For the IMF, the world economy continues to "heal its wounds," after more than three years of pandemic, which, according to the institution, caused the biggest adverse shock of the last 75 years. This is happening in a context of growing divergence in the pace of growth across the different regions of the world. 

After the quick recovery in 2021, recent economic dynamism remains moderate due to two sets of factors: on the one hand, the long-term consequences of the pandemic, the war in Ukraine, growing geopolitical tension and extreme weather events; and, on the other hand, cyclical factors such as the tightening of monetary policy to contain inflation and the withdrawal of fiscal stimulus in the face of high public debts.

In the IMF's recently released baseline scenario, the world economy will slow down from 3.5% in 2022 to 3% in 2023 and then to 2.9% in 2024. The 2023 projection remained unchanged from the scenario released in Jul'23 and for 2024 it was reduced by only 0.1 percentage point.

Other international institutions also expect more modest dynamism in the coming years. The OECD, in its last scenario, released in Sep'23, also projected an expansion of 3.0% for 2023 global GDP, but expects a more intense slowdown than the Fund in 2024: 2.7%. 

UNCTAD, which, like the IMF, released an update of its outlook in Oct'23, has more pessimistic expectations regarding both 2023 and 2024. The institution estimates a global GDP growth rate of 2.4% in 2023 and 2.5% in 2024. 

If the current IMF scenario is confirmed, the growth of the international economy in 2023–2024 will fall short of the historical average of the last 20 years (2000-2019), which was 3.8%. In addition, recent projections remain below those prior to the pandemic in several countries and regions. 

The United States had the strongest recovery among advanced economies, being the only country in which the forecasted result for 2023 exceeds the one estimated before the pandemic. In China, the 2022 slowdown, due to the zero COVID-19 policy and the real estate crisis, resulted in a loss of 4.2% on the same basis of comparison. Emerging Market and Developing Economies (EMDEs) other than China recorded even weaker recoveries, especially low-income ones, whose real output average loss exceeded 6.5%.

In 2023, advanced economies (AEs) are leading the slowdown in global growth, with the strongest activity in the services sector being offset, above all, by the low dynamism of manufacturing, as already pointed out by UNIDO. 

Growth in AEs is expected to cool from 2.6% in 2022 to 1.5% this year, according to the IMF. In 2024 it should be 1.4%. Around 90% of this group of countries are expected to grow less in 2023 than in the previous year, notably the UK and the euro area. In the case of the US, the Fund expects growth to remain the same as in 2022 (2.1%). Japan is the only advanced economy the IMF expects to do better (1% in 2022 and 2% in 2023).

For emerging and developing economies (EMDEs), the IMF forecasts virtual stability in the pace of GDP growth, from 4.1% in 2022 to 4% in 2023 and 2024. According to the Fund, two regions could gain strength: Emerging and Developing Asia (from 4.5% in 2022 to 5.2% in 2023) and Emerging and Developing Europe (from 0.8% to 2.4%, respectively). 

Latin America and the Caribbean, on the other hand, will lose momentum, although less than the IMF expected in its previous outlook. The region's GDP, which grew 4.1% in 2022, is expected to increase 2.3% in 2023, that is, 0.4 percentage point above the forecast of Jul'23. Much of this is driven by Brazil, which is the largest economy in the region.

Brazilian GDP growth should reach 3.1% in 2023 against 2.1% in the previous scenario, driven, on the supply side, by the performance of agriculture and services in the first half of the year and, on the demand side, by household consumption, due to the improvement in the labor market and inflation. 

The slowdown in the Middle East and Central Asia, according to the IMF, will be the most intense among emerging and developing regions, from 5.6% in 2022 to 2%. In Sub-Saharan Africa, on the other hand, the loss of pace will be from 4% in 2022 to 3.3%.

The update of the IMF scenario for 2023–2024 is based on some hypotheses regarding national macroeconomic policies, prices and the evolution of international trade, as explained below:

 •  Loss of pace in the volume of global trade for the second consecutive year, but much more intensely than last year: from 5.1% in 2022 to 0.9% in 2023;

 • 36% drop in energy commodity prices and 6.3% drop in non-energy commodities;

 •  Slowdown in global inflation from 8.7% in 2022 to 6.9% in 2023 and 5.8% in 2024;

 •  Continuation of the restrictive monetary policy stance in advanced economies in 2023, with cuts in base interest rates only in 2024;

 • Less contractionary fiscal policy in developed countries in 2023 and neutral stance in emerging economies on average.

It should be mentioned that the negative bias of the balance of risks of the Fund's base scenario decreased compared to the previous one, although concerns about the evolution of global inflation and the risk of recession remain high. 

The chance of a hard landing (drop in global GDP growth to less than +2%) in 2023 is now only 5% against 25% in the previous balance of risks (Apr'23 outlook). For 2024 this risk is 15% versus 25% on the same basis of comparison. 

The main factors considered by the Fund for the possibility of a hard landing were: on the positive side, a further slowdown in inflation and a faster recovery in domestic demand; on the negative side, lower growth in the Chinese economy, greater volatility in commodity prices, persistence of inflationary pressures, more restrictive monetary policies, external debt crises in the EMDEs, higher geopolitical tension and social protests.

The IMF also recommends policies to ensure sustainable economic growth with low inflation, and actions to mitigate the adverse effects of climate change and to protect the most vulnerable population. 

For the Fund, policies with short-term impacts should ensure price stability and normalization of fiscal policy, strengthen financial supervision, protect the most vulnerable, prevent external debt crises in EMDEs, improve food security, and increase employment. 

Proposals with a medium-term impact include: macro-structural reforms aimed at productivity growth, accelerating the green transition and mitigating the effects of climate change, establishing a “green corridor” for essential minerals and increasing data sharing on such minerals, strengthening multilateral cooperation and mitigating the effects of geopolitical fragmentation.

The full text is available in Portuguese.