World Economic Outlook Update

39 minutes, 6 seconds Read

World Economic Outlook Update

January 31, 2023



Communications Department



Chief Economist and Director, Research Department


Division Chief, Research Department

* * * * *


(9:30 a.m.)

Okay, I think we can start. I want to thank you, everyone, for being here.
Good morning for those who are joining us here in Singapore, and across
Asia. Good evening for those who are joining us in the other side of the
world, especially the western hemisphere. I am Jose Luis de Haro, with the
Communications Department at the IMF, and we are here to introduce the
World Economic Outlook Update. Here with us is Pierre Olivier Gourinchas,
he is the Chief Economist, and the Director of the Research Department.
Also joining us today is Daniel Leigh. He is the Division Chief at the
Research Department.

As I said, we are introducing the World Economic Outlook Update. It gives
us an assessment on the global economy, the risks, and also it will include
some policy recommendations. I hope that by this time, all of you have had
access to the document. Not only to the World Economic Outlook Update
itself, but also to a blog authored by Pierre Olivier. If you have not had
access, I would recommend you to go to, and then Pierre Olivier is
going to start with some opening remarks, and then we will be proceeding to
your questions. I want to remind everyone that we will also be taking
questions from reporters that are joining us online. So, without further
ado, Pierre Olivier, the floor is yours.

MR. OLIVIER: Thank you, Jose, and good morning to everyone here. Good
evening, if you are in the western hemisphere. Good night, if you are in
Europe. The global economy is expected to slow this year before rebounding
next year. Growth will remain weak by historical standards, as the fight
against inflation, and Russia’s war in Ukraine, weigh on activity. Despite
these headwinds, the outlook is less gloomy than in our October forecast,
and could represent a turning point with growth bottoming out, and
inflation declining.

Economic growth proved surprisingly resilient in the third quarter of last
year, with strong labor market, robust private demand, and
better-than-expected adaptation to the energy crisis in Europe. Inflation,
too, showed improvement, with overall measures decreasing in most places,
even if core inflation, which excludes more volatile energy and food prices
has yet to peak in many countries. China’s sudden reopening paves the way
for rapid rebound in activity. And global financial conditions have
improved as inflation pressures started to abate. This, and a weakening of
the US dollar from its November high, provided some relief from emerging
and developing economies.

Accordingly, we have slightly increased our 2022 and 2023 growth forecasts.
Global growth is expected to slow from 3.4 percent in 2022, to 2.9 percent
in 2023, then rebound to 3.1 percent in 2024. For advanced economies, the
slowdown will be more pronounced, with a decline from 2.7 percent last
year, to 1.2 percent this year. Nine out of ten advanced economies will see
growth decelerate this year. US growth will slow to 1.4 percent in 2023, as
federal interest rate heights work their way through the economy.

Euro-area conditions are more challenging. Despite signs of resilience to
the energy crisis, a mild winter, and generous fiscal support, with
tightening monetary policy, and negative terms of trade shock, due to the
increase in the price of supported energy, we expect growth to bottom out
at 0.7 percent this year in the region. Emerging market and developing
economies have already bottomed out as a group, with growth expected to
rise modestly to 4 percent, and 4.2 percent, this year and next.

With China’s economy now reopening, we project growth rebounding to 5.2
percent in 2023. Together, China and India will account for half of global
growth this year, while the United States, and the Euro-area combined will
account for 10 percent only. Global inflation is expected to decline this
year, but even by 2024, headline and core inflation will still be above
pre-pandemic levels in more than 80 percent of countries. Core inflation
has been revised upwards again to 6.9 percent in the fourth quarter of
2022, and is expected to decline to 4.4 percent by the end of this year.

Adverse risks to the outlook have moderated since October, and some
positive factors have gained in relevance. But overall, the risks remain
tilted to the downside. China’s recovery could stall, caused by
greater-than-expected economic disruptions caused by COVID infections, or
by a sharper-than-expected slowdown in the property sector. Inflation could
remain stubbornly high, with continued labor market tightness and growing
wage pressures requiring tighter monetary policies. An escalation of the
war in Ukraine remains a major threat, and could destabilize energy and
food markets, and further fragment the global economy. A sudden reprising
in financial markets could tighten financial conditions, especially in
emerging market and developing economies.

On the upside, strong household balance sheets and solid wage growth could
help sustain private demand, although these may potentially complicate the
fight against inflation. Easing supply chain bottlenecks and labor market
cooling due to falling vacancies could allow for a softer landing,
requiring less monetary tightening. The recent news about inflation is
encouraging, but the battle is far from won. Monetary policy has started to
bite, with a slowdown in new home construction in many countries. Yet,
inflation-adjusted interest rates remain low, or even negative in the
Euro-area and other economies. And there are significant uncertainty about
both the speed and effectiveness of monetary tightening.

