UK may be the only advanced economy to contract in 2023

Date : 01 February 2023

The International Monetary Fund (IMF) has issued a new report in its World Economic Outlook series, with revised forecasts for global growth and inflation.

Global inflation to linger

According to new IMF research, global economic performance in late 2022 was a little better than expected, due to the rebuilding of international supply chains, effective policy measures to support households and surprisingly resilient private demand.

Global GDP growth in 2022 was +3.4%, which is still below the long-term average rate of +3.8%. As usual, emerging and developing economies outpaced more mature economies.

Global growth in the near term is expected to remain quite weak, at +2.9% in 2023 and +3.1% in 2024, due to monetary tightening and lingering inflation.

Global inflation is now thought to have peaked in 2022 at +8.8% but will remain above the long-term average over the next two years, at +6.6% in 2023 and +4.3% in 2024.

A weak UK economy

The UK is expected to see recession in 2023, with growth projected to be -0.6% in 2023, before returning to weak growth in 2024. This is a sharp downward revision vs October forecasts. The IMF forecasts are now in-line with forecasts from other bodies such as the OBR and Bank of England.

Other major European countries are expected to see limited growth in 2023, however, the UK is the only advanced economy projected to experience negative growth in 2023. Tighter fiscal and monetary policies and household exposure to energy retail prices are key drivers of the economic downturn.

Looking to the future

The strategic situation remains uncertain, but the balance of risks is to the downside (ie: there is a high chance that outcomes will undershoot estimates).

Key risks identified by IMF are as follows:

The report discusses the need to secure “disinflation”, (ie: falling rates of inflation) via monetary tightening and close co-ordination between central banks.

Notably, it does not mention “deflation” (ie: falling prices), suggesting that higher living costs will continue to weigh upon households around the World.

The report specifies that policy support for households should continue, but should be targeted tightly at those in most need – universal support is seen as unsustainable.

Finally, IMF notes that investment in sustainability and the “green transition” remains a high priority. Coincidentally, the UK government has just announced its new Environmental Improvement Plan 2023.


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