According to Pierre-Olivier Gourinchas, a Researcher at the International Monetary Fund (IMF), this year’s economic slowdown is concentrated in advanced economies, particularly the eurozone and the United Kingdom, where growth is expected to fall to 0.8 percent and -0.3 percent this year before rebounding to 1.4 and 1 percent next year.
Despite a 0.5 percentage point negative revision, many emerging market and developing economies, according to him, are gaining up, with year-end to year-end growth quickening to 4.5 percent in 2023 from 2.8 percent in 2022.
According to the Fund, global inflation will fall from 8.7 percent last year to 7 percent this year and 4.9 percent in 2024, though more slowly than expected.
According to Pierre-Olivier Gourinchas, recent banking instability in industrialized economies warns us that the situation is still unstable.
He went on to say that downside risks are once again dominating, and the cloud around the global economic outlook has worsened.
“First, inflation is much higher than expected, even just a few months ago.” While worldwide inflation has fallen, this is primarily due to a dramatic drop in energy and food prices. However, in many nations, core inflation, which excludes energy and food, has not yet peaked.
“We expect year-end to year-end core inflation to slow to 5.1 percent this year, a 0.6 percentage point increase from our January update and well above target,” he said.
“Moreover,” Pierre-Olivier Gourinchas continued, “activity shows signs of resilience, as labor markets in most advanced economies remain very strong.” We would expect to see more evidence of output and employment softening at this point in the tightening cycle.
“Instead, our output and inflation estimates for the last two quarters have been revised upwards, indicating stronger-than-expected aggregate demand.”
“This may require monetary policy to tighten further or remain tighter for a longer period of time than currently anticipated.”