WASHINGTON: The International Monetary Fund (IMF) is not expected to downgrade its forecast for 2.7% growth in 2023, the head of the global lender said on Thursday (Jan 12), noting that concerns about an oil price spike had failed to materialise and labour markets remained strong.
IMF managing director Kristalina Georgieva said 2023 would be another “tough year” for the global economy, and inflation remained stubborn, but she did not expect another year of successive downgrades like those seen last year, barring unexpected developments.
“Growth continues to slow down in 2023,” she told reporters at the IMF’s headquarters in Washington. “The more positive piece of the picture is in the resilience of labour markets. As long as people are employed, even if prices are high, people spend ... and that has helped the performance.”
She added that the IMF does not expect any major downgrades. “That’s the good news.”
Georgieva said the IMF expected the slowdown in global growth to “bottom out” and “turn around towards the end of 2023 and into 2024.
Georgieva said there was much hope that China – which previously contributed some 35% to 40% of global growth, but had “disappointing” results last year – would once again contribute to global growth, likely from mid-2023. But that depended on Beijing not changing course and sticking to its plans to reverse its zero-Covid policies, she said.
She said the United States – the biggest economy in the world – was likely to see a soft landing, and would suffer only a mild recession, if it did enter a technical recession.
The IMF in October forecast US gross domestic product growth for 2023 at 1.0%, a projection it will update this month. The World Bank on Tuesday forecast US growth at 0.5% for 2023.
Georgieva said the Bank of Japan (BOJ) was conducting an appropriate review of its monetary policy stance, but should keep policy accommodative because the country faces low inflationary pressures.
She said an adjustment to the central bank's debt yield curve control regime was not driven by an increase in inflation, which remains very close to the bank's 2% target.
“BOJ rightly pursued accommodative policy. The pressure from labor on increases in labor compensation has not led to any dramatic change. In other words, there is no driver for inflation from there,” Georgieva said.
The Bank of Japan shocked markets in late December with a surprise tweak to its bond yield controls that allowed long-term interest rates to rise more than expected.
At the time, BOJ governor Haruhiko Kuroda said the move was aimed at prompting increased bond purchases and was a fine-tuning of the central bank's ultra-loose monetary policy rather than a withdrawal of stimulus.
Georgieva said it was appropriate for the central bank to take a cautious approach to its monetary policy.
“They are doing the right thing to keep an open mind into the situation, but they are not – BOJ is not – faced with a sharp increase in inflation or drivers of inflation,” she added
Georgieva said great uncertainty remained, including a significant climate event, a major cyberattack or the danger of escalation in Russia's war in Ukraine, for instance through the use of nuclear weapons.
“We are now in a more shockprone world and we have to be open-minded that there could be risk turn that we are not even thinking about,” she said. “That’s the whole point of the last years. The unthinkable has happened twice.”
She cited concerns about growing social unrest in Brazil, Peru and other countries, and the impact of tightening financial conditions remained unclear.
But inflation remained “stubborn” and central banks should continue to press for price stability, she added. – Reuters
