Landing the inflationary plane

In October the IMF downgraded its forecasts for global growth in 2023 by 0.2% to 2.7%. It expects the global economy to slow next year, and only grow at the half the rate of 2021. This is the third global outlook downgrade issued by the IMF this year.

About a third of the global economy now faces recession (two consecutive quarters of negative growth) in the outlook.

The forecast downgrades the 2023 outlook for almost all major economies, including Australia. The forecast for advanced economies has been more than halved (to 1.1%), while the forecast for developing economies was cut by 0.7% to 3.7%. In comparison to advanced economy peers, the Australian forecast of 1.9% growth in 2023 is toward the top of the pack.

Chinese growth is expected to rebound from 3.2% this year to 4.4% in 2023, but remains well below its traditional levels between 5-8%. The ASEAN-5 (Singapore, Malaysia, Indonesia, Philippines and Thailand) has the strongest forecast, and is the only group expected to do better in 2023 than during the pandemic. India’s forecast of 6.1% will make it Australia’s fastest growing major trade partner in 2023.

These latest downgrades to the IMF’s global outlook are due to:

• Broader and more persistent inflationary pressures, which are now expected to peak at 9.5% this year. This is rapidly eroding real incomes and undermining macroeconomic stability.
• Economic problems related to Russia’s invasion of Ukraine. The conflict has caused a rapid spike in food, energy and commodity prices, and further interrupted already strained global value chains.
• A diverse array of downside risks, including currency instability, future energy and food price shocks, emerging market debt distress, and a worsening of China’s property sector crisis.

IMF growth forecasts, selected countries (as of October 2022)

	2021	2022		2023
	2021 actual	October forecast	Change from prior forecast	October forecast	Change from prior forecast
Advanced economies	5.2	2.4	-0.1	1.1	-1.3
USA	5.7	1.6	-0.7	1.0	-1.3
Euro area	5.2	3.1	0.5	0.5	-1.8
UK	7.4	3.6	0.4	0.3	-0.9
Japan	1.7	1.7	0.0	1.6	-0.7
Australia	4.2	3.8	0.0	1.9	-0.6
Emerging and developing economies	6.6	3.7	0.1	3.7	-0.7
China	8.1	3.2	-0.1	4.4	-0.7
India	8.7	6.8	-0.6	6.1	-0.8
ASEAN-5	3.4	5.3	0.0	4.9	-1.0
World output	6.0	3.2	0.0	2.7	-0.9