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‘Surprisingly resilient’: IMF lifts global growth forecasts | International Monetary Fund

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The International Monetary Fund (IMF) has raised its 2023 global growth outlook slightly due to “surprisingly resilient” demand in the United States and Europe and the reopening of China’s economy after Beijing abandoned its strict zero-COVID strategy.

The IMF said global growth would still fall to 2.9 percent in 2023 from 3.4 percent in 2022, but its latest World Economic Outlook forecasts mark an improvement over an October prediction of 2.7 percent growth this year, with warnings that the world could easily tip into recession.

For 2024, the IMF said global growth would accelerate slightly to 3.1 percent, but interest rate hikes by central banks around the world would slow demand.

IMF chief economist Pierre-Olivier Gourinchas said recession risks had subsided and central banks were making progress in controlling inflation, but more work was needed to curb prices, and new disruptions could come from further escalation of the war in Ukraine and China’s battle against COVID-19.

“We have to sort of be prepared to expect the unexpected, but it could well represent a turning point, with growth bottoming out and then inflation declining,” Gourinchas told reporters of the 2023 outlook.

Strong demand

In its 2023 gross domestic product (GDP) forecasts, the IMF said it now expected GDP growth in the US of 1.4 percent, up from the 1.0 percent predicted in October and following 2.0 percent growth in 2022.

The fund cited stronger-than-expected consumption and investment in the third quarter of 2022, a robust labour market and strong consumer balance sheets.

It said the eurozone had made similar gains, with 2023 growth for the bloc now forecast at 0.7 percent, compared with 0.5 percent in the October outlook, following 3.5 percent growth in 2022. The IMF said Europe had adapted to higher energy costs more quickly than expected, and an easing of energy prices had helped the region.

The United Kingdom was the only major advanced economy the IMF predicted to be in recession this year.

It forecast the British economy to shrink 0.6 percent this year, compared with a previous expectation for growth of 0.3 percent. People are struggling with higher interest rates, and government moves to further tighten spending are also squeezing growth, it said.

“These figures confirm we are not immune to the pressures hitting nearly all advanced economies,’’ Chancellor of the Exchequer Jeremy Hunt said in response to the IMF forecast. “Short-term challenges should not obscure our long-term prospects — the UK outperformed many forecasts last year, and if we stick to our plan to halve inflation, the UK is still predicted to grow faster than Germany and Japan over the coming years.”

China reopens

The IMF revised China’s growth outlook sharply higher for 2023, to 5.2 percent from 4.4 percent in the October forecast after its ‘zero-COVID’ strategy held back the economy. China’s growth rate was 3.0 percent in 2022, below the global average for the first time in more than 40 years.

Still, the fund added that China’s growth will “fall to 4.5 percent in 2024 before settling at below 4 percent over the medium term amid declining business dynamism and slow progress on structural reforms”.

At the same time, it maintained India’s outlook for a dip in 2023 growth to 6.1 percent but a rebound to 6.8 percent in 2024, matching its 2022 performance.

Gourinchas said together, the two Asian powerhouse economies will contribute more than 50 percent of global growth in 2023.

He acknowledged that China’s reopening would put some upward pressure on commodity prices, but “on balance, I think we view the reopening of China as a benefit to the global economy” as it will help ease production bottlenecks that have worsened inflation and by creating more demand from Chinese households.

Even with China’s reopening, the IMF is predicting that oil prices will fall in both 2023 and 2024 due to lower global growth compared with 2022.

Risks

The IMF said there were both upside and downside risks to the outlook, with built-up savings creating the possibility of sustained demand growth, particularly for tourism, and an easing of labour market pressures in some advanced economies helping to cool inflation, lessening the need for aggressive rate hikes.

But it detailed more and larger downside risks, including more widespread COVID-19 outbreaks in China and a worsening of the country’s property turmoil.

An escalation of the war in Ukraine could lead to a further spike in energy and food prices, as would a cold northern winter next year as Europe struggles to refill gas storage and competes with China for liquefied natural gas supplies, the fund said.

Gourinchas said central banks need to stay vigilant and be more certain that inflation is on a downward path, particularly in countries where real interest rates remain low, such as in Europe.

“So we’re just saying, look, bring monetary policy slightly above neutral at the very least and hold it there. And then assess what’s going on with price dynamics and how the economy is responding, and there will be plenty of time to adjust course, so that we avoid having overtightening,” Gourinchas said.

