World Economy 2023 – Chinadaily.com.cn | Bot To News


By Gita Gopinath, Angel Talavera, Dave Woodward and Bruno Carrasco | China Daily | Updated: 2022-12-12 07:18

MA XUEJING/CHINA DIARY

Editor’s note: The world economy has changed dramatically over the past few years, being organized and run by participating nations. These changes have consequences that affect not only the flow of goods and services between countries, but also monetary and financial policy. Four experts share their views on this issue with China Daily.

The world must avoid fragmentation

by Gita Gopinath

Now is a particularly challenging time for the global economy, as the outlook is set to worsen in 2023.

Three powerful forces are holding back the global economy: the conflict between Russia and Ukraine, the need to tighten monetary policy in the face of a cost-of-living crisis and persistent and increasing inflationary pressures, and a slowdown in China’s economy.

During the October annual meeting of the International Monetary Fund, we announced that global growth will slow down from 6.0 percent last year to 3.2 percent this year. And for 2023, we lowered our forecast to 2.7 percent – ​​0.2 percentage points lower than our forecast a few months earlier in July.

We expect the global slowdown to be broad-based, with countries accounting for one-third of the global economy contracting this year or next. The three largest economies: the US, China and the Eurozone will continue to stagnate.

There is a one in four chance that global growth will fall below 2 percent next year – a historic low. In short, the worst is yet to come and some major economies, such as Germany, are expected to enter recession next year.

Let’s take a look at the world’s largest economies:

In the United States, the tightening of monetary and financial conditions could account for about 1 percent of growth in 2023.

In China, we lowered our growth forecast for next year to 4.4 percent due to the weakening of the real estate sector and weaker global demand.

The energy crisis caused by the conflict between Russia and Ukraine is taking a heavy toll on the eurozone, reducing our growth projection for 2023 to 0.5 percent.

Almost everywhere, rapidly rising prices, especially of food and energy, are causing serious problems for vulnerable households.

Despite the slowdown, inflationary pressures turned out to be broader and more persistent than expected. Global inflation is expected to peak at 9.5 percent in 2022, before declining to 4.1 percent by 2024. Inflation is also spreading beyond food and energy.

The outlook could worsen and political compromises have become a major challenge. Here are four key risks:

The risk of misguided monetary, fiscal or financial policy has increased dramatically in times of great uncertainty.

Upheavals in the financial markets could lead to a worsening of global financial conditions and further strengthening of the US dollar.

Inflation could again prove more persistent, especially if labor markets remain extremely tight.

Finally, hostilities are still raging in Ukraine. A further escalation would exacerbate the energy and food security crisis.

Increasing price pressures remain the most immediate threat to current and future prosperity, lowering real incomes and undermining macroeconomic stability. Central banks are now focused on restoring price stability, and the pace of tightening has accelerated sharply.

If necessary, financial policy must ensure the stability of the markets. However, central banks around the world must remain calm and monetary policy must remain firmly focused on taming inflation.

The strength of the US dollar is also a big challenge. The dollar is now at its strongest since the start of 2000. So far, this growth appears to be mostly driven by fundamental forces such as the tightening of monetary policy in the US and the energy crisis.

The appropriate response is to calibrate monetary policy to maintain price stability while allowing exchange rates to adjust and preserve valuable foreign reserves for when financial conditions really deteriorate.

As the global economy heads into stormy waters, now is the time for emerging market policymakers to batten down the hatches.

Eligible countries with sound policies should urgently consider improving their liquidity buffers, including requesting access to precautionary instruments from the IMF. In addition, the US could reactivate currency swap lines for eligible countries, as extended at the start of the pandemic. This would provide an important safety valve during times of stress in the currency market. Too many low-income countries are close to or already in debt distress. Progress towards an orderly debt restructuring through the G20 common framework is urgently needed to prevent a sovereign debt crisis wave.

For China, low inflation and weak growth allow for greater support for vulnerable households, which, along with strengthening social safety nets, should boost consumption. The new rules for easing restrictions due to COVID will help mitigate the economic impact of the policy and will be critical to sustaining and balancing the economic recovery. In the real estate sector, urgent measures are needed at the central government level to protect financial stability.

These efforts will be good for China – for the economic well-being of the Chinese people – and good for the world.

One final risk to global prosperity should be mentioned.

In the long run, geoeconomic fragmentation could undermine the gains of globalization. As we know, trade has been a key driver of growth and integration. We cannot now allow trade policy to become a source of fragmentation – harming all countries, but especially the most vulnerable people and communities.

Guardrails must be erected to defend existing pathways of global cooperation and to advance progress on climate policies, debt relief and other global issues.

The global community, led by major economies, must step up to put up the necessary guardrails and prevent geo-economic fragmentation.

The world desperately needs cooperation to address key vulnerabilities, including climate change, food insecurity and high debt burdens.

The author is the First Deputy Director General of the IMF.



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