While there are "undeniable" signs the global economy is recovering from the pandemic and the invasion of Ukraine, the challenges are still there, too, cautioned Pierre-Olivier Gourinchas, International Monetary Fund economic counselor and research director, in a statement accompanying the IMF's World Economic Outlook report released Tuesday.
Projections for global growth of 3% for 2023 and 2024 were slightly better than an April report but well below the historical annual average of 3.8% recorded from 2000 to 2019, the report said.
Driving the decline were more advanced economies that saw weaker manufacturing and other factors that offset stronger services activity, while in emerging markets and developing economies, "the growth outlook is broadly stable for 2023 and 2024," the IMF report said.
Another factor weighing on economic activity this year has been rising central bank policy rates to fight inflation, the report said. Global headline inflation should fall to 6.8% in 2023 and 5.2% in 2024, from 8.7% in 2022, but core inflation will decline more gradually, the IMF report said, staying at 5.1% this year for advanced economies before dipping to 3.1% next year.
Stronger growth and lower inflation are good news, the report said, but "the balance remains tilted to the downside," with signs that global activity is losing momentum, amid global tightening of monetary policy and slower credit growth.
"If labor markets remain strong, we should expect — and welcome — real wages recovering lost ground," Mr. Gourinchas said. He noted a surge in equity market valuations, especially in the artificial intelligence segment of the technology sector, but he cautioned that there could be sharp repricing if inflation rises or global risk appetite deteriorates — "causing a flight toward dollar safe assets, higher borrowing costs and increased debt distress," he said.