The prevailing condition of the global economy is not at all rosy with the after-effects of Covid pandemic still lingering on. The global supply chain that was badly disrupted by the pandemic has still not satisfactorily restored with the result that global supplies are restricted.
The Russian-Ukrainian war has not restricted global grain supply but has also seriously raised risks of war in Europe unnerving western policy makers. Russia has not backed-off from its war aims in Ukraine but Ukraine has proved extremely resilient showing exemplary courage. The International Monetary Fund (IMF) slightly lowered its outlook for the global economy while predicting that most countries will avoid a recession this year despite economic and geopolitical concerns.
The IMF predicted the global economy will grow by 2.8 per cent this year and 3pc in 2024, a decline of 0.1pc point from its previous forecasts in January. The American economy is expected to grow by 1.6 per cent in 2023, up 0.2 per cent points from the IMF’s previous forecast. US growth is then predicted to slow to 1.1 per cent next year, up 0.1 per cent point from January. The IMF pointed out that the global economy is recovering from the shocks of the last few years and particularly of the pandemic and also the Russian invasion of Ukraine and its global fall-out particularly in respect of Europe.
It is reported that the top office holders of the IMF and the World Bank have expressed hope to use this year’s spring meetings to promote an ambitious reform and fundraising agenda. But their efforts will likely be overshadowed by concerns among member states over high inflation, rising geopolitical tension, and financial stability.
The overall picture painted is a gloomy one with global growth forecast to slow in both the short and medium terms. Close to 90 per cent of advanced economies will experience slowing growth this year, while Asia’s emerging markets are expected to see a substantial rise in the economic output — with India and China predicted to account for half of all growth. Low-income countries, meanwhile, are expected to suffer a double shock from higher borrowing costs due to high-interest rates and a decline in demand for their exports and this could result in worsening poverty and hunger that are already experienced in such countries.
The IMF expects global inflation to slow to 7 per cent this year, down from 8.7 per cent last year and this figure remains significantly above the 2 per cent target set by the US Federal Reserve and other central banks around the world, suggesting monetary policymakers have a long way to go before inflation is brought back under control. The IMF’s baseline forecasts assume that the financial instability sparked by the collapse of Silicon Valley Bank last month has been broadly contained by the forceful actions of regulators on both sides of the Atlantic but it was added that central banks and policymakers have an important role to play to buttress financial stability going forward.
While the picture is one of slowing growth, almost all advanced economies are still expected to avoid a recession this year and next. Alongside the growth in the US, the Euro area is also forecast to grow by 0.8 per cent this year and 1.4 per cent next year, led by Spain, which will see 1.5 per cent growth in 2023 and 2 per cent growth in 2024. But Germany is now expected to contract by 0.1 per cent this year joining the UK as the only G7 economy expected to enter recession this year.
The picture is more positive among emerging market economies, with China forecast to grow by 5.2 per cent this year but its economic growth is predicted to slow to 4.5 per cent in 2024 as the impact of its reopening from the Covid-19 pandemic fades. India’s economic forecast has been downgraded from the previous forecast in January but it is still predicted to grow by 5.9 per cent this year and 6.3 per cent in 2024, providing some much-needed stimulus to the global economy. And Russia is now expected to grow by 0.7 per cent this year up 0.3 per cent point on January’s forecast, despite its invasion of Ukraine.
Looking forward, the IMF forecasts that global growth will fall to three per cent in 2028, its lowest medium-term forecast since 1990. Slowing population growth and the end of the era of economic catch-up by several countries including China and South Korea are a large part of the expected slowdown as are concerned about low productivity in many countries. It is pointed out that a lot of the low-hanging fruit was picked and on top of that now, with the geopolitical tensions and fragmentation, this is going to also weigh on growth. This forecast is a mixed bag but it is certainly promising.
Malik Nasir Mahmood Aslam is a seasoned social activist