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IMF hikes global growth forecast as inflation cools

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The IMF has revised its global economic outlook upwards.

Norberto Duarte | Afp | Getty Images

The International Monetary Fund on Monday revised upward its global growth projections for the year, but warned that higher interest rates and Russia’s invasion of Ukraine would likely still weigh on activity.

In its latest economic update, the IMF said the global economy will grow 2.9% this year — which represents a 0.2 percentage point improvement from its previous forecast in October. However, that number would still mean a fall from an expansion of 3.4% in 2022.

It also revised its projection for 2024 down to 3.1%.

“Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity,” Pierre-Olivier Gourinchas, director of the research department at the IMF, said in a blog post.

The outlook turned more positive on the global economy due to better-than-expected domestic factors in several countries, such as the United States.

“Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe,” Gourinchas said, also noting that inflationary pressures have come down.

In addition, China announced the reopening of its economy after strict Covid lockdowns, which is expected to contribute to higher global growth. A weaker U.S. dollar has also brightened the prospects for emerging market countries that hold debt in foreign currency.

However, the picture isn’t totally positive. IMF Managing Director Kristalina Georgieva warned earlier this month that the economy was not as bad as some feared “but less bad doesn’t quite yet mean good.”

“We have to be cautious,” Georgieva said during a CNBC-moderated panel at the World Economic Forum in Davos, Switzerland.

The IMF on Monday warned of several factors that could deteriorate the outlook in the coming months. These included the fact that China’s Covid reopening could stall; inflation could remain high; Russia’s protracted invasion of Ukraine could shake energy and food costs even further; and markets could turn sour on worse-than-expected inflation prints.

IMF calculations say that about 84% of nations will face lower headline inflation this year compared to 2022, but they still forecast an annual average rate of 6.6% in 2023 and of 4.3% the following year.

As such, the Washington, D.C.-based institution said one of the main policy priorities is that central banks keep addressing the surge in consumer prices.

“Clear central bank communication and appropriate reactions to shifts in the data will help keep inflation expectations anchored and lessen wage and price pressures,” the IMF said in its latest report.

“Central banks’ balance sheets will need to be unwound carefully, amid market liquidity risks,” it added.

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World

IMF, Bangladesh reach preliminary deal for $4.5bn loan | Business and Economy News

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Rising energy and food prices, sparked by the Russia-Ukraine war, and shrinking forex reserves have hit Bangladesh.

The International Monetary Fund (IMF) has provisionally agreed to provide a $4.5bn support programme to Bangladesh, with the country’s finance minister saying the deal would help prevent economic instability escalating into a crisis.

Bangladesh’s $416bn economy has been one of the world’s fastest growing for years. But rising energy and food prices, sparked by Russia’s invasion of Ukraine, along with shrinking foreign exchange reserves, have swelled its import bill and current account deficit.

On Wednesday, it became the third South Asian nation to secure a “staff-level agreement” with the IMF for loans this year after Pakistan and Sri Lanka.

“The heat of the global economy has affected our economy to some extent,” Finance Minister AHM Mustafa Kamal told reporters after the IMF announcement. “We requested the IMF loan as a precautionary measure to ensure that this instability does not escalate into a crisis.”

“Bangladesh’s robust economic recovery from the pandemic has been interrupted by Russia’s war in Ukraine, leading to a sharp widening of the current account deficit, a rapid decline of foreign exchange reserves, rising inflation and slowing growth,” said Rahul Anand, who led a visiting IMF staff mission.

The group arrived in Bangladesh late last month to iron out provisions for providing the loan to the South Asian nation of more than 160 million people.

IMF said a “staff-level agreement” had been reached for a 42-month arrangement, including about $3.2bn from its Extended Credit Facility (ECF) and Extended Fund Facility (EFF), plus about $1.3bn from its new Resilience and Sustainability Facility (RSF).

“The objectives of Bangladesh’s new Fund-supported program are to preserve macroeconomic stability and support strong, inclusive, and green growth, while protecting the vulnerable,” the lender said in a statement.

A staff-level agreement is typically subject to approval by IMF management and consideration by its executive board, which is expected in the coming weeks.

Bracing for a slowdown

Bangladesh’s economic mainstay is the export-oriented garment industry, which is bracing for a slowdown as big customers like Walmart are saddled with excess stocks as inflation forces people to prioritise their spending.

The country’s foreign exchange reserves had dwindled to $35.74bn by November 2 from $46.49bn a year ago, central bank data showed.

