Jan. 31 (UPI) — Inflation and Russia’s war on Ukraine will see global economic growth slow to 2.9% this year, down from an estimated 3.4% last year, the International Monetary Fund warned Tuesday.
While the world economy is expected to rebound next year, growing 3.1%, there was a sharp disparity in the economic prospects of developing versus advanced economies, according to the fund’s 2023 World Economic Outlook Update.
This year’s slowdown will be more pronounced for the advanced economies which will see growth more than halve to 1.2% from 2.7% last year before it stabilizes at 1.4% next year.
Growth in nine out of 10 advanced economies is likely to decelerate with growth in the global economy this year coming instead from India and China, which will account for half of the 2.9% expansion of the world economy. The United States and euro area combined will contribute just one-tenth.
The forecast for this year is up 0.2% from the IMF’s October update thanks to the re-opening of China’s economy following the lifting of three years of strict COVID-19 restrictions, pent-up demand in many economies, and falling inflation.
“Despite these headwinds, the outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining,” Pierre-Olivier Gourinchas, the fund’s director of research, said in a blog post.
”Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe.
”Inflation, too, showed improvement, with overall measures now decreasing in most countries-even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries,” Gourinchas said.
Growth in the United States is seen at 1.4% for this year, falling to 1% next year, while growth in the euro area is forecast at 0.7% this year, but more double next year to 1.6%.
Britain is the only advanced economy where the IMF forecasts negative growth this year with the economy expected to shrink by 0.6%, weighed down by household spending it expects to buckle under the weight of high energy prices, rising mortgage costs and higher taxes. The British economy is forecast to return to the black next year, growing 0.9%.
The IMF warned that many countries responded to the cost-of-living crisis by supporting people and businesses with broad and untargeted policies that helped cushion the shock. Many of these measures have proved costly and increasingly unsustainable.
But the remedy the IMF proposes will likely prove a bitter pill to many governments. It recommended they should instead adopt targeted measures that conserve fiscal space, allow high energy prices to reduce energy demand, and refrain from excessive economic stimulus.