Global economic growth adjusted downward

Henry

In a new report, the International Monetary Fund (IMF) has adjusted downwards the expected global economic growth rate from 3.5% to 3% for 2023 and to a mere 0.3% for South Africa in 2023.

“While the forecast for 2023 is higher than what was predicted in April this year’s Global Economic Outlook (WEO), it remains weak by historical standards,” the report said.

The global recovery from the Covid-19 pandemic coupled with Russia’s invasion of Ukraine is hampering the economic recovery resilience of various economic sectors and regions.

Likewise, the continued increase in interest rates by central banks worldwide in an attempt to fight inflation continues to dampen economic growth.

“Global headline inflation is expected to decline from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024”, while core inflation is projected to decline more gradually.

According to the report, falling headline inflation is attributable to the build-up of gas supplies in Europe, weaker than expected demand in China, falling energy and food prices.

“Along with the normalization of supply chains, these developments have contributed to a rapid decline in overarching in most countries. Core inflation (…) remains (however) well above most central banks’ targets.”

Continued interest rate hikes by central banks in turn increase the cost of borrowing, which “constrains economic activity and trickles down into the financial system with banks in advanced economies lending less amid higher lending standards”.

Public finances do not remain unscathed either, with “especially poorer economies struggling (due to high interest rates) with increased debt costs which in turn limit space for priority investments”.

Larger advanced economies are also reeling under difficult growth conditions with gross fixed capital formation and industrial production slowing or shrinking sharply, which in turn weakens international trade and manufacturing in emerging markets accordingly.

In addition, excess savings built up during the pandemic continue to decline in advanced economies, according to the report, which continues to erode the buffer to protect against financial volatility.

Read the complete report here.