Director of the IMF Research Department Pierre-Olivier Gourinchas lifts a copy of the World Economic Outlook report during a news briefing in Marrakesh, Morocco, on Oct. 10.FADEL SENNA/AFP/Getty Images
The world economy has lost momentum from the impact of higher interest rates, the invasion of Ukraine and widening geopolitical rifts, and it now faces new uncertainty from the war between Israel and Hamas militants, the International Monetary Fund warned Tuesday.
The IMF said it expects global economic growth to slow to 2.9 per cent in 2024 from an expected 3 per cent this year. The forecast for next year is down a notch from the 3 per cent it predicted back in July.
The deceleration comes at a time when the world has yet to fully mend from a devastating but short-lived COVID-19 recession in 2020 and now could see fallout from the Middle East conflict – particularly to oil prices.
A series of previous shocks, including the pandemic and Russia’s war in Ukraine, has slashed worldwide economic output by about US$3.7-trillion over the past three years compared with pre-COVID trends.
“The global economy is limping along, not sprinting,” IMF chief economist Pierre-Olivier Gourinchas said at a news conference during the organization’s annual meeting in Marrakech, Morocco.
The IMF expectation of 3-per-cent growth this year is down from 3.5 per cent in 2022 but unchanged from its July projections.
It’s “too early” to assess the impact on global economic growth from the days-old war between Israel and the militant Palestinian group Hamas in Gaza, Mr. Gourinchas said. He said the IMF was “monitoring the situation closely” and noted that oil prices have risen by about 4 per cent in the past several days.
“We’ve seen that in previous crises and previous conflicts. And of course, this reflects the potential risk that there could be disruption either in production or transport of oil in the region,” he said.
If sustained, a 10-per-cent increase in oil prices would reduce global economic growth by 0.15 per cent and increase global inflation by 0.4 per cent, Mr. Gourinchas said.
“But again, I emphasize that it’s really too early to jump to any conclusion here,” he added.
So far, the increase in oil prices has been “fairly muted,” said Commerzbank commodities analyst Carsten Fritsch. He noted the absence of declarations of support for Hamas from key oil producers Saudi Arabia, the United Arab Emirates, Kuwait and Iraq, which would make it unlikely that they would restrict supply in response to the war.
So far, the world economy has displayed “remarkable resiliency,” Mr. Gourinchas said, at a time when the U.S. Federal Reserve and other central banks worldwide have aggressively raised interest rates to combat a resurgence in inflation.
The hikes have helped ease price pressures without putting many people out of work. That combination, he said, is “increasingly consistent” with a so-called soft landing – the idea that inflation can be contained without causing a recession.
The IMF sees global consumer price inflation dropping from 8.7 per cent in 2022 to 6.9 per cent this year and 5.8 per cent in 2024.
The United States is a standout in the IMF’s latest World Economic Outlook, which was completed before the outbreak of war between Israel and Hamas. The IMF upgraded its forecast for U.S. growth this year to 2.1 per cent (matching 2022) and 1.5 per cent in 2024 (up sharply from the 1 per cent it had predicted in July).
The U.S., an energy exporter, has not been hurt as much as countries in Europe and elsewhere by higher oil prices, which shot up after Russia invaded Ukraine last year and jumped more recently because of Saudi Arabia’s production cuts. And American consumers have been more willing than most to spend the savings they accumulated during the pandemic.
Things are gloomier in the 20 countries that share the euro currency and are more exposed to rising energy prices. The IMF downgraded euro zone growth to 0.7 per cent this year and 1.2 per cent in 2024. It actually expects the German economy to shrink by 0.5 per cent this year before recovering to 0.9-per-cent growth next year.
That’s below even Russia’s economy, which the IMF predicts will expand 2.2 per cent this year before dropping to 1.1-per-cent growth next year.
The Chinese economy, the world’s second biggest, is forecast to grow 5 per cent this year and 4.2 per cent in 2024 – both downgrades from what the IMF expected in July.
China’s economy was expected to bounce back this year after the communist government ended draconian “zero-COVID” lockdowns that had crippled growth in 2022. But the country is struggling with troubles in its overbuilt housing market.
The IMF again expressed concern that the countries of the world were breaking into geopolitical blocs that could limit international trade and economic growth globally.
The U.S. and its allies have imposed unprecedented sanctions on Russia for its invasion of Ukraine and have sought to become less reliant on Chinese imports as tensions with Beijing grow.
The IMF noted that last year countries imposed nearly 3,000 new restrictions on trade, up from fewer than 1,000 in 2019. It sees international trade growing just 0.9 per cent this year and 3.5 per cent in 2024, down sharply from the 2000-19 annual average of 4.9 per cent.