the financial year 2023-24 by 20 basis points to 5.9 per cent.