Where inflation pressures remain elevated, central banks need to raise real
policy rates above a neutral stance, and keep them there, until underlying
inflation is on the decisive, declining path. Easing too early risks
undoing most of the gains achieved so far. The financial environment
remains fragile, especially as central banks embark on an uncharted path
towards shrinking their balance sheets. It will be important to monitor the
buildup of risks, and address vulnerabilities, especially in the housing
sector, or in the less-regulated non-bank financial sector.

Emerging market economies should let their

currencies adjust as much as possible, in response to the tighter global
monetary conditions using FX interventions or capital flow management where
appropriate to smooth excessive and non-fundamental volatility. Many
countries responded to the cost-of-living crisis by supporting people and
business with broad and untargeted policies that helped cushion the shock.
Many of these measures, however, proved costly and increasingly
unsustainable. Countries should instead adopt targeted measures that
conserve fiscal space, allow high energy prices to reduce demand for
energy, and avoid overly stimulating the economy.

Supply side policies also have a role to play. They can help remove key
growth constraints, improve resilience, ease price pressures, and foster
the green transition. These would also help alleviate accumulated output
losses since the beginning of the pandemic, especially for emerging and
low-income economies.

Finally, the forces of geo-economic fragmentation are growing. We must
buttress multilateral cooperation, especially on fundamental areas of
common interest, such as international trade, expanding the financial
global safety net, public health preparedness, and the climate transition.
This time around, the global economic outlook hasn’t worsened. That’s good
news, but not enough. The road back to a full recovery with sustainable
growth, stable prices, and progress for all has only started. Thank you.

MR. DE HARO: Thank you, Pierre Olivier for those remarks. And before we
open the floor to your questions, I’m going to set some ground rules. If
you want to formulate a question, please raise your hand. Wait until I call
on you. When I do, just identify yourself, and the media you represent, and
as I said before, we are also going to be taking questions of reporters
that are joining us live on WebEx, and also taking questions from the press
center. So, we will start here in the room. Wall Street Journal. Go ahead.

QUESTIONER: Thank you. I am Jason Douglas for the Wall Street Journal. Can
I ask two questions? I promise they are related.

MR. DE HARO: Go ahead.

QUESTIONER: So, the first question is: How resilient is the Chinese
consumer? Because that appears to be pretty important to the strength of
the global recovery. And the second is related, which is: Normally when
China’s economy is driving a global recovery, it’s been stimulus-led,
investment-led, and that kind of thing in the past. I’m thinking
particularly after the financial crisis. This time, it seems a bit
different, right, with a consumption-led recovery in China. I am just
curious if you have any thoughts on how that might have different effects
on the global economy, either in terms of its strengths, or in terms of the
patterns of demand, and that kind of thing. Thank you.

Thank you. Well, thank you for your question. So, on this is a question
about the Chinese economy. And we have, as I mentioned effectively, we are
projecting a fairly strong rebound inactivity in this year. We’re
projecting 5.2 percent. This is 0.8 percentage point above our October
forecast are very significant. All the indications are that we are
witnessing a rapid reopening of the economy. And so here, when we think
about the reopening of the Chinese economy, it’s going to have an impact on
the supply side because we can anticipate that once the economy fully
reopens, we have less supply chain disruptions that we have witnessed in
2022 when there were lockdowns and confinements. So, we’re going to get an
expansion in production coming from that side. And also, we’re going to get
an increase in domestic demand as Chinese households are going to be able
to resume activities and start spending. We’re going to see that in number
of dimensions, including, for instance, tourism. That’s going to be an
engine that will benefit other countries as well.

Some estimates that we have computed in at the Fund suggest that for every
percentage point higher growth in China, there is a spillover effect to the
rest of the world that is about 0.3 percentage points. So, quite
significant, and of course, is stronger for countries that are closer trade
partners of China.

MR. DE HARO: Thank you, Pierre Olivier. Anybody else in the room? I’m going
to go with Nikkei. Wait, wait, the microphone. It’s coming.

QUESTIONER: You just mentioned about the spillover effects of Chinese
recovery. So, I will ask about the spillover effects on Southeast Asian
economies. Southeast Asian countries are geographically across to China and
have crossed trade relations with China. Why has China’s growth being
revised upwards since last October while our growth of Southeast Asia has
been revised downwards this time?

MR. GOURINCHAS: Well, even if China’s growth has been revised upwards,
globally, what we have is a decline in the growth rate from 3.4 percent to
2.9 percent. And for many Asian economies that are very open to
international trade, that slowdown in global activity is going to be the
dominant factor, and that’s going to lead to downward revision in economic
activity. But let me turn it over to my colleague Daniel Leigh here to
provide some additional remarks.

