World Economic Outlook : Global Divergences

 

World Economic Outlook : Global Divergences

The baseline economic forecast indicates a deceleration in global growth rates, with a projected decline from 3.5 percent in 2022 to 3.0 percent in 2023 and further to 2.9 percent in 2024. These figures notably fall below the historical average of 3.8 percent observed between 2000 and 2019. In advanced economies, growth is expected to diminish from 2.6 percent in 2022 to 1.5 percent in 2023 and 1.4 percent in 2024, primarily due to the implementation of policy measures aimed at curbing economic expansion.

 

For emerging market and developing economies, a modest reduction in growth is anticipated, transitioning from 4.1 percent in 2022 to 4.0 percent in both 2023 and 2024. In terms of global inflation, a gradual decline is foreseen, with a decrease from 8.7 percent in 2022 to 6.9 percent in 2023 and 5.8 percent in 2024. This decline can be attributed to tighter monetary policy measures and the influence of decreasing international commodity prices. Core inflation is expected to decrease at a more measured pace, and achieving target inflation levels is not anticipated until 2025 in most instances.

 

At this current juncture, the actions and frameworks related to monetary policy play a crucial role in anchoring inflation expectations. Chapter 2 of this report provides an overview of recent trends in inflation expectations at both short- and medium-term horizons, involving various economic agents. It underscores the complementary function of monetary policy frameworks, including communication strategies, in facilitating the achievement of disinflation while mitigating adverse impacts on output through the management of agents' inflation expectations.

 

Amid growing concerns surrounding geo-economic fragmentation, Chapter 3 offers an assessment of how disruptions in global commodity trade can impact commodity prices, economic activity, and the transition to green energy.

 

Executive Summary :

The global recovery from the COVID-19 pandemic and Russia’s invasion of Ukraine remains slow and

uneven. Despite economic resilience earlier this year, with a reopening rebound and progress in reducing inflation from last year’s peaks, it is too soon to take comfort. Economic activity still falls short of its prepandemic path, especially in emerging market and developing economies, and there are widening divergences among regions. Several forces are holding back the recovery. Some reflect the long-term consequences of the pandemic, the war in Ukraine, and increasing geoeconomic fragmentation. Others are more cyclical in nature, including the effects of monetary policy tightening

necessary to reduce inflation, withdrawal of fiscal support amid high debt, and extreme weather events.

Global growth is forecast to slow from 3.5 percent in 2022 to 3.0 percent in 2023 and 2.9 percent in 2024. The projections remain below the historical (2000–19) average of 3.8 percent, and the forecast for 2024 is down by 0.1 percentage point from the July 2023 Update to the World Economic Outlook. For advanced economies, the expected slowdown is from 2.6 percent in 2022 to 1.5 percent in 2023 and 1.4 percent in 2024, amid stronger-than-expected US momentum but weaker-than-expected growth in the euro area. Emerging market and developing economies are projected to have growth modestly decline, from 4.1 percent in 2022 to 4.0 percent in both 2023 and 2024, with a downward revision of 0.1 percentage point in 2024, reflecting the property sector crisis in China. Forecasts for global growth over the medium term, at 3.1 percent, are at their lowest in decades, and prospects for countries to

catch up to higher living standards are weak. Global inflation is forecast to decline steadily, from 8.7 percent in 2022 to 6.9 percent in 2023 and 5.8 percent in 2024. But the forecasts for 2023 and 2024 are revised up by 0.1 percentage point and 0.6 percentage point, respectively, and inflation is not expected to return to target until 2025 in most cases.

 

Risks to the outlook are more balanced than they were six months ago, on account of the resolution of

US debt ceiling tensions and Swiss and US authorities having acted decisively to contain financial turbulence. The likelihood of a hard landing has receded, but the balance of risks to global growth remains tilted to the downside. China’s property sector crisis could deepen, with global spillovers, particularly for commodity exporters. Elsewhere, as Chapter 2 explains, near-term inflation expectations have risen and could contribute—along with tight labor markets––to core inflation pressures persisting and requiring higher policy rates than expected. More climate and geopolitical shocks could cause additional food and energy price spikes. As Chapter 3 explains, intensifying geo-economics fragmentation could constrain the flow of commodities across markets, causing additional price volatility and

