SINGAPORE – Positive surprises, including China’s abrupt reopening and growth in Europe that is more resilient than expected, saw the International Monetary Fund (IMF) slightly raise its forecast for global economic growth in 2023.
Still, the drag from the war in Ukraine and the inflation-driven spike in interest rates will slow global growth to 2.9 per cent in 2023 from an estimated 3.4 per cent in 2022.
IMF’s latest forecast is slightly higher – 0.2 percentage point – than its prediction in October 2022.
It comes in the latest edition of its World Economic Outlook (WEO), issued on Tuesday at a media briefing in Singapore by IMF chief economist Pierre-Olivier Gourinchas.
While the IMF predictions do not present a rosy picture for the global economy, it counters the oft-repeated warnings of an impending global recession.
“Negative growth in global GDP (gross domestic product) or global GDP per capita – which often happens when there is a global recession – is not expected,” the WEO report said.
The global output will still be less than the 3.4 per cent expansion projected for 2022, and will come below the historical average of 3.8 per cent between 2000 and 2019. The world economy grew by 6.2 per cent in 2021.
IMF managing director Kristalina Georgieva, speaking at the World Economic Forum earlier in January, had noted that the global outlook is not as bad as feared a couple of months ago.
“But less bad does not quite yet mean good,” she said, asking policymakers and investors to be cautious.
At the press conference on Tuesday, Mr Gourinchas also stressed that global economic and financial conditions remain fragile
“This time around, the global economic outlook has not worsened. That is good news, but not enough. The road to a full recovery, with sustainable growth, stable prices and progress for all, is only starting,” he said.
In the WEO report, the US-based international lender of last resort said the rise in central bank interest rates to fight inflation will weigh down both output and demand growth, paving the way for a retreat in global inflation and trade.
The pace of increase in prices will ease to 6.6 per cent in 2023 from 8.8 per cent in 2022, but remain above pre-pandemic (2017-2019) levels of about 3.5 per cent.
In 2023, slowing demand will cut growth in the volume of goods and services trade to 2.4 per cent from 5.4 per cent a year earlier. This is despite an easing of pandemic-related supply bottlenecks, transport costs and input prices.
Said the IMF: “On the upside, a stronger boost from pent-up demand in numerous economies or a faster fall in inflation is plausible.
“On the downside, severe health outcomes in China could hold back the recovery, Russia’s war in Ukraine could escalate, and tighter global financing conditions could worsen debt distress.”
Referring to escalating trade tensions and tech rivalry between China and the United States, the IMF said: “Financial markets could also suddenly reprice in response to adverse inflation news, while further geopolitical fragmentation could hamper economic progress.”
Global economic growth in 2023 will be led by developing economies. India will clock in with 6.1 per cent growth, followed by China’s 5.2 per cent after intermittent lockdowns restricted its expansion to 3 per cent last year.
The Asean-5 – which comprises Indonesia, Malaysia, the Philippines, Singapore and Thailand – will grow by 4.3 per cent. That compares with the region’s 5.2 per cent growth in 2022 and 3.8 per cent in 2021.
Mr Gourinchas said that while China’s economic rebound in 2023 will help the Asean-5, its growth forecast was downgraded from an earlier projection of 4.5 per cent because of slower growth in its other major trading partners such as the US, the European Union and Britain.
Talking specifically about Singapore, he said the export-driven economy will grow by 1.5 per cent in 2023 after a 3.7 per cent expansion last year.
The IMF forecast falls within the Ministry of Trade and Industry’s projection of a 0.5 per cent to 2.5 per cent GDP growth for 2023 for the Republic.
Mr Gourinchas said: “What is really important for Singapore, and it is true for many other Asian economies, is the openness to trade. This is an economy that is going to be very influenced by what is happening in terms of global activity.”
He said Singapore will also experience elevated inflation in 2023, partly because of the hike in the goods and services tax, which will prompt the Monetary Authority of Singapore to keep financial conditions tight for longer.
The IMF report said advanced economies will expand by 1.2 per cent in 2023, led by Japan’s 1.8 per cent.
The US economy will grow at 1.4 per cent, while the euro area’s growth will come at 0.7 per cent. Britain will likely be the only advanced economy that will shrink in 2023, by 0.6 per cent, after a surprisingly strong 4.1 per cent growth in 2022.