MR. LEIGH: Thank you. I would add that another factor that is weighing down
in the region is the fight against inflation here as well. We’ve seen since
we published our last forecast in October, central banks raising interest
rates, and we expect that will successfully bring inflation down. But in
the short-term, it, it does mean that demand is being called and that
explains part of the revision.

MR. DE HARO: Thank you, Daniel. I’m going to go to the Press Center and we
have a question from Anthony Herbert who goes as follows. Inflation rates
may possibly have peaked now, but only after price levels and interest
rates have rising sharply in absolute terms. The lack impact of monetary
tightening does, has yet to show through. What impact will this have on
households and on the corporate sector?

MR. GOURINCHAS: Well, so we are in the middle of this tightening phase.
Actually, some countries are already near the peak, others are more towards
the middle. So, there’s been this very significant synchronized tightening.
Most central banks around the world have been raising their policy rates.
And it is correct that it takes time for tightening of monetary policy to
work its way and affect domestic activity and demand, and then eventually
inflation. But I would make two remarks. So, first, we’re already seeing
signs that in what we call the interest sensitive sectors, we’re already
seeing signs of the tightening having some effects. Mortgage rates have
been going up. Sectors are more reliant on borrowing, for instance, we’re
also seeing some construction. We see some construction in credit. Second,
when all central banks together are tightening policy rates that they’re
doing now, it is cooling off global demand. This is an effect also on
commodity prices. We have seen energy and commodity prices coming down in
the second part of this year, and part of this is due to this tightening of
monetary policy. So, the full effect is not there, and we anticipate the
full effect will be felt towards the end of this year and into 2024. It’s
going to take some time, but at the same time, we are starting from a
situation where inflation rates remain well above central bank targets, and
therefore, there is a need to remain in the contractionary stance until
inflation sort of shows that decisive path towards central bank targets.

MR. DE HARO: Thank you, Pierre Olivier. We’re going to go back to the room.
Any questions? We’re going to go with AFP.

QUESTIONER: So, the IMF will be sending a review team to Islamabad today.
How confident or optimistic are you about the bailout program negotiations
being revived? And do you have a timeframe for it as well? Thank you.

MR. GOURINCHAS: Thank you. So, yes, we have an in-person mission who is
going to be in Pakistan. And the focus of the mission will be to restore
domestic and external sustainability, help the country restore domestic and
external sustainability. And I will turn it over to Daniel for more

MR. LEIGH: Thank you. Pakistan’s economy is coming out of a very strong
2022 with 6 percent growth, well above the world average. But in 2023,
there is going to be a slowdown, and that’s partly the end of the stimulus
that was there from fiscal policy in 2022. That’s going away. And also
because of the high inflation, the central bank has increased interest
rates, which we see as an appropriate step, 17 percent recently, the
interest rates. That’s going to cool domestic demand. And so we see growth
of 2 percent in 2023. Unfortunately, we also had to downgrade the growth of
forecast for Pakistan by one and a half percentage points for 2023. And
that’s because of the floods, which was a terrible supply shock, both
reducing activity, but also raising inflation and putting various pressures
on the country. Inflation, therefore, went up because of this. We see
inflation reaching about 21 percent in 2023. This is also because of the
exchange rate depreciation. And though we do see inflation, thanks to the
measures that the authorities are taking, coming down and converging to the
five to 7 percent target range by mid-2025. That’s the outlook for

MR. DE HARO: Thank you, Daniel. The reporter there.

QUESTIONER: Good morning, sir. I’m from the China Central Television. Thank
you very much for giving me this chance and my question is that just now,
according to the report, Chinese economy is projected to increase to growth
5.2 percent in 2023. It is higher than the previous forecast. And just now,
you also explained some of the reasons. So, in your opinion, what is the
key reasons? What is the most important driving forces of the Chinese
economic growth? Thank you.

MR. DE HARO: Pierre-Olivier, before we answer this question, we have
another question on China, and we can group them. There’s one from Yicai
that goes as follows, could you elaborate more on China’s reopening and its
impact on the global economic activities and inflation? And also, I see
Gabriel on our WebEx. Gabriel, can you come in and formulate your question?

QUESTIONER: Yes. Hi. Hello. Thanks for the opportunity. My question is very
much like all the other questions on China. Especially, I wanted know
because the IMF has upgraded China’s growth forecast pretty significantly.
And I want to know specifically, what were the reasons throughout the past
few months that has led to this increase and especially, its implications
towards the regional and global economy? Thanks.

