The latest World Economic Outlook released by IMF shows that the global economic recovery still faces persistent challenges.

　　On June 29th, customers shopped in a supermarket in Foster City, San Francisco Bay Area, USA. Xinhua News Agency reporter Wu Xiaoling photo

　　The International Monetary Fund (IMF) recently released the latest World Economic Outlook, which predicts that the global economy will grow by 3% in 2023, 0.2 percentage points higher than the forecast in April this year, but still lower than the historical annual average of 3.8% (from 2000 to 2019). The IMF said that the pace of global economic recovery is slowing down, and the gap between various economic fields and regions is widening. Some major economies are not expected to bottom out before the second half of 2023, and the world economy will still face lasting challenges.

　　"There are more and more signs that global economic activities are losing momentum." Pierre, chief economist of IMF — Olivier Gourinchas said at the press conference that although some adverse risks have eased, the risks facing the global economy are still on the downside. These risks include that interest rate hikes adopted by central banks to fight inflation continue to drag down economic activities, and the core inflation rate excluding energy and food prices is still far above the central bank’s target.

　　The growth rate of developed economies slowed down.

　　The slowdown in the growth rate of developed economies continues to be the main reason for the decline in global economic growth, which is mainly due to the weak manufacturing industry and other factors that offset the pulling effect of strong service industry activities. The IMF predicts that the growth rate of developed economies will drop from 2.7% in 2022 to 1.5% in 2023, and the economic growth rate of about 93% developed economies will slow down in 2023. In 2024, the growth rate of developed economies is expected to further drop to 1.4%.

　　Specifically, the IMF predicts that the economic growth rate of the United States will slow down from 2.1% in 2022 to 1.8% in 2023, and then further slow down to 1% in 2024. Due to the strong consumption growth in the first quarter of this year, compared with the previous forecast in April, the growth forecast of the United States in 2023 was raised by 0.2 percentage points. However, as the extra savings accumulated by consumers during the COVID-19 epidemic are decreasing, and the Federal Reserve may raise interest rates further, this consumption growth momentum will not continue.

　　The economic growth rate of the euro zone is expected to drop from 3.5% in 2022 to 0.9% in 2023, and then rise to 1.5% in 2024. This forecast remains basically the same as before, but the composition of economic growth in 2023 has undergone new changes. Among them, due to the strong growth of service industry and tourism, Italy’s economic growth rate was raised by 0.4 percentage points to 1.1%. Spain was raised by 1.0 percentage points to 2.5%. However, in the first quarter of 2023, Germany showed signs of weak manufacturing activity and economic contraction, which reduced its economic growth rate by 0.2 percentage points to -0.3%.

　　In addition, the IMF predicts that the British economy will grow by 0.4% and 1% respectively this year and next; Japan’s economy will grow by 1.4% and 1% respectively this year and next.

　　In contrast, the economic growth prospects of emerging markets and developing economies are basically stable in 2023 and 2024, and their economic growth rates are expected to reach 4.0% and 4.1% respectively. However, there are significant differences among regions, among which the economic growth rate of emerging markets and developing economies in Asia is expected to rise to 5.3% in 2023.

　　The IMF maintained its forecast for China’s economic growth, and predicted that China’s economy would grow by 5.2% and 4.5% this year and next. In this regard, Gita Gopinath, the first vice-president of IMF, said that the developed economies are generally weak in growth this year, while the emerging markets and developing economies are expected to achieve faster growth, among which China plays a very important role. In Gopinath’s view, although China’s economy is currently facing adverse effects such as declining external demand and tightening monetary policies in some major economies, China has a large space for relevant economic policies, which can inject new momentum into economic growth through coordinated efforts of fiscal and monetary policies.

　　Core inflation has declined slowly.

　　Due to the drop in energy prices, the overall inflation rate of most economies has declined in recent months, but the downward rate of core inflation is slower than the overall inflation, which is still far higher than the target of most central banks and more lasting than expected. According to the IMF’s forecast, with the tightening of monetary policy and the fall of international commodity prices, it is expected that the average annual overall inflation rate of about three-quarters of the world’s economies will decline this year. The global inflation rate will drop from 8.7% (annual average) in 2022 to 6.8% in 2023, and further drop to 5.2% in 2024, but it is still higher than the level of about 3.5% before the epidemic (2017-2019).

　　The decline of core inflation rate is even slower. The global core inflation rate is expected to drop from 6.5% in 2022 to 6.0% in 2023 and 4.7% in 2024. Take the euro zone as an example. According to Eurostat data, the harmonized consumer price index (HICP) in the euro zone increased by 5.5% in June. From the perspective of sub-items, although energy prices continued to decline, the prices of other sub-items all increased in different degrees. Among them, the prices of food, tobacco and alcohol increased by 11.7% year-on-year, the prices of non-energy industrial products increased by 5.5%, and the prices of services increased by 5.4%. Excluding volatile food and energy prices, the core HICP of the euro zone rose by 5.4% in June compared with the same period of last year, which shows that the core inflation rate of the euro zone is still at a high level, and this data is unlikely to prevent the European Central Bank from raising interest rates by 25 basis points at its meeting in July.

　　Overall, among the economies that implement the inflation targeting system, the inflation rate of 96% will continue to be higher than the target in 2023, and the inflation rate of 89% will be higher than the target in 2024.

　　The IMF warned that extreme weather conditions such as high temperature have frequently occurred in the world recently, and the El Niñ o phenomenon may make global warming more extreme, aggravate drought and push up commodity prices. In addition, if the Ukrainian crisis intensifies, it will further push up the prices of grain, fuel and fertilizer. If there are more shocks, inflation may remain high or even rise, thus triggering further tightening of monetary policy. If the market adjusts as the central bank tightens its policies further, the turmoil in the financial sector may reappear.

　　Downside risks still exist.

　　The report believes that the multiple risks facing the global economy will keep the possibility of downside high.

　　First, financial markets may re-price. Since April, the financial market has raised its expectation of monetary policy tightening, but it still expects that the degree of policy tightening will be smaller than the signal sent by policymakers. This increases the risk that unfavorable inflation data will lead to a sudden rise in interest rate expectations and a fall in asset prices, and may further tighten the financial environment, putting pressure on banks and non-bank financial institutions whose balance sheets are extremely vulnerable to interest rate risks.

　　Second, the debt dilemma may intensify. Since the banking crisis broke out in the United States in March 2023, the global financial environment has generally relaxed, but the borrowing costs of emerging markets and developing economies remain high, reducing their fiscal space for priority spending and increasing the risk of getting into debt trouble.

　　In addition, in view of geopolitical tensions such as the Ukrainian crisis, global economic fragmentation remains another major risk, especially for developing economies. This may lead to more restrictions on trade, especially in the cross-border movement of key minerals, capital, technology and workers. At the same time, it may aggravate the fluctuation of commodity prices and hinder multilateral cooperation among countries.

　　Therefore, the IMF said that central banks should continue to focus on fighting inflation and strengthening financial supervision and risk monitoring. If there is further financial shortage, countries should provide liquidity quickly. In addition, the IMF suggested that countries should establish financial buffers to cope with further shocks and ensure support for the most vulnerable groups.