The International Monetary Fund saw a “turning point” for the global economy as it raised its global growth outlook on Tuesday, predicting that China and India would account for 50 per cent of the worldwide economic upswing in 2023.
In its latest World Economic Outlook update, the IMF revised upward its global growth outlook for 2023 to 2.9 per cent for the first time in a year, 0.2 percentage point more than forecast in October with “resilient US spending and China’s reopening" buttressing demand against a series of risks.
For the Middle East and North Africa (Mena) region, the fund lowered the outlook to 3.2 per cent in 2023 from its previous 3.6 per cent projection.
“The global economy will slow down this year before rebounding in 2024. But a global recession is not in our baseline. The important factors shaping the outlook are: On the downside, Russia's war in Ukraine and the global fight against inflation. On the upside, the reopening of China's economy. Overall, we have a mild upward revision to our projections,” said the IMF.
Leading the growth charge in 2023, India continues to be seen growing over 6.0 per cent this year and next, while the upward revision of China by 0.8 percentage point sets it on track for growth above 5.0 per cent this year. "If we look at both China and India together, they account for about 50 per cent of world growth in 2023 ... so a very significant contribution," said Pierre-Olivier Gourinchas, chief economist and director of the research department at the IMF.
Growth in India is set to decline from 6.8 per cent in 2022 to 6.1 per cent in 2023 before picking up to 6.8 per cent in 2024, with resilient domestic demand despite external headwinds. This means India will remain the world’s fastest growing major economy both in 2023 as well as 2024, said the IMF.
In 2022, the Mena region is estimated to grow at 5.4 per cent while the global growth will be at 3.4 per cent. The fund’s lower growth projection for Mena in 2023 is mainly attributable to a “steeper-than-expected” growth slowdown in Saudi Arabia in the backdrop of a global slowdown caused by higher interest rates and Russia’s war in Ukraine. Growth in Saudi Arabia will fall significantly to 2.6 per cent from the estimated 8.7 per cent in 2022, reflecting mainly lower oil production.
For the UAE, the Washington-based fund projected in November a growth above six per cent in 2022, higher than the previous forecast, and a remarkable increase from a 3.8 per cent surge in 2021.
“Looking ahead, the UAE economic outlook remains positive, supported by domestic activity. We expect non-hydrocarbon growth to be around four per cent in 2023 underpinned by a rebound in domestic activity, while elevated oil prices support high surpluses in the fiscal and external balances. Inflationary pressures are expected to moderate gradually,” the IMF said after its team, led by Ali Al Eyd, held discussions with the UAE authorities for the 2022 Article IV Consultation.
“The global economy has shown a lot of resilience. Labor markets are tight, household spending and business investment remain strong, and European economies proved quite resilient against the energy crisis. Global headline inflation is expected to fall from 8.8 per cent in 2022 to 4.3 per cent in 2024. Core inflation, however, is more persistent and remains too elevated. To sum up, barring new shocks, 2023 could be the year of turning points, with growth bottoming out and inflation decreasing,” said P Gourinchas.
“On the downside, China's recovery could stall with spillovers to the rest of the world. Inflation could persist at high levels, requiring even tighter monetary policy. An escalation of the war in Ukraine remains a major risk to the global economy, and a sudden repricing in financial markets could deteriorate financial conditions, especially for emerging and developing economies. On the upside, strong household balance sheets amid tight labor markets and robust wage growth could help sustain private demand. Easing of remaining supply bottlenecks, coupled with easing labor market pressures, could also allow for a soft landing with less monetary tightening,” added Gourinchas.
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