Just a month ago, an army of economists believed the world would fall into a deep recession. COVID-19-driven declines in China’s gross domestic product would be partially to blame. The effects of the war in Ukraine on oil prices were another reason. Gasoline prices spiked to over $5 a gallon in the United States, undermining consumer spending. (They have started to rise again.) High-interest rates undermined consumer spending as well, both inside and outside the United States. The International Monetary Fund (IMF) quarreled with these theories today, or at least their conclusion. It has upgraded its view on global GDP growth rates. (Click here for 15 countries where government debt is larger than their economies.)
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IMF experts said that global GDP growth would only be 2.9% this year. That is the slowest rate since the Great Recession (aside from a quick drop and recovery at the start of the pandemic in early 2020). Next year, the IMF forecasts growth of 3.1%. That seems tepid. However, it called its new forecasts a slight increase from its last numbers.
The biggest risk is the forecast for China. The IMF says the world’s largest nation by population and second largest by GDP will have a GDP surge of 5.2%. One reason is that its COVID-19-slowed economy will rebound as the effects of the pandemic wane. However, China remains the world’s factory. If the rest of the world has economic expansion problems, export demand may continue to be soft. When India’s economic growth is added to China, it will be about half of the world’s GDP recovery.
The United States, still the largest economy in the world, will continue to struggle. GDP growth will drop to 1.4% this year and 1.0% in 2024. That means if America dodges a recession, it will do so by only the smallest of margins.
Will the world be better off financially? The IMF warns that the COVID-19 pandemic is not over in China and that property values there will continue to drop. If China does not recover, the drag on global economic expansion is in trouble.
Will the world be better off financially next year? Reading between the lines in the IMF report, the answer is no better than “maybe.”
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