India and China will account for half of the global economic growth in 2023, according to the latest update to the biannual World Economic Outlook by the International Monetary Fund (IMF). In contrast, the US and euro area combined will only account for a tenth of the global growth. The global lender retained its growth forecast for India for 2022-23 and 2023-24 at 6.1% and 6.8% respectively and raised its global growth forecast for 2023 by 20 basis points to 2.9%. The IMF cited India as a “bright spot” and said that the country’s growth was driven by “resilient domestic demand despite external headwinds”.
China’s growth has been upwardly revised by 0.8 percentage points and is projected to be above 5% this year. The IMF sees the Chinese economy rebounding to 5.2% this year as activity and mobility recover after restrictions and COVID-19 outbreaks dampened activity last year. Global growth is projected to fall from 3.4% in 2022 to 2.9% in 2023, then rise to 3.1% in 2024.
The IMF said that global inflation is expected to decline this year but even by 2024, the projected average annual headline and core inflation will still be above pre-pandemic levels in more than 80% of countries. The slowdown will be more pronounced in advanced economies, with a decline from 2.7% last year to 1.2% and 1.4% this year and next. Nine out of 10 advanced economies will likely decelerate. The US growth is expected to slow to 1.4% in 2023 as Federal Reserve interest rate hikes work their way through the economy. The United Kingdom is projected to fall into recession (-0.6%) in 2023, while growth in Germany (0.1%) and Russia (0.3%) may remain flat.
Despite the challenges, the outlook is less gloomy than IMF’s October forecast and could represent a turning point, with growth bottoming out and inflation declining. The emerging market and developing economies have already bottomed out as a group, with growth expected to rise modestly to 4% and 4.2% this year and next.
The IMF Chief Economist and Director of Research, Pierre-Olivier Gourinchas, said that the global economy is poised to slow this year, before rebounding next year. Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity. He added that economic growth proved surprisingly resilient in the third quarter of last year, with strong labour markets, robust household consumption, and business investment. Inflation, too, showed improvement, with overall measures now decreasing in most countries, even if core inflation has yet to peak in many countries. The sudden re-opening of China paves the way for a rapid rebound in activity. Global financial conditions have improved as inflation pressures started to abate, and a weakening of the US dollar from its November high provided some modest relief to emerging and developing countries.