Complicating the green transition. Amid rising debt service costs, more than half of low-income developing countries are in or at high risk of debt distress. There is little margin for error on the policy front. Central banks need to restore price stability while using policy tools to relieve potential financial stress when needed. As Chapter 2 explains, effective monetary policy frameworks and communication are vital for anchoring expectations and minimizing the output costs of disinflation. Fiscal policymakers should rebuild budgetary room for maneuver and withdraw untargeted measures while protecting the vulnerable. Reforms to reduce structural impediments to growth––by, among other things, encouraging labor market participation—would smooth the decline of inflation to target and facilitate debt reduction. Faster and more efficient multilateral coordination is needed on debt resolution to avoid debt distress. Cooperation is needed as well to mitigate the effects of climate change and speed the green transition, including (as Chapter 3 explains) by ensuring steady cross-border flows of the necessary minerals.

EXECUTIVE SUMMARY

 

Analysts of the report:

 

The analysis in this report was coordinated in the Research Department under the general direction of

Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research. The project was directed by Petya Koeva Brooks, Deputy Director, Research Department, and Daniel Leigh, Division Chief, Research Department. The primary contributors to this report are Silvia Albrizio, Jorge Alvarez, Mehdi Benatiya Andaloussi, John Bluedorn, Christian Bogmans, Allan Dizioli, Christopher Evans, Christoffer Koch, Toh Kuan, Chiara Maggi, Jorge Miranda Pinto, Jean-Marc Natal, Diaa Noureldin, Andrea Pescatori, Ervin Prifti, Marika Santoro,Alexandre Sollaci, Martin Stuermer, Petia Topalova, and Philippe Wingender.

Other contributors include Omer Akbal, Gavin Asdorian, German Villegas Bauer, Jared Bebee, Nina Biljanovska,Marijn Bolhuis, Damien Capelle, Jiaqian Chen, Seung Mo Choi, Yaniv Cohen, Mariarosaria Comunale, Marina Conesa, Pedro de Barros Gagliardi, Wenchuan Dong, Angela Espiritu, Rebecca Eyassu, Carlos Goncalves, Ziyan Han, Youyou Huang, Chris Jackson, Harri Kemp, Benjamin Kett, Divya Kirti, Gene Kindberg-Halon, Eduard Laurito, Jungjin Lee, Nan Li, Weili Lin, Barry Liu, Rui Mano, Carlos Morales, Joseph Moussa, Peter Nagle,Cynthia Nyanchama Nyakeri, Emory Oakes, Chris Papageorgiou, Clarita Phillips, Nicola Pierri, Rafael Portillo,Evgenia Pugacheva, Tianchu Qi, Shrihari Ramachandra, Pedro Rodriguez, Muhammad Ahsan Shafique, Arash

Sheikholeslam, Pedro Vitale Simon, Alessandra Sozzi, Alessia de Stefani, Nicholas Tong, Filiz Unsal, Guillermo Verduzco Bustos, Mona Wang, Isaac Pittman Warren, Yarou Xu, Fan Zhang, Jiaqi Zhao, Canran Zheng, Dian Zhi, and Liangliang Zhu.Gemma Rose Diaz from the Communications Department led the editorial team for the report, with production and editorial support from Michael Harrup, and additional assistance from Lucy Scott Morales, James Unwin, Nancy Morrison, Grauel Group, and Absolute Service, Inc.The analysis has benefited from comments and suggestions by staff members from other IMF departments, as well as by Executive Directors following their discussion of the report on September 26, 2023. However, estimates, projections, and policy considerations are those of the IMF staff and should not be attributed to Executive Directors or to their national authorities.

 

Reports Tables & Statistical in World Economic Outlook- Oct 2023

 

Advanced Economies: Unemployment, Employment, and Real GDP per Capita

Emerging Market and Developing Economies: Real GDP

Advanced Economies: Hourly Earnings, Productivity, and Unit Labor Costs in Manufacturing

Emerging Market and Developing Economies: Consumer Prices

Summary of Fiscal and Financial Indicators

Advanced Economies: General and Central Government Net Lending/Borrowing and General Government Net Lending/Borrowing Excluding Social Security Schemes

Advanced Economies: General Government Structural Balances

Emerging Market and Developing Economies: General Government Net Lending/Borrowing and Overall Fiscal Balance

Emerging Market and Developing Economies: General Government Net Lending/Borrowing

