The worldwide economic slowdown continues as the global economy struggles with inflation in its post-pandemic phase. However, things are looking better in the first quarter of 2023 in comparison to October 2022 due to strong labor markets, robust household consumption and business investment.
The re-opening of Chinese economy after a series of Covid lockdowns has also boosted global financial conditions. Inflation, too, is bottoming out globally as central banks continue to keep interest rates high. Europe has fared better than expected in the energy crisis since the Ukraine war began.
Citing the reasons above, IMF has revised its predictions for the year 2023. The economy will slow down globally but the prospects for the future now seem less gloomy.
Global growth, according to the IMF, will slow down from 3.4% to 2.9% in 2023. The economy will recover and grow at 3.1% in 2024.
India continues to remain a bright spot in an otherwise bleak economic forecast. IMF expects India and China to account for 50% of growth this year.
While headline inflation continues to fall globally, core inflation is on the rise. IMF pointed out a few factors due to which it believes that there could be a global downturn.
- China’s recovery might stall due to disruptions caused by the past or future Covid waves
- The escalation of the war in Ukraine is still a big cause of concern for economists across the world
- The impact of inflation on labor as well as other emerging markets could lead to a significant downturn
For now, the global economy seems to be on the road to recovery as developed countries in the East and West have consolidated their supply chains. The household income is higher than expected and will drive growth.
The central banks are currently in uncharted territory as they struggle to shrink their balance sheets. The growing cost-of-living crisis in emerging markets despite positive global economic indicators is a cause for concern. The IMF cites political influence on economic policies post-covid for the current crisis emerging in weaker economies. Overall, the global financial environment continues to be fragile despite a few positive signs.
