The IMF revised China's growth outlook sharply higher for 2023, to 5.2% from 4.4% in the October forecast after "zero-COVID" lockdown policies in 2022 slashed China's growth rate to 3.0% - a pace below the global average for the first time in more than 40 years. But the boost from renewed mobility for Chinese people will be short-lived. The Fund added that China's growth will "fall to 4.5% in 2024 before settling at below 4% over the medium term amid declining business dynamism and slow progress on structural reforms." At the same time, India's outlook remains robust, with unchanged forecasts for a dip in 2023 growth to 6.1% but a rebound to 6.8% in 2024, matching its 2022 performance. Gourinchas said together, the two Asian powerhouse economies will supply over 50% of global growth in 2023.
He acknowledged that China's reopening would put some upward pressure on commodity prices, but "on balance, I think we view the reopening of China as a benefit to the global economy" as it will help ease production bottlenecks that have worsened inflation and by creating more demand from Chinese households. Even with China's reopening, the IMF is predicting that oil prices will fall in both 2023 and 2024 due to lower global growth compared to 2022. RISKS, UP AND DOWN The IMF said there were both upside and downside risks to the outlook with built-up savings creating the possibility of sustained demand growth, particularly for tourism, and an easing of labor market pressures in some advanced economies helping to cool inflation, lessening the need for aggressive rate hikes. But it enumerated more and larger downside risks, including more widespread COVID-19 outbreaks in China and a worsening of the country's real estate turmoil. An escalation of the war in Ukraine could further spike energy and food prices, as would a cold winter next year as Europe struggles to refill gas storage and competes with China for liquefied natural gas supplies, the Fund said.
Although headline inflation has come down in many countries,
a premature easing of financial conditions leaves markets
vulnerable to sudden repricings if core inflation readings fail
to come down.
Gourinchas said core inflation may have peaked in some
countries such as the United States, but central banks need to
stay vigilant and be more certain that inflation is on a
downward path, particularly in countries where real interest
rates remain low, such as in Europe.
"So we're just saying, look, bring monetary policy slightly
above neutral at the very least and hold it there. And then
assess what's going on with price dynamics and how the economy
is responding, and there will be plenty of time to adjust
course, so that we avoid having overtightening," Gourinchas
said.
(Reporting by David Lawder in Washington and Xinghui Kok in
Singapore; Editing by Andrea Ricci)