MR. GOURINCHAS: Well, so I coming back to China, so very clearly, the
development since our last run of forecast in October has been the
reopening of the economy and the end of the zero covid measures that were
in place up until that time. Now, these measures have served China very
well in terms of protecting its population through the very difficult times
of the pandemic, but it was becoming increasingly difficult to sustain
them. And there was a very rapid pivot towards the end of last year towards
reopening the economy. That leads currently to a situation that is a bit in
a state of flux in the first few months after the opening. But what we are
seeing after that is a stabilization of the economy fully reopened and
fully able to produce and consume, et cetera. And so that’s a major factor
behind our upward revision for China in 2022. I want to mention that there
are other forces at play when we look at the Chinese economy. For instance,
the property sector is still showing signs of weakness. This is something
that has been weighing down on the economic activity in China. The property
sector is a very important sector, was one of the important component of
growth in past years. And going forward, this is something that is not
going to be as much of an engine of growth until there’s been some cleaning
up in that sector. And that’s why when you look at the numbers, even though
we are projecting a very strong rebound in 2022, our numbers for 2023,
sorry, our numbers for 2024 is about 4.5 percent, because we are seeing
some signs that the Chinese economy may not be growing at the same rate in
coming years after this rebound. Now, there was also part of the question I
think from the WebEx was on inflation. And here there are two forces. On
the one hand, China’s reopening is a boost to growth in China and globally,
as I explained earlier through the demand that Chinese households may have
of foreign goods or foreign services and tourism. But it can also put
upward pressure on commodity prices and that would reverberate in the
current environment. On balance, our assessment is that the net of these
two will be that this will be a factor that is conducive to more growth,
and it will not lead necessarily to an acceleration of inflation coming
from commodity prices. In fact, commodity prices, energy prices are
projected to decline in 2023 in our forecast.

MR. DE HARO: Thank you, Pierre Olivier. We have a couple of questions that
came from the Press Center on Africa. I’m going to try to group them. One
of them says, “What is the outlook for Sub-Saharan Africa and the main
challenges for the upcoming months?” This comes from Lusa News Agency.

And there’s another one on Ghana. “What is Ghana’s economic outlook for
2023? And drivers will that spur economic growth in Ghana considering the
current economic crisis the country finds itself in?” This comes from Ghana
News Agency.

MR. GOURINCHAS: Well, thank you. On Sub-Saharan Africa, what I can say is
that we have a difficult year for the region that is very much affected by
the external forces that are shaping the global outlook, whether it’s the
Russian war in Ukraine and energy crisis or the fight against inflation and
the tightening of global financial conditions that comes with that.

So, but growth is projected to be around 3.8 percent in Sub-Saharan Africa.
And this is quite a bit below the typical growth rates that the region
experienced before the pandemic.

And in addition, in the region, there is an issue of food insecurity. Even
though food prices have come back — the food price index has come back to
pre-war level, so levels we had about a year ago or a little bit more than
that — they’re still elevated compared to pre-pandemic times. And there
are in many countries a large portion of the population may be subject to
food insecurity.

Let me turn over to Daniel on Ghana and Sub-Saharan Africa.

MR. LEIGH: Okay. Thank you. On Ghana, we do expect growth to slow this
year. This is partly because of the global headwinds that Pierre Olivier
has been discussing. So, it’s a difficult time for the global economy that
affects Ghana.

But also, there are some domestic headwinds. In particular, inflation has
increased significantly. And so, the Central Bank is tightening monetary
policy, but that is cooling the economy domestically. Plus, the fiscal
policies are tightening to address the elevated debt. This is the cooling
in 2023.

But in 2024, we see a rebound in particular in the extractive activities.
And that is going to support Ghana in 2024.

I would add that right now — so just very recently — the IMF team went to
Ghana, reached agreement with the Ghanian authorities on an economic reform
program that will be supported under a $3 billion extended credit facility.
And the goal of that program is to reestablish macroeconomic stability,
debt sustainability, and create the foundations for higher and inclusive
growth over the medium-term.

MR. DE HARO: Thank you, Daniel. I just want to remind everybody that join
us in Webex to turn on their cameras. We’re going to go to you shortly. But
first of all, first I want to go in the room again. The reporter in the
second row, please.

QUESTIONER: Hello. Mercedes from the Financial Times. How are you? I just
wanted to ask about the potential for a number of debt defaults across
emerging markets. I know the IMF had some concerns about this previously.
Are you now more optimistic?

MR. GOURINCHAS: Well, we have been flagging that a number of countries,
especially among low-income countries and some emerging market economies,
are either in situations where they are getting close to debt distress or
they are in debt distress right now. And the factors behind this are really
the legacy of the pandemic and the energy crisis that has eroded fiscal
buffers in many countries, has reduced growth rates, led to inflation, the
desire to provide support to people and businesses, and has led some
countries to have exhausted some of their fiscal space.

