The IMF does not expect much from the economy

The tightening of monetary policy, undertaken, in particular, by regulators in the United States and the euro area, has not yet led to a steady decrease in core inflation in the world – but at the same time increased risks for the financial system, according to the updated macro forecast of the International Monetary Fund. Now its experts expect a slowdown in global economic growth in 2023 to 2.8% from 3.4% in 2022. For the Russian economy, the fund’s forecast has been improved again – the growth of Russian GDP this year may reach 0.7%.

The global economy in 2023 may grow by 2.8%, in 2024 the growth rate will accelerate to 3%, according to April macro forecast International Monetary Fund (IMF). Both estimates are down 0.1 percentage points (pp) from the January forecast. In developed countries, according to the fund’s expectations, growth rates in 2023 will decrease from 2.7% to 1.3%, and their acceleration in 2024 will be minimal – up to 1.4%. In developing countries, growth will slow down from 4% to 3.9% this year, and accelerate to 4.2% next year.

IN USA growth rates will slow down from 2.1% at the end of 2022 to 1.6%, in 2024 the slowdown will further increase to 1.1%. IN euro area the indicator will decrease from 3.5% to 0.8% and to 1.4% in 2024. By China IMF estimates remained unchanged (5.2% and 4.5%), India — reduced to 5.9% and 6.3%. By Russia the forecast has been improved to 0.7% growth this year (previously – 0.4%). The following year, however, the estimate was reduced immediately by 0.8 percentage points, to 1.3%.

Note that the IMF’s assessment of Russian growth this year is one of the highest – the World Bank, for example, expects a decline of 0.2%.

World inflation, according to the IMF, will decline from 8.7% last year to 7% this year and 4.9% next year. The rise in prices turned out to be more stable than experts had predicted a few months ago. Core inflation on average around the world this year may fall to 5.1% (up 0.6 percentage points from January).

Lower inflation is hampered by higher-than-expected demand. Nominal wage growth is lagging behind inflation, but falling unemployment and high corporate profits amid higher prices will push real wages higher, experts expect. Under such conditions, additional tightening of monetary policy or maintaining high rates for a longer time may be required. Note that now market participants expect only one more rate hike by the Fed at a meeting in May (by 0.25 percentage points) – after which, apparently, the regulator will complete the cycle of its increase.

The IMF is concerned about the impact of high rates on the financial sector – the fund refers not only to the situation with Silicon Valley Bank (SVB), but also on the autumn crisis in UK government bonds (their yield then rose sharply against the backdrop of government plans to increase borrowing). The fund does not rule out that the global financial system may be subjected to new tests.

Note that another IMF report released on Tuesday, devoted to assessing financial stability, recognizes the effectiveness of the measures taken by the Fed to curb the global panic after the bankruptcy of SVB and its group. So far, the report notes, thanks to effective financial policies and liquidity arrangements, risks arising in specific banks and financial institutions are contained “fairly well” and remain limited.

Although the fund acknowledges that the fall of the banks affected the overall level of market participants’ confidence in the financial system, it notes that this still did not lead to serious problems.

It is with this conclusion that the main recommendation of the IMF report is connected: when inflationary risks require tightening of monetary policy, and financial ones require it to be softened, one should choose the former, but at the same time prepare tools for quickly reducing financial risks. At the same time, the fund advises to expand financial support for banking and non-banking financial institutions not preventively, but only in case of a crisis.

Tatyana Edovina, Kristina Borovikova