Global growth outlook slightly healthier, says IMF

The federal treasurer has welcomed the International Monetary Fund’s faintly improved outlook for the global economy but warns challenges still lie ahead.

The IMF has upgraded its 2023 global growth forecast by 0.2 percentage points to 2.9 per cent in its January 2023 World Economic Outlook report released on Tuesday.

The organisation expects global growth to fall to its low point this year from 3.4 per cent in 2022, before recovering to 3.1 per cent in 2024.

While slightly more optimistic, the growth outlook for 2023 remains well below the 3.8 per cent average over the past two decades.

Treasurer Jim Chalmers said the global economy was still on a “dark and difficult path” despite the tweaked predictions.

“While the slight upgrades to global growth are welcome, the IMF is still predicting the weakest two-year period for the global economy – aside from the downturns caused by the GFC and pandemic – in a generation,” he said.

Advanced economies are expected to lead the growth slowdown into 2023 and 2024, with growth in these economies slowing from 2.7 per cent in 2022 to 1.2 per cent in 2023.

Growth likely bottomed out in emerging markets and developing economies in 2022.

Inflation also likely reached its peak of 8.8 per cent in 2022 and is tipped to sink to 6.6 per cent in 2023 and 4.3 per cent in 2024.

The IMF said high inflation, Russia’s war in Ukraine and the rapid spread of COVID-19 in China were all weighing on economic activity.

But China’s reopening should spur a faster recovery as pent-up demand drives a sharp rebound in activity.

While “adverse risks have moderated” since the IMF’s last health check in October, risks are tilted to the downside.

The organisation worries about strong wage growth keeping inflation high, a disruptive reopening of the Chinese economy, the war in Ukraine escalating, high sovereign debt levels, deteriorating geopolitical relations and over-tightening by central banks.

On the flip side, strong private savings and government pandemic support could keep consumer demand strong, and inflation could drop off faster than predicted and without spurring a large uptick in unemployment.

Dr Chalmers said Australia was in a strong position, with unemployment at record lows, strong prices for energy and other exports, and the early stages of wage growth.

But he worried natural disasters could weigh on Australia’s prospects, as well as the impending global slowdown.

“That all means we should be realistic about the challenges ahead, but also optimistic about the future of our economy and the future of our nation.”

On Monday, ratings agency S&P Global affirmed Australia’s AAA credit rating and said it expects the nation to dodge a recession.

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