The International Monetary Fund has updated its report on the state of the world economy

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The updated report of the International Monetary Fund (IMF) on the state of the world economy does not contain positive news. IMF experts note an almost universal decline in business activity – in developed countries it is associated with a decline in industry and the exhaustion of recovery growth in the service sector, in developing countries – with a weakening of external demand. Global inflation, however, is also declining, amid lower commodity prices and tightening monetary policy.

IMF published June update of the global macro forecast. It provides for a slowdown in global economic growth this year from 3.5% to 3% (at the same time, compared to the April report, the estimate for this year was even improved by 0.2 percentage points, for 2024 it was left unchanged – 3%).

In developed countries, the pace will slow down from 2.7% to 1.5% against the backdrop of a decline in industry and the gradual exhaustion of the effect of growth in the service sector.

In the US this year, GDP growth is expected to slow down from 2.1% to 1.8% (next year – to 1%), in the euro area – from 3.5% to 0.9% (forecast for 2024 – plus 1.5%). In Germany this year, GDP is expected to contract by 0.3%, the rest of the countries will maintain positive growth rates.

Developing countries are harmed by “geo-economic fragmentation” and weakening external demand, the IMF notes. Growth rates will remain at the level of last year (4%), while growth in China should accelerate from 3% to 5.2%, in Russia – from minus 2.1% to 1.5% (forecast for next year is 1.3%). But global trade growth will slow from 5.2% to 2% before climbing to 3.7% in 2024, a slowdown that reflects not only cooling global demand, but also the growing role of the services sector, as well as the deferred effects of a stronger dollar (which leads to lower trade), the IMF added.

As one of the risks for the current forecast, the fund calls a decrease in activity in China (in particular, against the backdrop of a decline in the real estate market), which will inevitably affect China’s trading partners.

As a reminder, in the second quarter, growth also turned out to be weaker than expected – the indicator increased by 6.3% year-on-year, but compared to the first quarter, the increase was only 0.8%. The primary effect of the lifting of coronavirus restrictions, which allowed to support business activity at the beginning of the year (including due to the growth of net exports), is also “evaporating”, the authors of the report note.

The fund notes that the increase in rates has already negatively affected the state of business activity, while the global inflation rate is forecast to decrease from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024. The main reason for the slowdown in price growth in the IMF, however, is not yet considered the consequences of monetary tightening, but the decline in commodity prices (this year they may decline by 21% after rising by 39% last year). Central banks have to balance between fighting inflation and maintaining financial stability – regulators in the fund are advised to stick to real rates above neutral ones. In general, the terms of financing, according to the fund, remain rather favorable, although the pace of lending is declining following the growth of rates, and the tightening is already affecting the non-financial sector.

Core inflation (excluding prices for raw materials and food), however, is declining more slowly than the main indicators, and is expected to decline from 6.5% in 2022 to 6% this year (in half of the countries the decrease is not expected) and 4.7% in 2024. At the same time, price growth forecasts for developed countries were raised compared to the April estimate, while the forecast for China, on the contrary, was lowered.

Tatyana Edovina

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