Amidst growing disparities between economic sectors and countries, the global recovery remains sluggish

 

Amidst growing disparities between economic sectors and countries, the global recovery remains sluggish.

It is anticipated that global growth will slow from an estimated 3.5 percent in 2022 to 3.0 percent in 2023 and 2024. Even while the projection for 2023 is slightly better than what was projected in the World Economic Outlook (WEO) for April 2023, it is still low by historical standards. The increase in policy rates by central banks to combat inflation continues to have a negative impact on economic growth. It is anticipated that global headline inflation will decrease from 8.7% in 2022 to 6.8% in 2023 and 5.2 percent in 2024. Forecasts for inflation in 2024 have been upgraded, and underlying (core) inflation is expected to drop more gradually.

The current risk of financial sector unrest was decreased by the recent resolution of the US debt ceiling impasse and earlier this year's forceful government response to curb volatility in US and Swiss banking. As a result, negative outlook risks were reduced. The balance of risks to global growth is still skewed to the downside, though. If other shocks, such as those brought on by an escalation in the conflict in Ukraine and catastrophic weather-related occurrences, take place, inflation may stay high or possibly increase, forcing policymakers to become more restrained. 

As markets respond to further tightening of central bank policy, financial sector turmoil may return. Unresolved real estate issues could delay China's recovery, with detrimental cross-border spillovers. Distress caused by sovereign debt may extend to more economies. On the other side, domestic demand may once more prove more resilient and inflation may decline more quickly than anticipated, necessitating a looser monetary policy.

In the majority of economies, maintaining financial stability while attaining prolonged deflation remains the top goal. Therefore, central banks should continue to prioritize reestablishing price stability while enhancing financial oversight and risk management. Countries should quickly provide liquidity if market tensions arise while reducing the chance of moral hazard. Additionally, they must to create budgetary buffers, with the makeup of the fiscal adjustment assuring targeted assistance for the most defenseless. A smoother decrease in inflation toward target levels and fiscal consolidation would be made possible by improvements to the economy's supply side.