The IMF said Bangladesh has put together a programme to foster growth that includes measures to contain inflation and strengthen the financial sector.

Finance Minister Kamal said the IMF team agreed with the government’s economic reforms. Earlier, in August, Bangladesh hiked fuel prices by about 50 percent in a move to trim its subsidy burden, but government officials denied at the time that this was a prerequisite for the IMF loan.

Funds will be disbursed in seven tranches, Kamal said, adding that the first instalment will be available in February 2023.

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Business

Fed’s move to hike interest rates will slow down Asia’s recovery

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The Federal Reserve’s move to raise interest rates and tighten policy aggressively will hamper the economic recovery in Asia, according to the International Monetary Fund.

The current account surplus and the level of reserves are much higher among Asian countries this time compared to 2013 during the so-called “taper tantrum,” said Changyong Rhee, director of the Asia and Pacific department at the IMF.

However, he warned the higher debt burden is a problem for the region.

“Overall, the debt has increased quite significantly after the global financial crisis. Around 2007, Asia accounted for about 27% of the global debt. Now in 2021, Asia accounted for  almost 40% of global debt,” he told CNBC’s “Squawk Box Asia” on Wednesday.

In 2013, the Fed triggered a “taper tantrum” when it began to wind down its asset purchase program. Investors panicked and it sparked a sell-off in bonds, causing Treasury yields to surge.

As a result, emerging markets in Asia suffered sharp capital outflows and currency depreciation at that time, forcing central banks in the region to hike interest rates to protect their capital accounts.

This time, the Fed’s higher interest rates “may not cause a big shock to the financial market, but they can definitely slow down Asia’s recovery and growth,” Rhee added.

His comments come ahead of the Fed’s policy statement later on Wednesday, where it’s expected to signal a rate hike as soon as March and indicate more policy tightening on the table to tamp down inflation.

Asia’s tough balancing act

Asian governments may need to prepare for faster policy normalization following the Fed’s move to curb inflationary pressures, according to Rhee.

“The situation is quite heterogeneous in Asia. Like Singapore and [South] Korea and several Asian countries, inflation is already higher and the output gap is small. So the central banks have to move quickly as Singapore did this week,” he said, referring to Singapore’s central bank decision on Tuesday to tighten monetary policy over inflationary concerns.

High interest rates in the United States, will force them to react to the monetary policy. So they have a really delicate balancing act at the moment.

Changyong Rhee

International Monetary Fund

The output gap measures the difference between the economy’s actual output and the potential output the economy can produce at full capacity.

However, there are other Asian countries with an output gap that’s still relatively large because they were hit by the Covid-19 delta outbreak last year. As a result, it has hampered their recovery, Rhee noted.

“High interest rates in the United States, will force them to react to the monetary policy. So they have a really delicate balancing act at the moment,” he said.

China’s growth outlook

On Tuesday, the IMF slashed its global growth forecast for 2022 due to concerns over increasing Covid cases, supply chain disruptions and higher inflation.

It expects global gross domestic product to weaken from 5.9% in 2021 to 4.4% in 2022 — lowering this year’s figure by half a percentage point compared to previous estimates.

China’s growth this year is now expected to come in at just 4.8% — down from an earlier estimate at 5.6%, based on IMF’s forecast. 

Last week, China reported that its economy grew by 8.1% in 2021 compared to a year ago, according to data from the National Bureau of Statistics. GDP in the fourth quarter rose 4% year-on-year, faster than analysts expected.

The IMF recently said China’s zero-Covid policy is looking like a “burden,” which is hampering economic recovery both domestically and for the world.

Since the pandemic began in early 2020, China’s strict policy means mass quarantines and lockdowns, as well as widespread travel restrictions — whether within a city or with other countries — are used to control outbreaks. 

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Whether China is able to achieve 4.8% growth rate or even higher depends on the two things, Rhee noted.

“One is the dynamics of omicron and the future dynamics of this pandemic,” which is hard to predict, he said. 

“I think they have room to use more fiscal resources. Depending on how much they will use the fiscal resources, China’s growth rate will be determined,” he added.

— CNBC’s Karen Gilchrist contributed to this report.

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IMF raises Middle East growth forecast, recovery will be ‘divergent’

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The International Monetary Fund has revised its growth forecast upward for the Middle East and North Africa region, as countries recover from the coronavirus crisis that began in 2020.

