Why is the IMF more optimistic about the world economy?

Why is the IMF more optimistic?  - Photo 1.

The economy will grow more when everything is not congested. Passengers wait to board a train at Hongqiao train station in Shanghai (China) on January 18, in the context that the country has downgraded its management of the COVID-19 epidemic – Photo: Reuters

The world economic outlook over the past weeks has been surprisingly bright as the US, Europe and China all outperformed expectations and avoided, at least for the time being, some of the most extreme scenarios. bad version.

Companies in the US continue to hire at a steady rate, while the latest statistics on European manufacturing situation signal growth and Chinese people have increased spending.

3 main economic drivers

In a report dated January 30, the IMF expects global growth in 2023 to be 2.9%, slower than 2022 but still 0.2 percentage points higher than the 2.7% forecast in October 2022. Worldwide inflation will slow to 6.6% this year, down from the global average of 8.8% last year. Further, global growth in 2024 will accelerate to 3.1%.

The IMF notes that global economic growth has recovered remarkably in the third quarter of 2022. During this period, the labor market was strong, household consumption and business investment strong, adaptability was better than expected to the energy crisis in Europe, and inflation improved.

However, much of the improvement in the world’s three main economic drivers – the US, Europe and China – has been attributed to disaster abatement rather than new explosive developments, according to the Washington Post.

In the US, the Federal Reserve’s fastest interest rate hike in 40 years has yet to push the economy into recession, while companies like Boeing and Chipotle plan to hire thousands of new employees. . The weakening of the US dollar (USD) also makes it easier for developing economies to breathe.

Fears of a serious energy crisis in Europe have eased. According to Christian Keller, head of economic research at Barclays Bank, Europe’s ability to cope with the shortage of Russian gas is key to improving the economy. Thanks to storage efforts and mild weather, Europe’s gas storage facilities are now close to 74%.

Earlier this week, the European Commission’s Economic Sentiment Index (ESI) rose for a third month, while the employment expectations index rose for a second straight month. The commission said the figures “increased markedly” in France, Germany, Italy and Spain.

China’s abrupt lifting of strict epidemic prevention measures in December 2022, months earlier than investors expected, is expected to spur higher global growth.

Mr. Pierre-Olivier Gourinchas, chief economist of the IMF, commented: “The global economic outlook is less bleak than the forecast we made in October 2022. Right now, we don’t see it. there is a global recession”.

Why is the IMF more optimistic?  - Photo 2.

Source: IMF – Data: BAO ANH – Graphics: TUAN ANH

Still have to be careful

The IMF’s brighter global economic outlook comes as central banks in the US, Europe and the UK are expected to raise interest rates this week to further combat inflation. The Fed is likely to raise interest rates by 0.25 points, the European Central Bank and the Bank of England can raise rates by 0.5 points.

However, CNBC channel said that the world economic picture is not entirely positive. In early January 2023, IMF Managing Director Kristalina Georgieva said that while the global economy is not as bad as some feared, “less bad does not mean good”. “We have to be careful,” she warned.

The UK is the only advanced economy where the IMF forecasts a recession this year, with GDP shrinking 0.6%. According to the IMF, the UK has suffered the effects of leaving the European Union (EU) and is grappling with high inflation, and the labor market has not yet recovered to pre-epidemic levels. “The UK is facing a rather challenging environment,” Mr Gourinchas said.

In the US, most forecasters expect a recession, possibly as early as this spring. But policymakers can steer the US economy to a “soft landing,” which means bringing inflation under control without falling into a recession.

The IMF warned that a number of factors could worsen the global economic outlook in the coming months. That is China’s reopening process could stall, inflation remains high, protracted Russia-Ukraine conflict raises energy and food prices further, markets bleak as inflation data worse than predicted.

Still worried about fighting inflation

The IMF warns that the fight against inflation is not over yet. “The fight against inflation is beginning to bear fruit, but central banks must continue to make an effort,” said Pierre-Olivier Gourinchas.

Mr. Gourinchas said central banks need to be vigilant and make sure that inflation is going down, especially in countries where real interest rates are still low, such as in Europe.

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