Selected Advanced Economies: Exchange Rates

Emerging Market and Developing Economies: Broad Money Aggregates

Advanced Economies: Export Volumes, Import Volumes, and Terms of Trade in Goods and Services

Emerging Market and Developing Economies by Region: Total Trade in Goods

Emerging Market and Developing Economies by Source of Export Earnings: Total Trade in Goods

Summary of Current Account Transactions

Emerging Market and Developing Economies: Summary of External Debt and Debt Service

Emerging Market and Developing Economies by Region: External Debt by Maturity

Emerging Market and Developing Economies by Analytical Criteria: External Debt by Maturity

Emerging Market and Developing Economies: Ratio of External Debt to GDP

Emerging Market and Developing Economies: Debt-Service Ratios

Emerging Market and Developing Economies, Medium-Term Baseline Scenario: Selected Economic Indicators

 

Figures including on below title are also shown in World Economic Outlook- Oct 2023

 

Incomplete Recovery: Scarring from the Shocks of 2020–22

The COVID-19 Shock: Returning to Normal

Cumulative Excess Savings in Advanced Economies

Tourism Returning to Normal

Slower Growth Momentum Ahead

China’s Economy Losing Momentum

Inflation Turning the Corner

Headline Inflation Distribution

Different Drivers: Inflation in Selected Economies

Labor Markets Still Tight but Easing

Little Evidence of Wage-Price Spirals

Profits and Labor Shares: Accounting for Inflation

Monetary Policy to Remain Tight

Credit Channel Active in US and EA

House Prices Slowing or Reversing, 2022–23

Monetary and Fiscal Policy Assumptions

Growth Outlook: Stable and Slow

Inflation Outlook: Falling

Headline Inflation Forecasts for Selected Economies

Inflation Mostly above Target until 2025

Forecasts of Global GDP

Current Account and International Investment Positions

Recession and Inflation Concerns over Time

Sovereign Spreads in Emerging Market and Developing Economies

Social Unrest Stable at Low Level

General Government Interest Payments

Firms Less Green in Emerging Market Economies

Five-Year-Ahead Growth Projections

Five-Year-Ahead Growth Projections: Country Groups

Projected Growth Deceleration in the Largest Economies

Per Capita Growth Forecast Decomposition

Medium-Term Growth and Income Convergence

Distribution of Forecast Uncertainty around Global GDP Growth and Inflation Projections

Impact of Scenario on GDP Level and Core Inflation

Commodity Market Developments

 

Peak Commodity Price Responses to a 10-Basis-Point US Monetary Policy Shock

Impulse Response Functions for a 10-Basis-Point US Monetary Policy Shock

Contribution of Oil and Food Prices in the Transmission of US Monetary Policy Shocks

Asymmetric Pass-Through of Commodity Price Shocks

Cross-Economy Deviations of Inflation Expectations from Targets

Next-12-Months Mean Inflation Expectations by Economic Agent

Cross-Economy Distribution of Mean Inflation Expectations over Time

Historical Episodes with Persistently Rising Near- and Long-Term Inflation Expectations

Estimated Effects of Alternative Inflation Expectations Measures on Current Inflation

Key Coefficients of the Hybrid Phillips Curve

Associational versus Causal Estimated Effects of Inflation Expectations on Current Inflation

Contributors to Recent Inflation Dynamics

State-Dependent Pass-Through from Expectations to Inflation

Macroeconomic Responses to Shocks Conditional on Agents’ Expectations Formation

Sacrifice Ratios under Alternative Expectations Processes

Soundness of Monetary Policy Frameworks and Forecast Rationality Tests across Economies

Policy Interventions to Hasten the Reduction of Inflation and Inflation Expectations

Policy Objectives, Social Welfare, and Expectations Formation

US Inflation and Firms’ Attention to the Federal Reserve

Role of Attention in Monetary Policy Effectiveness

Inflation Expectations in Emerging Market and Developing Economies: Monetary Policy Frameworks and Public Debt Interactions

Marginal Impacts of Fiscal Measures for Relief from the Energy Price Shock on Inflation and Expectations

Fragmentation Keywords in Earnings Calls

Commodities: Key Characteristics

Commodity Trade and Distance of Military Alliances

Signs of Fragmentation

Price Changes Due to Fragmentation in Individual Commodity Markets

Wheat Price Increase in the US-Europe+ Bloc due to a Harvest Shock