3 key charts from the IMF’s World Economic Outlook

“The fog around the world economic outlook has thickened”. So says the International Monetary Fund (IMF) in its recently launched World Economic Outlook, the opening pages of which are dotted with words such as “uncertain”, “unsettled”, “unprecedented” and “unexpected”.

“The cumulative effects of the past three years of adverse shocks – most notably, the COVID-19 pandemic and Russia’s invasion of Ukraine – [are] manifesting in unforeseen ways,” it says.

Add to that the recent turmoil in financial markets following the collapse of two regional banks in the US and the takeover of Swiss lender Credit Suisse, and the world finds itself in a situation where “turbulence is building, and the situation is quite fragile”, the report says.

The only certainty is that ups and downs lie ahead of us, which is illustrated by the report’s subtitle, “A rocky recovery”. It’s also illustrated by the lines on the many charts that fill the report. Here are three highlights from the report:

The IMF predicts that global growth will fall to 2.8% this year from 3.4% in 2022, before edging back up to 3% in 2024.

However, “the slowdown is concentrated in advanced economies, especially the euro area and the United Kingdom,” it says, noting that “emerging market and developing economies are already powering ahead in many cases”.

In advanced economies, the IMF expects growth to halve this year to 1.3%, then climb slightly to 1.4% in 2024. “About 90% of advanced economies are projected to see a decline in growth in 2023,” it says.

Average growth in emerging markets and developing economies is forecast at 3.9% in 2023, rising to 4.2% in 2024.

But looking ahead to 2028, the IMF forecasts global growth of just 3.0% – the lowest medium-term growth forecast in any World Economic Outlook since 1990.

Global inflation will decrease this year, the IMF predicts, but it sees the decline playing out much more slowly than originally expected. After averaging 8.7% in 2022, global headline inflation is forecast to drop to 7% this year and 4.9% in 2024.

“Inflation is much stickier than anticipated even a few months ago,” the report says. Lower energy and food prices have pulled down headline inflation, but the IMF says that core inflation – which excludes energy and food prices – “has not yet peaked in many countries”.

It predicts that core annual inflation will fall to 5.1% in the fourth quarter of this year, but this is up from a forecast of 4.5% it made in January.

Inflation will exceed national targets for 97% of economies this year, and will not fall back into line with these targets until 2025, the IMF says.

The IMF’s headline economic forecasts are based on the assumption that global interest rates will stay elevated for longer than expected when it published the October 2022 World Economic Outlook.

However, it sees central banks gradually lowering rates from the start of 2024 as policies of rapid monetary tightening “start to bear fruit”.

“Central banks need to remain steady with their tighter anti-inflation stance, but also be ready to adjust and use their full set of policy instruments – including to address financial stability concerns – as developments demand,” the report says.

One development that could affect interest rates is the recent banking turmoil. The IMF’s new Global Financial Stability Report says the “emergence of stress in financial markets is complicating the task of central banks at a time when inflationary pressures are proving more persistent than anticipated”. It also points out that many investors have sharply lowered their projections for interest rates.

The baseline forecast in the World Economic Outlook “assumes that the recent financial sector stresses are contained”. But the IMF also notes that “financial sector stress could amplify and contagion could take hold”.

The fog around the world's economic outlook may be thickening, but the IMF does still spot "a silver lining" among the clouds. The unrest in the banking sector, it says, is likely to slow lending, which could help to cool inflation and remove some of the need for higher interest rates.

In terms of the path forwards – which it acknowledges is a narrow one for policy-makers – it sees “steps to strengthen multilateral cooperation as essential to make progress in creating a more resilient world economy, including by bolstering the global financial safety net, mitigating the costs of climate change, and reducing the adverse effects of geoeconomic fragmentation”.

Enabling resilient growth will be one of the three core themes at the World Economic Forum’s Growth Summit on 2-3 May. Discussions in this area will focus on advancing inclusive and sustainable economic growth, trade, investment, productivity, manufacturing, global development and equitable globalization.

The two other core themes will be developing human capital – covering areas such as investing in education and supporting job creation – and accelerating economic equity, which will include enabling an equitable green transition, advancing gender equality, and acting on racial and social justice.

Alongside the sessions at the Summit, the Forum will launch strategic insights with two key reports, the Future of Jobs Report 2023 and the latest edition of the Chief Economists Outlook, which will explore the key trends in the economic environment, including the likelihood of recession, prospects for growth, inflation, financial contagion and supply chains.