IMF raises global growth forecasts though China’s recovery ‘has lost steam’

The International Monetary Fund on Tuesday raised its growth forecast for the global economy, becoming slightly more positive despite slowing momentum from China.

In its latest update of the World Economic Outlook, the International Monetary Fund raised its forecast for global growth in 2023 by 0.2 percentage point to 3%, up from 2.8% in its April assessment. The International Monetary Fund kept its growth forecast for 2024 unchanged at 3%.

In terms of inflation, the fund also expects an improvement over last year. Headline inflation is expected to come in at 6.8% this year, down from 8.7% in 2022. However, core inflation, which excludes volatile items, is expected to ease more slowly to 6% this year, from 6.5% last year.

“The global economy continues to gradually recover from the pandemic and Russia’s invasion of Ukraine. In the near term, signs of progress are undeniable,” Pierre-Olivier Gournchas, chief economist at the International Monetary Fund, said in an accompanying blog post on Tuesday. “However, many challenges remain on the horizon, and it is too early to celebrate,” he added.

The International Monetary Fund highlighted concerns about tightening credit conditions, depleting household savings in the United States, and a smaller-than-expected economic recovery in China from strict Covid-19 lockdowns.

“In the US, excess savings from pandemic-related remittances, which helped families weather the cost-of-living crisis and tighter credit conditions, are nearly depleted,” Gorenchas said.

The United States, the world’s largest economy, is set to grow 1.8% this year and 1% in 2024, according to the International Monetary Fund. In China, GDP is expected to decline from 5.2% this year to 4.5% for 2024.

Persistent vulnerability [Chinese] The International Monetary Fund said in its report that the real estate sector is putting pressure on investment, and foreign demand remains weak, and the rise in youth unemployment by 20.8% in May 2023 indicates a weakness in the labor market, and added that “high-frequency data until June confirms a decline in momentum in the second quarter of 2023.”

The comments come after Chinese stocks rebounded on Tuesday on the back of the country’s authorities’ statements that they are preparing for more stimulus. Beijing is reported to be working on new measures to expand domestic demand, according to Reuters, citing China’s state news agency.

Among Europe’s major economies, only Germany has the International Monetary Fund lowering its growth forecast for this year. The fund expects the German economy to contract by 0.3% this year, down 0.2 percentage points from the April forecast. The IMF said this was due to weak manufacturing output and lower growth performance during the first quarter of this year.

Data released on Monday showed business activity contracted at a faster-than-expected pace in July across the eurozone. In Germany, data indicated an economic contraction, with industrial production levels declining for the third month in a row and at the fastest pace since May 2020.

“This is a bad start to the third quarter for the German economy, with the flash PMI slipping into contraction territory. The manufacturing sector continues to lead the slowdown, while the slowdown in services sector growth that began last month extended into July,” Cyrus de la Robbia, chief economist at Hamburg Commercial Bank, said of the data release.