So, the numbers about 60 percent of low-income countries that are either at
risk of debt distress or already in debt distress. And we have a few
emerging market economies. Now, that’s a large number of countries. At the
same time, this is not something that we see as a systemic debt crisis
environment. These are a large number of smaller economies. And we, you
know, work at the Fund in a different number of fora, like through the
Common Framework, for instance, and other areas with the Paris Club, et
cetera. We are trying to help countries that are finding themselves in
situation of debt distress to be able to restructure their debts, maybe
obtain financial assistance, and then achieve some amount of macroeconomic
stability and debt sustainability going forward.

MR. DE HARO: Thank you, Pierre Olivier. I see Paula Lugones from Clarin on
Webex. Paula, go ahead.

QUESTIONER: Thank you, Jose Luis. How do you think this new global outlook
would impact on Argentina, which has a very high inflation and a
significant debt with the IMF? Thank you.

MR. DE HARO: Thank you, Paola. And now that we are in the region — not in
Argentina — but let’s go to a question from Yolanda Morales from El
Economista about Mexico. “What factors will allow Mexico to withstand the
weakening of economic activity in the United States, especially the US
situation will affect remittances and manufacturing demand?”

MR. GOURINCHAS: Well, let me start with Argentina. So, Argentina, we had an
upward revision to output in the past year, about 0.5 percentage point to
4.6 percent for the year. And that’s on the back of a stronger than
expected manufacturing and retail activity in the economy.

Now, of course, we are expecting that there will be a slowdown in the
coming year. So, growth in 2023 is projected at two percent. This is
actually not revised from our October forecast, so this is more or less in
line with what we had been expecting. And this is a combination of both the
external forces that we’ve already mentioned — the slowdown in the global
economy that is going to weigh down on Argentina as well — and the
tightening policies that are put in place in the country, both tightening
monetary policy but also some adjustment on the fiscal side to try to get a
handle on the very elevated inflation rate the country has experienced. In
2022, last year, we have an inflation rate that is close to 100 percent in
the country.

So, in Argentina, we expect some slowdown. We believe that what’s really
important is for the policy targets that have been put in place in the
context of the program that the country has with the IMF to be met, both on
the fiscal and the monetary side, that will help anchor inflation going
forward and help stabilize the economy.

On Mexico, Mexico in a sense is very sensitive to the external forces going
on. And since we had the revision in the US, that also means more activity
in the US in 2022. And that translates into also stronger activity in
Mexico. So, we have a pretty strong revision in 2022 to 3.1 percent. That’s
a 0.9 percentage point revision. And it carries over into next year as
well. We have 1.7 percent expected in 2023. That’s a 0.5 percentage point
above than our last forecast. So, this is largely the influence of external

Remittances are important but they are not a huge driver of total economic
activity in Mexico. They represent about four percent. So, this is not one
of the major driving forces.

Going forward, Mexico is implementing a tight monetary policy. They’re
actually probably near the end of their tightening cycle. They’ve tightened
quite aggressively monetary policy to bring inflation down, which was at
eight percent last year and is expected to come down a bit this year. And
fiscal policy is broadly neutral. So here, the overall adjustment of
macroeconomic policy seems about right. And I think for Mexico, the focus
should be perhaps on some structural reforms that would help the economy
grow a little bit faster going forward.

MR. DE HARO: Thank you, Pierre Olivier. We’re going to go for the room and
then we will go to Webex because I see ITV News. We will go later to you
but let’s take a question from the room. Somebody can pass the microphone
to — thank you very much. No, actually can we go first with her and then
we will go back to you. Sorry.

QUESTIONER: Thank you. Michelle Jamrisko from Bloomberg. I wanted to ask a
follow-up on the debt distress issues and specifically to Sri Lanka and
Pakistan. I was wondering if anything has changed in your thinking given
these updated forecasts around where those situations lie and how the talks
will go going forward in the coming months?

MR. GOURINCHAS: Right. I mean I think we’ve already discussed Pakistan. I
mean I can go back to Daniel. I’m not sure we have much more to add.

But on Sri Lanka, what I can say is we can confirm that India has indicated
to the IMF that it is committed to deliver financing and debt relief
consistent with helping the country restore its debt sustainability, which
is a very good development. India is one of the non Paris Club official
creditor. And Sri Lanka is engaged in other discussions with other official
bilateral creditors to obtain similar assurances. Once they are secured,
these will unlock access to IMF financing and will help the country move
forward. So, that’s the development that we have at this point on Sri Lanka
and we very much look forward for other official bilateral creditors to do
their part.

