Global economy 'limping along': IMF

MARRAKECH, Morocco, Oct 10 (Reuters): The International Monetary Fund on Tuesday cut its growth forecasts for China and the euro zone and said overall global growth remained low and uneven despite what it called the "remarkable strength" of the US economy.
In its latest World Economic Outlook, the IMF left its forecast for global real GDP growth in 2023 unchanged at 3.0 per cent but cut its 2024 forecast to 2.9 per cent from its July forecast of 3.0 per cent. World output grew 3.5 per cent in 2022.
IMF chief economist Pierre-Olivier Gourinchas said the global economy continued to recover from COVID-19, Russia's invasion of Ukraine and last year's energy crisis, but that diverging growth trends meant "mediocre" medium-term prospects.
Gourinchas said the forecasts generally pointed to a soft landing, but the IMF remained concerned about risks related to China's property crisis, volatile commodity prices, geopolitical fragmentation and a resurgence in inflation.
A fresh risk emerged in the form of the Israel-Palestinian conflict just as officials from 190 countries met in Marrakech for the IMF and World Bank annual meetings, but came after the IMF's quarterly outlook update was locked down on Sept. 26.
Gourinchas told Reuters it was too early to say how the major escalation would affect the global economy: "Depending how the situation might unfold, there are many very different scenarios that we have not even yet started to explore, so we can't make any assessment at this point yet."
He said the IMF was monitoring the situation, noting that oil prices had risen some 4 per cent in recent days, reflecting concerns that production or transport of oil could be interrupted.
Research by the IMF showed a 10 per cent increase in oil prices would dampen global output by about 0.2 per cent in the following year and boost global inflation by about 0.4 per cent, he said.
Stronger growth is being throttled by the lingering impact of the pandemic, the Ukraine war and increasing fragmentation, along with rising interest rates, extreme weather events and shrinking fiscal support, the IMF said. Total global output in 2023 is slated to be 3.4 per cent, or roughly $3.6 trillion - below pre-pandemic projections.
"The global economy is showing resilience. It's not knocked out by the big shocks it's experienced in the last two or three years, but it's not doing too great either," Gourinchas said in an interview. "We see a global economy that is limping along and it's not quite sprinting yet."
The medium-term outlook was "darker" especially for emerging economies, which faced a slower catch-up in living standards and more debt worries, Gourinchas told a news conference.
Even in 2028, the IMF is projecting global growth of just 3.1 per cent.
"You have uncertainty. You have geo-economic fragmentation, low productivity growth, and low demographics. You put all these things together and you have a slowdown in medium-term growth," Gourinchas told Reuters.
Inflation continued to decline around the globe due to a fall in energy prices and to a lesser extent food prices, but remained too high. It is expected to drop to an annual average of 6.9 per cent in 2023 from 8.7 per cent in 2022, and to 5.8 per cent in 2024.
Core inflation, excluding food and energy, should drop more gradually - to 6.3 per cent in 2023 from 6.4 per cent in 2022, and to 5.3 per cent in 2024 - given tight labor markets and stickier-than-expected services inflation, the IMF said.
"Inflation remains uncomfortably high," Gourinchas said, warning: "Central banks ... must avoid a premature easing."
Labor markets were buoyant and unemployment rates low in most advanced economies, but there was not much evidence of a wage-price inflation spiral, even with a major strike by US autoworkers in the United States.
"We're not seeing strong signs of an out-of-control sequence of wages chasing prices and prices chasing wages," he told Reuters.
The IMF said uncertainty had narrowed since its April forecasts, but there were still more downside than upside risks for 2024. The chance of growth falling below 2 per cent - which has only occurred five times since 1970 - was now seen at 15 per cent, compared with 25 per cent in April.
The IMF noted that investment was uniformly lower than before the pandemic, with businesses showing less appetite for expansion and risk-taking given higher interest rates, stricter lending conditions and less fiscal support.
Gourinchas said the fund was also advising countries to rebuild thin fiscal buffers against future shocks, noting that a substantial deterioration in fiscal deficits in the United States was "most worrying."