Forecasting the global economic outlook of 2023, the International Monetary Fund’s Deputy Boss, Ms. Gita Gopinath, divulged that headline inflation has probably peaked but some of the ‘stickier components’ such as the services sector are still trending up in some countries.
The Deputy Boss speaking at the panel discussion during the World Economic Forum Annual Meeting 2023, revealed that 2023 will be a ‘tough year’.
According to her, rising inflation, the fallout from the Russia-Ukraine war, as well as the COVID-19 pandemic would make 2023 a tough year. She however revealed that a strong labour market in several countries including the United States (U.S) and consumption holding up in several parts of the world indicated resilience.
“A tough year, because we have high levels of inflation around the world, even though it’s been coming down the last few months. Tough year because we still have the war and its spill-overs to the rest of the world.
“Yet there are signs of resilience with strong labour market in several countries, including U.S. and Europe. After going through about three rounds of downgrades, at least we do not have a worse outcome we are looking at this time around. While we have global growth bottoming out this year, it will improve towards the second half of this year and then into 2024.”
Ms. Gita Gopinath
Ms. Gopinath however warned that regardless the reduction in the average level of the price of goods and services, countries will still experience high prices of goods on the market.
“Even if inflation comes down, prices are high because we do not have deflation, we have lower levels of inflation. The prices have gone up. How much of an impact that has had on households and on consumption varies across countries.”
Ms. Gita Gopinath
The IMF Deputy Boss further cautioned that any meaningful moves to bring down inflation will likely mean rising unemployment.
“We are at a record of low unemployment rates in the U.S. and Euro Area. Everything we know about our monetary policy when you tighten interest rates is for the unemployment rate to go up. That is how you can bring down inflation.”
Ms. Gita Gopinath
The new IMF forecasts for the global economy, due at the end of the month will be ‘in the ballpark of what we put out in October’, she stated.
Optimism In The Recovery Of The Global Economy
Concerning the betterment of the economy as it heads towards the second half of 2023 and then into 2024, comments and suggestions made by great analysts were in line with the general tone of cautious optimism pronounced by Ms. Gopinath at the World Economic Forum in Davos, Switzerland.
On the opening day of the gathering of the business and financial elite, Chinese Vice Premier Liu, projected that the world’s second-largest economy will normalize as Covid-19 restrictions ease.
Also, German Chancellor, Olaf Scholz speaking with Bloomberg Editor-in-Chief, John Micklethwait, mentioned he is convinced Germany will avoid recession this year and that he is in talks with allies about sending battle tanks to Ukraine.
Furthermore, European Central Bank Governing Council member, Francois Villeroy de Galhau ,said the euro region should avoid a recession this year and that both headline and core inflation will probably peak in this semester.
