The IMF improves global growth forecasts and believes that inflation has peaked

Containers in the port of Buenaventura (Colombia). Jair F. Coll (Bloomberg)

The world economy shows little signs of improvement.

The International Monetary Fund (IMF) has updated its forecasts and although the headline of its report is still scary

, its content leaves some good news.

The central banks' interest rate hikes are beginning to take effect, so inflation has peaked and is beginning to subside.

And, for the first time in more than a year, the Fund dares to raise its growth forecast for the world economy, even if it is only two tenths, up to 2.9%.

The director of analysis and economic advisor of the organization, Pierre-Olivier Gourinchas, dares to speak of a "turning point".

After three years of continuous shocks (the pandemic, the rise in energy prices and the war in Ukraine, among others), it is still too early to claim victory.

In fact, the IMF emphasizes that the growth forecast for 2023 is weaker than the 3.4% estimated for last year and that downside risks predominate.

But behind that cautious message, the Fund's economists also stress that things have improved since October, when they published their previous forecasts.

“Adverse risks have moderated since the publication of the October 2022

report . Upside risks include a stronger boost from pent-up demand in many economies or a faster decline in inflation.” , points to the update released now.

Gourinchas stresses that "the fight against inflation is beginning to bear fruit, but the central banks must continue their efforts."

He says the world economy will slow down this year, before picking up next year to 3.1%.

Growth will remain weak in historical terms, as the fight against inflation and the war in Ukraine weigh on activity, but there is room for hope: “Despite these headwinds, the outlook is less bleak than in our October forecasts, and could represent a turning point, with growth bottoming out and inflation declining,” he says.

The soft landing hypothesis is gaining ground, that is, that central banks are able to control inflation without causing a recession.

The IMF raises the growth forecast for the United States by 0.4 points, to 1.4% and, above all, it no longer considers a drop in gross domestic product in Germany and Italy as its central scenario, as it did in October.

The German forecast improves 0.4 points, up to 0.1%, and the Italian one, 0.8 points, up to 0.6%.

Although the economic slowdown seems inevitable, the specter of stagflation in the euro zone is fading thanks to greater resistance to the energy crisis, a mild winter and determined fiscal stimulus.

The sick person in Europe becomes the United Kingdom, which suffers a drop of 0.9 points and for which the organization led by Kristalina Georgieva now expects GDP to fall by 0.6%.

The recession threatens the Government of Rishi Sunak.

No news for Spain

The report does not provide news about Spain, once the Fund advanced its forecasts two weeks ago in its annual report on the country.

These forecasts, in fact, have already become somewhat outdated, since the IMF forecast growth of 5.2% in 2022, when the National Institute of Statistics has already estimated it at 5.5%.

For 2023, the Fund lowered its growth forecast for Spain by one tenth, to 1.1%, but after the good data from the fourth quarter, the forecast may also have become somewhat old, although nothing seems to be able to prevent a slowdown in growth in full election year.

The improvements also affect most of the emerging economies, with China in the lead, for which growth of 5.2% is forecast, nine tenths more than what the IMF anticipated in October.

“The sudden reopening of China paves the way for a rapid rebound in activity,” Gourinchas reasons.

India will grow even more, 6.2%.

The forecasts for 2023 also improve in the two main Latin American economies: two tenths for Brazil, up to 1.2%, and half a point for Mexico, up to 1.7%.

“Global financial conditions have improved as inflationary pressures begin to subside.

This, together with the weakening of the dollar since its peak in November, has provided some relief for emerging and developing countries”, explains the director of analysis.

Among the downside risks, the Fund highlights a worsening of the covid in China, a possible escalation of the war in Ukraine, negative surprises with inflation that force central banks to apply a more restrictive monetary policy, a tightening of the financial conditions, possible episodes of market instability and geopolitical fragmentation.

The update to the World Economic Outlook published now does not include inflation forecasts by country, but the Fund calculates that the escalation of prices will be less in 2023 than in 2022 in 84% of the economies.

World inflation will go from an annual average of 8.8% last year to 6.6% this year and 4.3% next year, according to their forecasts.

Persistent inflation is, however, one of the risks that the Fund insists on.

In cases where price pressures remain too high, it invites central banks to raise real interest rates above the neutral rate (which neither stimulates nor hinders the economy) and keep them there until core inflation continues. a clear downward path.

"Too premature a relaxation could nullify all the gains made so far," says Gourinchas.

The Fund's economist concludes with an optimistic but cautious message: “This time, the global economic outlook has not worsened.

This is good news, but not enough.

The path towards a full recovery, with sustainable growth, stable prices and progress for all, has only just begun”.

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