MR. DE HARO: Thank you, Pierre Olivier. We’re going to go to Webex. ITV, go

QUESTIONER: My question — well it’s sort of two questions really but
they’re basically the same. Why do you expect the UK economy to perform
worse than everyone else? And is Brexit one of the reasons you expect the
UK economy to perform worse than everyone else?

MR. GOURINCHAS: Yeah. So, UK economy actually so let me start with the good
news. The UK economy’s actually done relatively well in last year. We have
revised upwards economic growth in the UK to 4.1 percent. That’s a 0.5
percentage point revision. And it’s one of the highest growth rates in
Europe in that region for that year.

It is true that we are expecting a fairly sharp slowdown in this year.
We’re projecting a growth that is -0.6 percent for the year. And that’s a
downward revision of 0.9 percentage point. And there are basically three
things that are behind this downward revision, and especially the fact that
the UK is expected to do somewhat worse than some other countries in the

First, there is the exposure to natural gas. And we’ve had a very sharp
increase in natural gas prices, energy prices in the UK. And there is a
larger share of energy that is coming from natural gas with a higher
passthrough to final consumers. And so, that has affected — there’s been a
stronger cost of living crisis, if you want, in the UK.

The second is that the UK also its employment levels have not recovered to
pre-pandemic levels. So, this is a situation where you have a very, very
tight labor market but you have an economy that has not reabsorbed back
into employment as many people as it had before. And of course that means
there is less output, less production.

And the third is that there is a sharp monetary tightening because
inflation has been very elevated. That’s a side effect of this high
passthrough of energy prices. Inflation was 9.1 percent last year. And it’s
expected to actually remain quite high in this coming year at 8.2 percent.
The Bank of England has started tightening. The UK has a fairly high share
of adjustable rate mortgages. So, when The Bank of England starts
increasing rates, it feeds into the mortgage rates that mortgage holders
are paying. And that is also weighing down on activity.

So, all these three factors together explain why we have a somewhat sharper
adjustment in 2023, but on the back of a relatively stronger growth in

MR. DE HARO: Thank you, Pierre Olivier. We have two questions. We’re going
to go to the reporter here.

QUESTIONER: Hello, thank you very much for the sharing. So, I’m Lin from
Channel News Asia, and I think we’ve discussed a lot about the global
region, but we’ve not discussed much about where we are today, which is
Singapore. So, our growth rate is actually still far from pre-pandemic
growth, and in fact the manufacturing sector sunk for the first time in
2020, and even our construction sector, which is quite a key drive our of
economy, is still very much lower than pre-pandemic levels. Do you have any
opinions on how the reopening of China could affect our Singapore economy?

MR. GOURINCHAS: Well, so, yes, we have not talked about Singapore yet, so
let’s do this. So, we are projecting that growth last year was around 3.7
percent for Singapore, and that’s actually also a sharp upward revision
compared to October forecasts, which was only around 3 percent. So, 0.7
percentage point upward revision. But then, in 2023, in this year, we’re
projecting growth to slow down, very much in line with this pattern we see
globally, so growth slowing down and then expected to rebound in 2024, 1.5
percent in 2023, and that’s a 0.8 percentage point downward revision.

Now here, I think what is really important for Singapore, and it’s also
true for many other Asian economies is something I’ve mentioned already,
which is the openness to trade. So, this is an economy that’s going to be
very influenced by what’s happening in terms of global activity. And so, in
terms of global activity, you are right that China’s reopening suddenly a
favorable factor that’s going to lead to more activity, but this is in a
context in which the global economy itself is slowing down from 3.4 to 2.9,
and at the end of the day this is what dominates.

Now, we also have in Singapore a tightening of monetary policy, because
inflation pressures have been building up, and inflation pressures are
actually going to also continue into the current year, in part due to the
one-off impact of the GST, the tax that is going to be — has been imposed,
and so, that’s going to keep prices elevated for a little while longer
until it works its way through the price level. And so, we’re going to have
some inflation pressures here, and monetary policy and financial conditions
are going to remain relatively tight.

Singapore is also facing a very tight labor market. We know that this is
sort of — this was the case in the last few years, but it’s still the case
now, very, very tight labor market going forward, and that’s also weighing
down a little bit on activity. One point I want to mention is there is —
in the context of Singapore that’s also the case for many other economies,
a number of businesses are rethinking where they might decide to locate
their activities, in the context of what we call fragmentation risks, and
that could be actually a benefit to Singapore, place like Singapore going
forward, as it could be an attractive place for foreign investors, and the
location of activity compared to some other destinations.

MR. DE HARO: Thank you, Pierre Olivier. We’re going to continue here in the

QUESTIONER: Hi. It’s Emma from The Financial review, thanks for your time.
You mentioned just in passing trade barriers, recently we’ve seen the U.S.,
London, and Japan a greater imposed sanctions on China’s chip-making
industry, comes after (inaudible) by Washington last year, where might we
see the impact of these measures?

