IMF upgrades forecasts but warns global economy ‘not out of the woods’

Chief economist Pierre-Olivier Gourinchas says chances of US soft landing have risen as consumer spending remains strong.

The risk of a crash landing for the global economy has receded, the IMF’s chief economist said as the multilateral lender predicted 3 per cent growth this year. In an interview with the Financial Times, Pierre-Olivier Gourinchas said the economic outlook had improved since the multilateral lender last published its projections in April amid a bout of banking sector stress. “Things are moving in the right direction,” he said, adding there was now less danger of global growth slipping to 2 per cent or below, since the most acute financial risks had abated. The IMF considers that the UK would now avoid recession, boosted by strong spending by consumers. But Gourinchas cautioned that advanced and emerging economies were not “out of the woods yet”, since central banks’ efforts to temper stubbornly high inflation would still weigh heavily on growth.

Tuesday’s forecast of 3 per cent growth for the global economy is 0.2 percentage points higher than the fund predicted three months ago. It follows a stronger than expected first quarter, but is a step down from last year’s 3.5 per cent and below historical averages. The IMF expects growth to remain weak over the next five years — partly because of poor gains in productivity. Gourinchas said the odds of a soft landing in the US — in which inflation is reduced without causing excessive job losses — had increased as price pressures had eased in recent months. The consumer price index is now running at an annual pace of 3 per cent. The fund was less optimistic on Germany’s economic prospects, forecasting a 0.3 per cent contraction this year — down from a smaller 0.1 per cent contraction in April, and maintained its call that China’s economy would grow by a modest 5.2 per cent in 2023. Debt distress across developing economies remains a top concern despite emerging countries on the whole remaining “resilient” to financial market volatility.  

Source: Financial Times