The International Monetary Fund (IMF) released this Tuesday (11) its new World Economic Outlook report.
The document, which updates the body’s data for January, brings projections of economic growth and inflation for each country, with emphasis on the two largest economies in the world (United States and China), Latin America and Russia, which is facing the second year of sanctions from the West and allies due to the invasion it promoted to Ukraine in February 2022.
Check out the IMF forecasts:
Latin America
According to the fund, the economies of Latin America and the Caribbean will grow slightly in 2023, but will continue to face high inflation.
The document estimates that the region will grow 1.6% in 2023, two tenths below what was previously expected, and far from the 4% growth registered in 2022.
This is because many Latin American countries are exporters of raw materials, something that worked in their favor last year, thanks to the increase in food or fuel prices caused by the Russian invasion of Ukraine, but which will hinder their growth this year.
“2022 was the year in which commodity prices started to rise, then started to fall and should fall even more in 2023”, explained the director of the IMF Study Department, Pierre-Olivier Gourinchas, in a press conference by telephone.
That, along with aggressive interest rate hikes by many central banks to curb inflation, has taken “some momentum” out of the region as governments begin to unwind some of the fiscal aid programs they pursued during the pandemic.
In short, Latin America has shown itself to be “very resilient” to the challenges of recent years, said the deputy director of the Fund’s Studies Department, Petya Koeva-Brooks.
In the case of employment, “we already see higher levels than before the pandemic”, he assured.
However, inflationary pressures will remain high in many countries, especially in Argentina, where the fund projects inflation above 98% for 2023, and in Venezuela, where it will reach 400%.
The region’s main economies will see very moderate growth throughout 2023, in line with global economic prospects.
This is the case of Mexico, which will grow 1.8% in 2023, after registering a 3.1% increase in its Gross Domestic Product (GDP) in 2022.
The figure will moderate further in 2024, to 1.6%, while inflation will rise from 6.3% this year to 3.9% next year.
Chile, in turn, is the only Latin American country that will experience a recession, according to IMF data, which projects a drop of one percentage point in GDP for 2023.
The country will recover in 2024 and grow by 1.9%, according to projections. Until then, inflation will stand at 4%, after falling to 7.9% this year.
Colombia will experience very moderate growth of 1% in 2023 and 1.9% in 2024. Inflation will rise this year to 10.9%, but will drop to 5.2% next year.
Finally, Brazil, one of the first countries to start raising interest rates to stem the inflationary spiral, will see its GDP grow by just 0.9% this year, while inflation will fall to 5%.
In 2024, the country will grow 1.5% and maintain inflation at 4.8%, according to projections by the fund.
Central American countries will gain a little more traction, with the IMF forecasting growth of 3.8% in both 2023 and 2024, while inflation will gradually ease to 5.5% this year and up to 4% next year. he comes.
The region that will grow the most will be the Caribbean, whose GDP will increase by 9.9% this year, despite inflation of 13.5%, and will return strongly in 2024, when the economy will record a rise of 14.1%, already with inflation more moderate, around 6.8%.
U.S
The IMF raised its growth prospects for the United States by two-tenths, to 1.6% in 2023, although it warned of the danger that the country will continue to produce “disturbances” in the financial markets that could worsen the prospects.
The body also raised its growth forecast for the world’s largest economy by a tenth of a percentage point, to 1.1%, in 2024.
The fund also predicted that inflation will drop this year to 4.5% and that in 2024 it will drop to close to 2%, the Fed’s target, and will stand at 2.3%.
The IMF warned, however, that unemployment in the United States could rise this year to 3.8%, compared to 3.6% in 2022, and skyrocket to 4.9% in 2024, an election year.
With the aim of slowing down the economy and containing inflation, the Fed has been carrying out a series of interest rate hikes since March 2022. A total of nine increases raised the range to between 4.75% and 5%, the highest rate in recent years. 16 years.
These increases are aimed at cooling the world’s main economy by lowering prices and, as experts have warned, may lead to an increase in the historic drop in unemployment, one of the reasons most cited by President Joe Biden to attest to the health of the economy.
US growth projected for the next two years is below the world average of 2.8% estimated by the IMF, in a context of strong slowdown in more developed economies (1.3% in 2023), offset by growth in emerging ones (3 .9%).