MR. GOURINCHAS: Well, we’ve seen a number of measures have been taken by
different countries in terms of trying to restrict trade, including trade
in semiconductors. Now, some of it is to try to increase the resilience of
the economies, and that’s something that is a concern for us, because we
think that there is a danger that the global economy might try, we hear
words like reshoring, or — which is, you know, in other words of saying,
you know, where you want to bring back the industry’s home, or
friend-shoring, and our analysis suggests that such reshoring or
friend-shoring would be something that potentially could be harmful to the
global economy.

Because at the end of the day, what matters for the global economy is
resilience. And resilience means that you need to have diversified supplies
or potential supplies, it’s having concentrated suppliers, whether they’re
at home or whether they’re abroad, and if they’re at home they tend to be
concentrated by construction, is something that puts countries in a
vulnerable position if the shock happens. And so, the work we’ve done at
the Fund suggests that diversification of supply chains is much more
important in trying to improve resilience, improve growth, improve
standards of living, rather than moving towards reshoring or

And so, we are looking at these developments, like the ones you mentioned
in the semi-conductor sector, and we’re trying to understand their
implications for the global economy, and, as I said, we are — initial
analysis suggests that this could take us on the path that is not
necessarily one that leads to stronger growth.

MR. DE HARO: Thank you, Pierre Olivier. We’re running out of time, we have
a couple of questions left. I’m going to take one from the Press Center
that comes from the Philippines, Business World, and it goes as follows,
growth in ASEAN-5 countries is projected to slow to 4.3 percent in 2023,
and then pick up to 4.7 percent in 2024, this is a slightly lower than your
forecast in October, but what are the factors you consider in ASEAN-5 that
led you to downgrade your original projections, and were there changes in
each ASEAN country?

MR. GOURINCHAS: Daniel, would you like to give it a shot?

MR. LEIGH: Sure. Yes, in ASEAN, there is — we’re coming out of a very
strong 2022, for the ASEAN-5 economies, 5.2 percent growth. Then in 2023,
there is a slowdown as in many other parts of the world, 4.3 percent,
before bottoming out and coming up in 2024 back to 4.7. There is in 2023 a
moderation of that very strong growth we had in 2022 from the post-COVID
reopening, that’s fading out a little but, and plus we’ve got the slowdown
in other parts of the world, the U.S., the EU, trades very closely with
ASEAN. Because of the increase in inflation in the region, central banks
have stepped up and raised interest rates, that is cooling at the moment,
and as I mentioned there’s a downgrade for 2023, partly because of that
tightening and monetary policy.

2024, the recovery on the horizon is coming from the stronger growth in the
world, including China. There’s a very strongly-integrated region, about 50
percent of all of the trade in the region is with China, within the region,
and 25 percent of the country’s exports on average are going to China.
About 20 percentage points of that is absorbed in China, and 5 percent
re-exported. So, as you can see, there’s a lot of benefit going to come
from that speeding up in the Chinese economy. Inflation is also coming
under control thanks to that tightening, back towards medium-term stability
in 2024, 2025.

MR. DE HARO: Thank you, Daniel. We’re running out of time, is there any
question from the reporters in the room? Then I’m going to end with Yicai.
Go ahead.

QUESTIONER: Thank you. I had a question on the U.S. economy and inflation.
So, a softer landing, softish landing, or a hard landing, what is your base
scenario? And in fact, U.S. Treasury Secretary Janet Yellen had just
decided that persistently, low inflation, likely to return as a long-term
challenge for the U.S. So, could you help us to more understand this
current situation of inflation in the U.S.? Thank you.

MR. GOURINCHAS: Yes, I’ll be happy to answer that. So, in terms of —
there’s a lot of discussion as you can imagine about soft versus hard
landing, whether — or to rephrase this, will the U.S. economy have to go
through a recession, and how deep would that recession have to be in order
to bring inflation down? Our own projections is that there is a narrow path
that allows the U.S. economy to escape recession altogether, or if it has a
recession that recession would be relatively shallow. We are projecting,
for instance, in our latest analysis, we’re projecting unemployment rates
to increase in the U.S., they are currently at 3.5 percent, but they would
be expected to increase to around 5.2 percent by 2024. So, we are
projecting that there will be a slowdown in inflation, it will be coming
back to central bank targets. But this will be in the context of an
increase in unemployment from 3.5 to 5.2. Now, 5.2 is still a very low
unemployment rate by historical standards. So, going from 3.5 to 5.2 would
not be a severe recession in the U.S. by far. So, that’s what we’re seeing
in our baseline. There are risks around this baseline, there is a — as I
discussed in my opening remarks, there could be a need to tighten monetary
policy more if inflation is more persistent, maybe labor markets will
remain tight, and that will be required. Financial conditions could adjust
in a negative way, and that could push the U.S. economy into a steeper
slowdown. But this is not our baseline.