Real GDP in the MENA region is now expected to grow 4% in 2021, up from the fund’s October projection of 3.2%.

However, the outlook will vary significantly across countries depending on factors such as vaccine rollouts, exposure to tourism and policies introduced, the IMF said in its latest regional economic report published on Sunday.

(The) vaccine is an important variable this year, and the acceleration of vaccination could contribute to almost one additional percent of GDP in 2022.

Jihad Azour

IMF Middle East and Central Asia Director

Jihad Azour, director of the IMF’s Middle East and Central Asia department, said the recovery would be “divergent between countries and uneven between different parts of the population.”

He told CNBC’s Hadley Gamble that the growth would be driven mainly by oil-exporting countries that will benefit from the acceleration of vaccination programs and the relative strength in oil prices.

Vaccines an ‘important variable’

Azour said each country’s capacity to recover in 2021 varies a “great deal.”

“(The) vaccine is an important variable this year, and the acceleration of vaccination could contribute to almost one additional percent of GDP in 2022,” he said.

Some countries in the region — such as the Gulf Cooperation Council states, Kazakhstan and Morocco — started their vaccinations early and should be able to inoculate a significant share of their population by end-2021, the IMF said.

Other nations including Afghanistan, Egypt, Iran, Iraq and Lebanon were classified as “slow inoculators” that will probably vaccinate a big portion of their residents by mid-2022.

Shoppers wearing protective masks walk near the Dubai Mall and the Burj Khalifa skyscraper in Dubai, United Arab Emirates, on Wednesday, Jan. 27, 2021.

Christopher Pike | Bloomberg | Getty Images

The last group — the “late inoculators” — are not expected to achieve “full vaccination until 2023 at the earliest,” the report said.

It added that early inoculators are expected to reach 2019 GDP levels in 2022, but countries in the two slower categories will recover to pre-pandemic levels between 2022 and 2023.

Looking ahead

Azour said innovative policies helped to speed up the recovery, but it’s “very important to build forward better.”

That could include measures to improve the economy, attract investment, increase regional cooperation and address scars of the Covid crisis.

“All these elements are silver linings that can help accelerate the recovery and bring the economy of the region (to) the level of growth that existed prior to the Covid-19 shock,” he said.

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Euro zone GDP contracts amid tight covid restrictions, vaccine rollout

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A restaurant closed during lockdown on Mitropoleos street next to Monastiraki square in Athens, Greece, on Monday, Nov. 9, 2020.

Bloomberg | Bloomberg | Getty Images

LONDON — The euro zone economy dropped by 0.7% in the final quarter of 2020 as governments stepped up social restrictions to contain a second wave of Covid-19 infections, Europe’s statistics office said on Tuesday.

A preliminary reading points to an annual GDP contraction of 6.8% for the euro area in 2020, Eurostat said.

The region had experienced a growth rate of 12.4% in the third quarter as low infection rates at the time had allowed governments to partially reopen their economies.

However, the health emergency deteriorated in the last three months of 2020, with Germany and France going as far as reintroducing national lockdowns. The tightening of the social restrictions weighed on the economic performance once again.

Data released last week showed that Germany grew 0.1% in the final quarter of 2020. Spain experienced a GDP growth rate of 0.4% in the same period while France contracted by 1.3%. The numbers came in above analysts’ expectations and suggested that some businesses had learnt how to cope as best as possible with lockdowns.

Nonetheless, the three-month period also coincided with news of the first coronavirus vaccine approvals, which renewed optimism that the pandemic could come to an end sooner than expected. However, the rollout has since then been slow and bumpy, with economists fearing it will delay the much-needed economic recovery.

“The fiasco of Europe’s vaccination plan and Brussels’ retreat from its standoff with the U.K. and AstraZeneca have raised doubts about a European recovery, confirmed the worst caricatures of bungling bureaucracy and revived fears that the European Union could break apart,” Anatole Kaletsky, founder of Gakeval Research said in a note on Tuesday morning.

In addition to the uneven distribution of Covid-19 jabs, the number of daily cases has also increased in the new year amid the spread of new variants of the virus. Governments have thus decided to extend or reintroduce lockdowns to contain the spread.

In this context, the International Monetary Fund has lowered its growth expectations for the euro area in 2021. The Fund last week cut its growth forecast for the region by 1 percentage point to 4.2% this year. Germany, France, Italy and Spain — the four largest economies in the euro zone — all saw their growth expectations slashed for 2021. 

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