Global inflation set to drop this year amid subpar economic growth: IMF

  • The Russia-Ukraine war and the rise of central bank rates to tame inflation were highlighted as factors constraining economic activity

Livemint
Published16 Feb 2023, 05:52 AM IST
People buy rice at a market in Karachi on February 3, 2023.
People buy rice at a market in Karachi on February 3, 2023.(AFP)

Global inflation is set to drop in 2023 amid subpar economic growth, the International Monetary Fund (IMF) predicted in its latest World Economic Outlook report this week.

The Russia-Ukraine war and the rise of central bank rates to tame inflation were highlighted as factors constraining economic activity. However, the re-opening of China and the loosening of Covid-19 pandemic-related lockdown curbs may help to boost global growth.

The IMF report said that in most economies, amid the cost-of-living crisis, the priority remains to achieve sustained disinflation.

"In most economies, amid the cost-of-living crisis, the priority remains achieving sustained disinflation. With tighter monetary conditions and lower growth potentially affecting financial and debt stability, it is necessary to deploy macroprudential tools and strengthen debt restructuring frameworks," according to the report.

The IMF said that Russia's invasion of Ukraine and logistical challenges posed by Covid-19 and other geopolitical issues have kept price pressures high, particularly in energy commodities and general foodstuff.

Global inflation is geographically broad-based, while it still remains high in the Americas and Europe, it is lower in many parts of Asia.

On global economic growth projection

The global economic growth is expected to fall from an estimated 3.4 per cent last year to 2.9 per cent this year before rising to 3.1 per cent in the next year, as per the IMF's latest World Economic Outlook update.

Although forecasted growth is still "subpar", the picture overall has improved a little since the previous predictions were made. 

The current projection for 2023 is 0.2 percentage points higher than predicted in the October 2022 World Economic Outlook.

This is not a massive cause for celebration, since growth remains below the historical average of 3.8 per cent roughly sustained between 2000 and 2019.

Besides, the IMF also provided growth projections on an individual basis for few states and regions. Last year, the US had an estimated growth of 2.0 per cent. This year, it is expected to fall to 1.4 per cent, before a further drop to 1.0 per cent next year.

In China, growth is expected to increase from 3.0 per cent last year to 5.2 per cent in 2023. However, this year, it is projected to fall to 4.5 per cent.

The report also stated that India's growth is expected to decline from 6.8 per cent to 6.1 per cent in 2023. However, it is projected to rise to 6.8 per cent next year.

With its economy battered by sanctions from the West, Russia endured an estimated negative growth of -2.2 per cent last year. This year, it is expected to rise to 0.3 per cent, with a further rise expected to 2.1 per cent next year.

The Euro Area had a combined growth of 3.5 percent last year. The projection for this year is 0.7 per cent and for next year is 1.6 per cent.

The UK had arguably the worst projections, with it being the only major economy expected to shrink this year, IMF estimates. The estimated growth last year was 4.1 per cent. This year, growth is projected to shrink to -0.6 per cent, before making a meagre recovery to 0.9 per cent next year.

IMF said the inflation has reached 8.8 per cent last year. This is expected to fall to 6.6 per cent this year and a further drop to 4.3 per cent is forecasted for next year.

Nevertheless, the forecasts for inflation remain higher than pre-pandemic levels. Between 2017 and 2019, inflation averaged about 3.5 per cent.

However, inflation has started to show signs of easing everywhere from the multi-decade highs reached in many nations following reports of slowing global growth in 2023.

With global growth estimated to drop from 3.4 per cent expected last year to 2.9 per cent this year, global inflation will also drop this year and next amid subpar economic growth.

As many as 84 per cent of nations are likely to have lower headline (consumer price index) inflation this year than last year, the IMF said.

With agency inputs

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First Published:16 Feb 2023, 05:52 AM IST
HomeEconomyGlobal inflation set to drop this year amid subpar economic growth: IMF

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