Now, let me come to the second part of your question on what we expect to
see once we’re past that inflation stabilization. And that’s a discussion
that is a very important discussion about where we expect real interest
rates to settle. Right now, of course, they’re rising. Right now, the —
the federal reserve is raising interest rates in order to cool down the
economy and try to keep it on this gliding path towards lower inflation
without precipitating a recession. But once this is over, you could
anticipate that somehow then there won’t be a need to keep tight monetary
policy, and then the question would raise, what is the new normal we’re
going to be in? And there’s a lot of discussion around that.

Some people think, and I think at the Fund, on average, the discussion is
still taking place, but we are of the view that this might be a reasonable
take, that the conditions that we had before the pandemic, the conditions
that we had before the war and the energy crisis, which were conditions
where real rates were low, and sometimes central bank were not able to, you
know, keep the economy stimulated, because they couldn’t push down interest
rates enough, are likely to reoccur again. Other people are saying that no,
we’re in a new environment in which inflation is going to be higher, more
persistently, there would be a need to have higher real interest rates more
persistently. There’s a lot of uncertainty about that. Our own assessment
is sort of probably more on the first path than the second path, so,
perhaps more in line with what Secretary Yellen outlined in her remarks.

MR. DE HARO: Thank you, Pierre Olivier. I said that it was going to be the
last question, but Anthony Rowley from South Morning China Post has been
patiently waiting on Webex, so I want to give him the last question of the
press conference. Anthony, if you can hear us?

QUESTIONER: Just wonder whether it’s not premature optimism in the IMF and
also on the (inaudible) Service. I mean ‑‑ the focus is very much on
inflation rates, more than on absolute price levels. Price levels of all
kinds of goods and services are a lot higher now, and going to go higher,
than they were before the pandemic, for instance. So that’s going to impact
consumption, and consumption is a very large component of GDP in many
economies, so are your forecasts not perhaps a little prematurely

MR. GOURINCHAS: Well, we certainly hope it is not, but let me address the
point you’re raising. It’s a very good point, of course. Inflation
moderating doesn’t mean that the price level is coming down, doesn’t mean
that the fixed ‑‑ things that have become more expensive are becoming
cheaper again. It’s just that it stabilizes at this higher price, so that’s
the essence of the cost-of-living crisis that households around the world
have been facing, whether we’re looking at energy or more broadly —
because now inflation is also in coal measures.

Now, there are two reasons why we think the economy is sort of adjusting to
that. The first one is that for a number of countries — this is especially
true for the U.S., but it’s not just for the U.S., but in advanced
economies, households are coming into this inflation energy cost of living
crisis with relatively health buffers, so what in the U.S., for instance,
there is a significant amount of excess savings that people have
accumulated thanks to the fiscal support and checks and by the
Administration during the pandemic and afterwards. In European economies, a
lot of fiscal support on the energy front that has shielded households from
facing the full increase in the price of energy, and other countries have
also had measures on the food side. This has protected household’s balance
sheet, and it means that they have a buffer with which they can absorb some
of these increasing prices. That’s the first layer.

The second layer is, of course, what we are seeing also is very robust
increase in nominal wages, so nominal wages have been increasing as a
result of — in part as a result of the increase in prices, so the worry
there is that if the increase in wages triggers a second round of
increasing prices, and then we get into what is called a wage-price spiral,
our own analysis, which we developed in one of the chapters in the World
Economic Outlook in October, is that this doesn’t seem historically to be
happening too often, especially when monetary policy remains well anchored,
when inflation expectations remain well anchored. You could have a catch-up
in nominal wages that offset the loss of real income, if you want, and if
it doesn’t trigger ongoing inflation, then that’s another way in which
households are going to recover some of the ground. So these two things
together lead us to some very, very moderate optimism. I don’t want to
exaggerate the optimism. It’s still going to be a challenging year.

MR. DE HARO: Thank you, Pierre-Olivier. Thank you, Daniel, and on behalf of
Pierre-Olivier, Daniel, and the Research Department of the IMF, I want to
thank you all for attending this press briefing. I want also to remind you
that we will be launching a full edition of the World Economic Outlook in
the Spring, and I hope that I hear back from all of you by then, and if you
have any additional questions, please feel free to send it to me to, and have a good rest of
your day. Thank you.

IMF Communications Department

PRESS OFFICER: Jose Luis de Haro

Phone: +1 202 623-7100Email:


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