If in previous reports the IMF emphasized the importance of Russia’s war against Ukraine for the future of global economic forecasts, on this occasion a new ingredient was added: the banking crisis, which started in the United States with the failures of Silicon Valley Bank and Signature Bank. Bank a few weeks ago and which spread to some European banks, appears as one of the main future risks.
“This is clouding our outlook” and “we are concerned that this could result in a steeper and steeper downturn if financial conditions deteriorate significantly,” said Pierre-Olivier Gourinchas.
Thus, states the IMF in the report, “despite strong policy measures to support the banking sector and reassure the markets, some investors have become very sensitive to any news”.
In its report, the IMF outlines a possible scenario of negative prospects, which it calls a “plausible adverse scenario”, in which “new shocks arising from such weaknesses could occur, with a potentially significant impact on the global economy”.
China
China’s growth after the reopening of its economy due to the end of the “Covid Zero” policy will largely drive the recovery of emerging countries in 2023, according to the new IMF report.
According to the document, China’s GDP will grow by 5.2% this year and 4.5% in 2024.
These figures are considerably higher than the 3% growth that the second largest economy in the world experienced during 2022.
“As China absorbs around a quarter of exports from Asia and between 5% and 10% of those from other regions, the reopening and growth of its economy is likely to generate positive spillovers,” the report explained.
However, improving living conditions and China’s economic progress will also contribute to a slowdown in global growth in the medium term, as the country converges with other more developed regions.
In this sense, the IMF estimates that the global economy will grow by around 3% over the next five years, the lowest level since the 1990s.
The report also details that, thanks to the fact that new Covid-19 infections appear to have dropped considerably in China, supply chain disruptions will be moderate.
India
The other big engine of the developing world will be India, which will grow 5.9% in 2023 and 6.3% in 2024, according to the IMF.
These figures are, however, slightly lower than those projected by the fund in its previous report, in which it estimated growth of 6.1% for 2023 and 6.8% for 2024.
The Asian country is on the way to becoming the most populous in the world, even ahead of China, and last year its great economic recovery (Indian GDP grew by 6.8% in 2022) made it the fifth largest economy on the planet.
India, which this year holds the presidency of the G20, has been expressing its desire to become the voice of developing countries.
Russia
The IMF estimated that Russia will grow 0.7% this year, four tenths more than previously forecast, despite the sanctions imposed by much of the international community that try to undermine its economy in reaction to the invasion of Ukraine.
But the IMF cut growth for next year by eight-tenths to 1.3% after the Russian economy contracted by 2.1% last year.
Pierre-Olivier Gourinchas stated that Russia’s growth in 2023 is the result of “a significant remnant of activity in 2022”, a year in which “very strong fiscal measures” were taken and in which “a lot of fiscal spending was related to military spending” .
In addition, “it is linked to energy exports”, since China and India are absorbing part of what was sold to Europe, but “the expectation is that these energy exports will decrease considerably” because “there is a lower price at which Russia may be selling its oil” and why “it is not selling as much natural gas to Europe”.
Therefore, far from thinking that the sanctions are not having an effect, the IMF estimates that by 2027, five years after the start of the war, the Russian economy will be “7% smaller than the pre-war forecast would have indicated”, highlighted Gourinchas .
“The cumulative effect is quite strong, while most other economies are expected to recover and approach the pre-2022 forecast,” he explained.
The consequences of Russia’s war against Ukraine are one of the main reasons for the low world growth estimated by the fund, at 2.8%, one tenth less than forecast in January.
“The Russian invasion of Ukraine and the ongoing war caused severe disruptions in commodity and energy prices and trade disruptions, which triggered the start of a significant reorientation and adjustment in many economies,” the fund noted in its report.
The evolution of war will be vital for world growth, especially in Europe.
After having avoided a “gas crisis” last winter thanks to good storage in Europe and lower demand due to the “unusually mild” climate, an escalation of the war “could trigger a new energy crisis in Europe and exacerbate food insecurity in Europe”. low-income countries,” warned the IMF.
A possible rise in food prices, if the Black Sea grain initiative fails, “would weigh more heavily on food importers, particularly those who lack the fiscal space to cushion the impact on households and businesses” and with it, ” social unrest may increase”.
Russia’s war against Ukraine is also causing global fragmentation and has increased geopolitical tensions, splitting the world economy into blocs, with constant barriers to trade, the fund stressed.
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