The global economic growth forecast indicates a decrease from around 3.5 percent in 2022 to 3.0 percent for both 2023 and 2024, according to IMF. Although the 2023 projection is slightly improved compared to earlier predictions, it remains weak. The efforts of central banks to combat inflation by increasing policy rates are dampening economic activity. Predictions suggest that global headline inflation will drop from 8.7 percent in 2022 to 6.8 percent in 2023 and further to 5.2 percent in 2024. Core inflation is anticipated to decrease more gradually, with revised upward forecasts for 2024, says IMF.
Recent resolutions of the US debt ceiling standoff and actions to address banking turbulence in the US and Switzerland have diminished immediate financial sector risks. This has eased negative risks to the economic outlook. However, the balance of risks still leans towards the downside. The potential for high and even increased inflation remains if additional shocks occur, like escalated conflict in Ukraine or extreme weather events, which could prompt tighter monetary policy. Financial sector instability could reemerge as markets adjust to further central bank policy tightening. China’s recovery might slow, partly due to unresolved real estate issues, causing negative impacts on other economies. There’s a possibility of sovereign debt distress spreading to more economies. Conversely, inflation could decline more rapidly than expected, lessening the need for strict monetary policies, and domestic demand might prove to be more resilient.
In most economies, the top priorities are achieving sustained reduction in inflation while ensuring financial stability. Therefore, central banks should concentrate on reestablishing price stability and enhancing financial oversight and risk monitoring. In case of market disruptions, countries should swiftly provide liquidity while minimizing moral hazard risks. They should also build fiscal reserves, focusing on supporting the most vulnerable sectors. Enhancements to the supply side of economies would facilitate fiscal consolidation and a smoother path towards achieving target inflation levels.
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