The International Monetary Fund’s latest update to its world economic outlook posits a global economy showing signs of having weathered its most recent challenges, including the bank collapses in the U.S. and Switzerland, and likely poised to expand by 3% in 2023. But the Fund’s marginal 20 basis points upgrade to its April projections, which were released in the wake of the banking failures, and concerns at the time about the then yet-to-be-resolved U.S. debt ceiling standoff, does little to provide reassurance that the world economy is out of the woods. As the IMF’s chief economist Pierre-Olivier Gourinchas cautioned on Tuesday, “many challenges still cloud the horizon... while some adverse risks have moderated, the balance remains tilted to the downside”. That risks abound, both known and unsighted, would be an understatement. For starters, the two largest economies, the United States and China, have slowed down appreciably and face increased uncertainty amid global and domestic headwinds. In the U.S., the surpluses from pandemic-era cash transfers, made to help families tide over the distress wrought by COVID-19 and the cost-of-living crisis in its aftermath, have all but depleted. China’s post-reopening rebound has begun to fizzle out, with the economy floundering on the shoals of a contraction in the key real estate sector, combined with weakening consumption and slumping overseas demand for its exports.
The euro area, another key engine of the global economy, is still reeling from the Ukraine-war induced spike in gas prices with momentum decelerating especially in the largest regional economies of Germany and France. Eurozone business output fell at the fastest rate for eight months in July, S&P Global’s latest HCOB flash PMI survey showed this week. Worse, deteriorating forward-looking indicators flag the likelihood of the region’s downturn deepening in coming months. And with inflation, particularly core inflation, remaining well above central banks’ targets, policymakers may be left with little option but to stay the course on inflation-taming but demand-retarding monetary tightening. Russia’s termination of the Black Sea grain deal could also push up grain prices by as much as 15%, Mr. Gourinchas warned, affecting some low-income economies in Africa. The IMF economist also pointed to the heightened debt vulnerabilities among many frontier economies and stressed the urgent need for a concerted global debt resolution initiative to help highly indebted countries from sliding into debt distress. Ultimately, the world’s economic leaders must realise that lopsided growth, that bypasses the vulnerable nations, risks having the weakest links weighing down the larger global economic edifice in an interconnected world.
